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

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 26 27 28

40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile No.: (602) 262-5747 Telephone: (602) 262-5311 Richard A. Halloran, State Bar No. 013858 [email protected] Jon Weiss, State Bar No. 015350 [email protected] Candida M. Ruesga, State Bar No. 021305 [email protected] Attorneys for Defendants AEG Partners LLC and David Eaton

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Diane Mann, et al., Plaintiffs, vs. GTCR Golder Rauner, L.L.C., et al., Defendants. ) ) ) ) ) ) ) ) ) )

No. CIV 02-02099 PHX RCB AEG PARTNERS, L.L.C. AND DAVID EATON'S MOTION FOR SUMMARY JUDGMENT

The Court previously compelled arbitration of all of the Trustee's claims and many of the Individual Plaintiffs' claims against Defendants AEG Partners LLC and David L. Eaton (collectively "AEG") through its rulings on AEG's motion to compel arbitration (Docs. 71 & 87). The only remaining claims against AEG involve (1) accusations that AEG aided and abetted breaches of fiduciary duties arising out of an alleged joint venture that AEG knew nothing about; (2) allegations that AEG tortiously interfered with Plaintiffs' employment agreements with LeapSource, even though AEG had nothing to do with LeapSource's decisions to terminate the Plaintiffs' employment; and (3) derivative and general creditor claims, even though only LeapSource's bankruptcy Trustee has standing to pursue those claims and the Court has already ruled that the Trustee cannot maintain any claims against AEG in this forum. Discovery has shown that the Individual Plaintiffs cannot establish any of these claims against AEG. Consequently, AEG Partners and Eaton move for summary
Case 2:02-cv-02099-RCB Document 247 Filed 08/30/2005 Page 1 of 17
1665074.1

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 26 27 28

judgment pursuant to Rule 56(b), FED.R.CIV.P. This Motion is supported by the following Memorandum of Points and Authorities and accompanying Statement of Facts. MEMORANDUM OF POINTS AND AUTHORITIES I. FACTUAL AND PROCEDURAL BACKGROUND. A. MATERIAL FACTS. 1. The Parties

LeapSource was a business process outsourcing firm founded in September 1999 to provide finance and accounting services to other companies. (SOF ¶ 1.) LeapSource filed for bankruptcy in July 2001 and its Bankruptcy Trustee, Diane Mann, is one of the plaintiffs. (SOF ¶ 2.) The remaining plaintiffs (the "Individual Plaintiffs") are shareholders, and former officers, directors, and senior employees of LeapSource. (SOF ¶ 3.) AEG Partners is a company that provides financial advisory and management services to distressed companies experiencing severe financial and operational problems. (SOF ¶ 4.) David Eaton was a founder and Managing Director of AEG Partners. (SOF ¶ 5.) Significantly, AEG did not become involved with LeapSource until the end of February 2001, long after virtually all of the events alleged in the Complaint occurred. (SOF ¶ 18.) GTCR was LeapSource's majority stockholder and the source of LeapSource's funding. (SOF ¶ 6.) 2. LeapSource's Insolvency

LeapSource was never a successful business. By the end of 2000 ­ well before AEG was hired ­ LeapSource was experiencing losses of almost $ 3 million a month, and reported an annual loss for 2000 of more than $34 million. (SOF ¶ 9.) As a result of LeapSource's dismal performance, GTCR began expressing reservations to LeapSource as early as October 2000 about providing further funding. (SOF ¶ 8.) GTCR had agreed in September 1999 to provide LeapSource discretionary funding of up to $65 million. But of that amount, GTCR had committed to provide only up to $15 million for working
Case 2:02-cv-02099-RCB Document 247

2

Filed 08/30/2005

Page 2 of 17
1665074.1

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 26 27 28

capital and related start up expenses. (SOF ¶ 7.) By February 2001, LeapSource had burned through more than $15 million in working capital, and GTCR in turn had decided it was time to turn the spigot off. (SOF ¶ 10.) On February 27, 2001, GTCR formally notified LeapSource that GTCR would terminate funding. (SOF ¶¶ 13, 14.) Without further funding from GTCR, LeapSource was in trouble. Raising money through the stock market was not an option, especially given the stock market collapse that started in 2000. (SOF ¶ 25.) And, despite months of effort, LeapSource had been unable to find a buyer or an alternative source of funding for the company. (SOF ¶ 26.) Importantly, all of this happened before AEG was hired. 3. LeapSource's Engagement of AEG

On February 27, 2001, LeapSource's Board of Directors (including plaintiff Kirk) voted to retain AEG Partners as a crisis manager to help LeapSource deal with its financial straits. (SOF ¶ 18.) The engagement was memorialized in a written Financial Advisory Agreement, dated March 2, 2001, which provided that AEG Partners was retained for the purpose of developing and assessing restructuring alternatives to address LeapSource's financial crisis. (SOF ¶ 21.) Eaton was the primary AEG representative assigned to work on the LeapSource engagement. (SOF ¶ 21.) Before AEG came onto the scene, LeapSource was in severe financial crisis: LeapSource had already laid off a significant part of its workforce through a reduction in force (SOF ¶ 11); its Board of Directors had terminated Christine Kirk as CEO (SOF ¶¶ 17, 22); LeapSource did not have sufficient revenues to make its payroll (SOF ¶¶ 22, 23); and its few client relationships were deteriorating (SOF ¶ 22). In fact, the plaintiffs allege that LeapSource was already insolvent before AEG was retained. (SOF ¶ 24.) Faced with those dire economic circumstances, LeapSource's Board voted to retain AEG to serve as crisis manager and work with management to try to devise a restructuring plan that might somehow salvage the company. (SOF ¶¶ 18, 21.) After the Board voted to retain AEG, Eaton immediately traveled to Tempe and began working with LeapSource management to develop restructuring alternatives that
Case 2:02-cv-02099-RCB Document 247

3

Filed 08/30/2005

Page 3 of 17
1665074.1

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 26 27 28

would allow LeapSource to remain a going concern. (SOF ¶ 31.) Eaton and LeapSource management presented these alternatives to GTCR during the first week of March 2001, but the success of those alternatives depended upon additional funding. (SOF ¶ 32.) A few weeks later, GTCR reaffirmed its prior decision to terminate funding. (SOF ¶ 33.) As a result of GTCR's decision, LeapSource directed AEG to switch focus from trying to restructure the company to winding down the company's business. (SOF ¶ 34.) As part of this process, LeapSource, with AEG's assistance, entered into asset purchase and settlement agreements with its clients to insure orderly transitions of the clients' accounting operations back to them. (SOF ¶ 35.) LeapSource, again with AEG's assistance, also negotiated the sale of various assets to third parties. (SOF ¶ 36.) In May 2001, LeapSource's Board of Directors authorized the filing of a voluntary petition for Chapter 7 bankruptcy. (SOF ¶ 57.) LeapSource filed the bankruptcy petition on July 11, 2001. (SOF ¶ 58.) From the inception of AEG's retention on February 27, 2001, through the filing of LeapSource's bankruptcy, LeapSource was represented by outside legal counsel. Osborn Maledon advised LeapSource on a range of matters including corporate issues, employment issues, and bankruptcy issues. Jennings Strouss & Salmon advised LeapSource regarding whether grounds existed to consider the pre-AEG termination of Kirk as one for cause. (SOF ¶ 67.) B. PROCEDURAL BACKGROUND.

This Court previously issued several Orders relevant to AEG. First, the Court ruled that all claims asserted by plaintiff Diane Mann against AEG are subject to the mandatory arbitration clause in LeapSource's Financial Advisory Agreement with AEG. Order dated September 30, 2003 (doc. 71) at 8. The Court further held that the Individual Plaintiffs' claims could also be subject to the arbitration agreement because "claims based on breaches of duty owed to the corporation are derivative in nature, therefore, the individual shareholder lacks standing to sue in an individual capacity, and can proceed only in a derivative capacity." Id. at 9. Consequently, the Court ruled that the Individual
Case 2:02-cv-02099-RCB Document 247

4

Filed 08/30/2005

Page 4 of 17
1665074.1

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 26 27 28

Plaintiffs cannot assert claims against AEG in this action "to the extent [their] claims are derivative in nature." Id. The Court directed the parties to file supplemental briefing on the issue of which of the Individual Plaintiffs' claims were derivative versus individual in nature. Id. at 18. At the conclusion of this supplemental briefing, the Court held that several of the Individual Plaintiffs' claims were derivative and subject to mandatory arbitration. Order entered January 14, 2004 (doc. 87). With respect to the remaining claims, the Court indicated that, because of the lack of specificity in Plaintiffs' Complaint, it was impossible for the Court -- "or AEG or Eaton for that matter -- to determine factually which acts allegedly only harmed Plaintiffs individually, and those which harmed Plaintiffs indistinctly from the other shareholders." Id. at 5-6. The Court ordered the Individual Plaintiffs to submit to arbitration "any claims which are not completely independent of the corporation's rights," and stated that if the discovery process revealed that the Individual Plaintiffs failed to submit derivative claims to arbitration, the Court would grant a dispositive motion to dismiss those claims. Id. at 6. II. AEG IS ENTITLED TO SUMMARY JUDGMENT ON ALL REMAINING CLAIMS. The only claims remaining against AEG are Counts 12, 14, 18, 21, and a portion of Count 23. Despite massive discovery efforts, the Individual Plaintiffs have failed to establish a factual basis for these claims. Based on the undisputed material facts, AEG is entitled to summary judgment on each of the remaining claims. A. AEG IS ENTITLED TO JUDGMENT ON COUNTS 12 AND 14.

Counts 12 and 14 are based on an alleged joint venture between Individual Plaintiffs and GTCR. Count 12 alleges that AEG aided and abetted breaches of fiduciary duty owed to the joint venture, and Count 14 alleges that AEG tortiously interfered with the joint venture. As explained below, both of these claims require proof that AEG knew

Case 2:02-cv-02099-RCB

Document 247

5

Filed 08/30/2005

Page 5 of 17
1665074.1

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 26 27

of the supposed joint venture.1 That proof is lacking here because AEG never heard of any alleged joint venture between the plaintiffs and GTCR. (SOF ¶ 62.) Nor should they have. Plaintiffs never told AEG about any joint venture, and have no reason to believe that AEG knew about it. As Kirk testified during her deposition: Q. Do you have any basis to believe that Mr. Eaton knew about the joint venture? A. I am not aware of any. Q. Has anyone ever told you that Mr. Eaton knew about the joint venture? A. I don't believe so. Q. Do you have any reason to believe that any other representative of AEG Partners knew about the joint venture? A. I am not aware of any. (SOF ¶ 63.) The other plaintiffs testified similarly. (SOF ¶¶ 64-65.) AEG's lack of knowledge of the alleged joint venture is fatal to plaintiffs' claims. A claim for aiding and abetting requires proof of scienter. Wells Fargo Bank v. Az Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust, 38 P.3d 12, 23 (Ariz. 2002). The plaintiffs must prove that the defendant knew of the conduct it is alleged to have aided and abetted. Id. Likewise, a claim of tortious interference requires proof that the defendant knew of the contract that was allegedly interfered with. Id. at 31; Pasco Indus., Inc. v. Talco Recycling, Inc., 985 P.2d 535, 547 (Ariz. App. 1998). AEG knew nothing about a joint venture, and therefore cannot be liable for aiding and abetting a breach of any fiduciary duty arising from the joint venture or tortiously interfering with the joint venture. Consequently, AEG is entitled to summary judgment on Counts 12 and 14. B. AEG IS ENTITLED TO JUDGMENT ON COUNT 21.

In Count 21, the Individual Plaintiffs allege that AEG tortiously interfered with Plaintiffs' Senior Management Agreements and Employment Agreements by
1

28

The claims also require proof of the actual existence of the alleged joint venture ­ proof that is also lacking. Consequently, AEG and Eaton have joined in the GTCR Defendants' Motion For Summary Judgment on Joint Venture-Related Claims.
Case 2:02-cv-02099-RCB Document 247

6

Filed 08/30/2005

Page 6 of 17
1665074.1

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 26 27 28

"intentionally and improperly advis[ing], caus[ing], and direct[ing] LeapSource to breach its Senior Management Agreements and Employment Agreements with Individual Plaintiffs." LeapSource's alleged breaches were its termination of the Individual Plaintiffs' employment, its efforts to negotiate reductions in the Individual Plaintiffs' severance following termination of their employment, and LeapSource's Board of Director's decision that its termination of plaintiff Christine Kirk be deemed for "cause." AEG had nothing to do with LeapSource's decision to terminate any of the Individual Plaintiffs and did not act improperly in assisting LeapSource with negotiations relating to Individual Plaintiffs' severance. Similarly, LeapSource's Board's decision to classify Kirk's prior termination as one for cause was not related to any improper action by AEG and, in any event, did not result in any damage to Kirk. Accordingly, AEG is entitled to summary judgment on Count 21. 1. AEG Had Nothing to Do with LeapSource's Decision to Terminate the Individual Plaintiffs

A basic element of any tortious interference claim is "intentional interference inducing or causing a breach or termination of the relationship or expectancy." Wagenseller v. Scottsdale Mem'l Hosp., 710 P.2d 1025, 1041 (Ariz. 1985); see also Order dated September 30, 2003 (doc. 69) at 6-7 (discussing Wagenseller). The Individual Plaintiffs cannot establish their claim for intentional interference because AEG did not induce or cause LeapSource to terminate their employment. (SOF ¶¶ 20, 29.) LeapSource's Board of Directors terminated Chris Kirk as CEO on February 27, 2001. (SOF ¶ 17.) The termination occurred before AEG was hired. (SOF ¶ 18.) AEG did not have any input into the Board's decision. (SOF ¶ 20.) It did not advise the Board to terminate her, it did not cause the Board to terminate her, and it did not induce the Board to terminate her. (SOF ¶ 20.) AEG cannot be liable for terminating Kirk when it played no role in the decision.

Case 2:02-cv-02099-RCB

Document 247

7

Filed 08/30/2005

Page 7 of 17
1665074.1

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 26 27
2

Thomas Gilman resigned his position as interim CFO on February 27, 2001 before AEG was hired. (SOF ¶ 15.) AEG played no role in that resignation, and thus cannot be liable for interfering with Mr. Gilman's "employment" with LeapSource. (SOF ¶ 15.)2 LeapSource terminated the remaining Individual Plaintiffs (Hartmann, McCollum, Powers-Weekes, Gupta, Scott, and Walker) as a part of its second reduction in force, which occurred on March 2, 2001. (SOF ¶ 27.) AEG did not advise LeapSource to implement the second reduction in force, nor did it select the employees who were included in the reduction in force. (SOF ¶ 29.) Rather, LeapSource's CEO at the time, Michael Makings, made the decision to include the Individual Plaintiffs in the reduction in force. (SOF ¶ 28.) As with Kirk, AEG did not cause or induce the termination of any of the Individual Plaintiffs' employment, and thus is not liable to them for tortious interference. (SOF ¶ 29.) 2. AEG's Efforts to Negotiate Reductions in Severance Do Not Amount to Tortious Interference with Contract

The Individual Plaintiffs (other than Gilman) had either Employment Agreements (plaintiffs Gupta, Powers-Weekes, Scott and Walker) or Senior Management Agreements (plaintiffs Kirk, Hartmann and McCollum) that entitled them to severance payments if LeapSource terminated their employment without cause. (SOF ¶¶ 39-43.) LeapSource was to pay the severance, which varied from 6 to 12 months of pay, in equal installments on LeapSource's regular paydays during that 6 or 12 month time period. (SOF ¶ 43.) The Employment Agreements further provided that a condition of the employee's receipt of any severance was the employee's execution and delivery of "a legal release in a form and substance acceptable to [LeapSource], in which Employee releases [LeapSource] and its directors, officers, employees, and agents from any and all claims, including those claims relating to the Employee's employment with [LeapSource] and the termination thereof." (SOF ¶ 44.) Gilman was never an employee of LeapSource. Rather, he was employed by a separate company that had a contractual relationship with LeapSource. (SOF ¶ 16.) Consequently, Gilman lacks standing to pursue Count 21.
Case 2:02-cv-02099-RCB Document 247

28

8

Filed 08/30/2005

Page 8 of 17
1665074.1

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 26 27 28

Following LeapSource's second reduction in force, LeapSource's management asked AEG to assist in contacting laid off employees and attempting to negotiate releases and reductions in total severance in exchange for a lump sum severance payment ­ releases that were drafted by the law firm Osborn Maledon. (SOF ¶ 37.) As part of those efforts, Eaton attempted to contact several of the Individual Plaintiffs to negotiate a severance package. (SOF ¶ 37.) As Plaintiffs' admit, LeapSource was already insolvent. (SOF ¶ 24.) Consequently, LeapSource lacked the financial resources to pay Plaintiffs the severance amounts stated in their Employment Agreements. (SOF ¶ 38.) Eaton tried to ameliorate that situation by offering the Plaintiffs lump sum amounts that the company could afford. (SOF ¶ 37.) None of the Individual Plaintiffs accepted LeapSource's proposal, so their Employment Agreements remained in full force. (SOF ¶ 45.) Eaton did nothing thereafter that Plaintiffs allege interfered with their Employment Agreements. AEG's efforts to help LeapSource negotiate its severance obligations with the plaintiffs do not amount to tortious interference with contract. The plaintiffs rejected LeapSource's severance offers, so there was no interference. At most, AEG attempted to persuade plaintiffs to accept a settlement proposal. Persuasion, however, does not constitute tortious interference. RESTATEMENT (SECOND) TORTS § 770 cmt. d ("Persuasion is not wrongful."). Moreover, AEG did not act improperly. To establish their claim, the plaintiffs must prove that AEG's alleged interference was "improper" as to motive or means. Wagenseller, 710 P.2d at 1043; see also Fillmore v. Maricopa Water Processing Sys., Inc., 116 P.3d 613, 620 (Ariz. App. 2005) ("The most important element in a claim for tortious interference is the improper `motive or means' of the interference . . . ."). The Wagenseller Court explained: It is difficult to see anything defensible, in a free society, in a rule that would impose liability on one who honestly persuades another to alter a contractual relationship. We find nothing inherently wrongful in "interference" itself. If the interferer is to be held liable for committing a wrong, his liability must be based on more than the act of interference alone.
Case 2:02-cv-02099-RCB Document 247 Filed 08/30/2005 Page 9 of 17
1665074.1

9

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 26 27 28

710 P.2d at 1043 (citations omitted); see also Bar J Bar Cattle Co. v. Pace, 763 P.2d 545, 547 (Ariz. App. 1988) (discussing "improper" action requirement). There was nothing improper about AEG, as crisis manager for LeapSource, attempting to negotiate LeapSource's severance obligations. As the Restatement provides: One who, charged with responsibility for the welfare of a third person, intentionally causes that person not to perform a contract . . . with another, does not interfere improperly with the other's relation if the actor (a) does not employ wrongful means and (b) acts to protect the welfare of the third person. RESTATEMENT (SECOND) OF TORTS § 770. The protection of a corporation's economic welfare by an agent of the corporation falls squarely within this provision. Id. cmt. b; see also Collard v. Smith Newspapers, Inc., 915 F. Supp. 805, 817 (S.D. W. Va. 1996) (granting newspaper management company summary judgment on former managing editor's claim for tortious interference with employment contract where management company advised newspaper to terminate plaintiff; holding that management company did nothing more than fulfill its obligation to protect economic welfare of newspaper). Pursuant to the Financial Advisory Agreement between AEG and LeapSource, AEG acted to protect LeapSource's economic welfare by helping LeapSource stem its flow of cash and reduce its liabilities. (SOF ¶¶ 21, 30.) AEG's attempt to negotiate down LeapSource's severance obligations, at the behest of LeapSource's Board of Directors, was one of the ways AEG attempted to protect LeapSource's welfare. While the Individual Plaintiffs may not have wanted to renegotiate their severance packages, AEG's attempt to persuade them to do so does not constitute "wrongful means." RESTATEMENT (SECOND) TORTS § 770 cmt. d. AEG acted to serve LeapSource's financial interests. Under these circumstances, AEG's negotiation of LeapSource's severance obligations was not "improper" ­ it was exactly what LeapSource hired AEG to do. Finally, the damages the Individual Plaintiffs complain of are the nonpayment of their contractual severance. But, AEG had nothing to do with that. The plaintiffs were
Document 247

Case 2:02-cv-02099-RCB

10

Filed 08/30/2005

Page 10 of 17
1665074.1

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 26 27 28

owed severance by LeapSource, not AEG. The plaintiffs were not paid severance by LeapSource because LeapSource was insolvent. LeapSource's insolvency pre-dated LeapSource's retention of AEG. LeapSource's lack of funds to pay severance was not caused by AEG, but rather was the result of LeapSource's massive losses and GTCR's consequent termination of funding. Moreover, as discussed in Section II(C)(2) below, these alleged damages are merely general creditors' damages that only the Trustee could have standing to seek. 3. LeapSource's Termination of Kirk for Cause Was Not the Result of Improper Action By AEG, and Did Not Cause any Damage to Kirk

When LeapSource's Board terminated Kirk as CEO on February 27, 2001, it made no determination at that time whether the termination was with or without cause. (SOF ¶ 17.) In the weeks following Kirk's termination, Eaton and members of LeapSource's management learned that Kirk had been involved in several unauthorized and self-dealing loan transactions. (SOF ¶¶ 47-53.) This information was presented to legal counsel (Jennings Strouss & Salmon), who advised LeapSource that grounds existed to support a for cause termination, and who then prepared the termination letter about which Kirk now complains. (SOF ¶¶ 54, 56.) The grounds for Kirk's termination for cause are two-fold. First, Kirk had borrowed more than $600,000 from LeapSource that was to be repaid upon her receipt of capital distributions from her prior employer, Arthur Andersen. (SOF ¶¶ 47, 48.) Kirk agreed in her Senior Management Agreement that she would repay these loans "dollar for dollar" as she received payment from Andersen. (SOF ¶ 48.) In October 2000, Kirk received payments totaling $600,000 from Arthur Andersen, but failed to turn most of this money over to LeapSource as her Senior Management Agreement required. (SOF ¶¶ 49, 50.) Second, Kirk approved, then later forgave, loans from LeapSource to her friends and fellow LeapSource executives, Plaintiffs Hartmann and McCollum, without the authorization of LeapSource's Board of Directors. (SOF ¶¶ 51, 53.) Kirk was required
Document 247

Case 2:02-cv-02099-RCB

11

Filed 08/30/2005

Page 11 of 17
1665074.1

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 26 27 28

to obtain Board approval concerning decisions related to hiring, compensation, and equity arrangements of LeapSource senior management. (SOF ¶ 52.) Despite this, when Eaton looked into the loans to Hartmann and McCollum, he was advised that LeapSource's Board of Directors never authorized the loans themselves or Kirk's later forgiveness of the loans. (SOF ¶ 53.) In March 2001, LeapSource management presented this information to LeapSource's counsel at Jennings, Strouss and Salmon. (SOF ¶ 54.) Counsel advised that Kirk's conduct was more than sufficient to constitute "cause" for the termination of her employment. (SOF ¶ 54.) Eaton thereafter presented the information along with counsel's advice to LeapSource's Board of Directors, which in turn voted to deem its termination of Kirk to have been for cause. (SOF ¶ 55.) AEG's actions do not constitute tortious interference with contract. Eaton gathered information about Kirk's conduct as CEO, sought legal advice regarding that conduct, and then presented the information and legal advice to LeapSource's Board of Directors. Such actions are not tortious. As explained in the Restatement, "One who intentionally causes a third person not to perform a contract . . . does not interfere improperly . . . by giving the third person (a) truthful information, or (b) honest advice within the scope of a request for the advice." RESTATEMENT (SECOND) TORTS § 772; see also Cabanas v. Gloodt Assocs., 942 F. Supp. 1295, 1307 (E.D. Cal. 1996) (granting appraiser summary judgment on resort manager's claim for tortious interference with management contract where resort manager claimed that appraiser's critical report on manager's performance lead to negotiation of less favorable management contract; holding that appraiser merely provided honest advice concerning value of resort and resort manager's competence). Finally, there is no evidence that AEG's alleged "interference" resulted in any damage to Kirk. Wagenseller, 710 P.2d at 1041 (necessary element of tortious interference claim is "damage to the party whose relationship or expectancy has been disrupted"). Kirk claims damages for LeapSource's refusal to pay her severance as a
Document 247

Case 2:02-cv-02099-RCB

12

Filed 08/30/2005

Page 12 of 17
1665074.1

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 26 27

result of her termination. However, the Trustee long ago revoked the Board's for cause determination, and compensated Kirk for the full amount of the severance Kirk claims in this lawsuit. (SOF ¶ 59.)3 Thus, Kirk has been fully remunerated. Kirk also claims damage to her reputation, but she admitted during her deposition that she has never had to disclose that she was terminated for cause and has never been turned down for a job as a result of the for cause determination. (SOF ¶¶ 60, 61.) Simply put, Kirk has not been damaged by the for cause determination, and hence cannot establish her claim against AEG. Accordingly, AEG is entitled to summary judgment on Count 21. C. AEG IS ENTITLED TO JUDGMENT ON COUNT 18.

The Individual Plaintiffs allege in Count 18 that AEG aided and abetted the GTCR entities in breaching fiduciary duties owed to the Individual Plaintiffs. To succeed on this claim against AEG, plaintiffs must establish not only the elements of aiding and abetting, but also that the alleged breaches of fiduciary duty harmed them separately and distinctly from other shareholders. Order entered January 14, 2004 (doc. 87) at 5. Plaintiffs cannot make these showings. Most of the alleged breaches of fiduciary duties plaintiffs complain of occurred long before AEG was hired. (SOF ¶ 18.) Plaintiffs contend that GTCR breached its fiduciary duties by, among other things, (i) providing less than $65 million in funding to LeapSource; (ii) stopping funding before LeapSource turned a profit; and (iii) terminating the plaintiffs' employment. As explained above, AEG did not "substantially assist or encourage" those actions, and therefore AEG cannot be held liable for those actions. Wells Fargo, 38 P.3d at 23. The actions plaintiffs complain of after AEG was retained involve LeapSource's disposition of its assets, including its ICG division, LeapSource's bankruptcy filing, and LeapSource's failure to pay severance to the Individual Plaintiffs. Plaintiffs identify two
3

28

The Trustee required Kirk to pay the Estate some of the money Kirk had borrowed from LeapSource and wrongfully failed to repay, but allowed her to retain an amount of money equal to her claimed severance. (SOF ¶ 59.)
Document 247

Case 2:02-cv-02099-RCB

13

Filed 08/30/2005

Page 13 of 17
1665074.1

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 26 27 28

types of damages arising from these actions. First, they contend that AEG's conduct diminished the value of LeapSource, and consequently diminished the value of the Individual Plaintiffs' LeapSource stock. (SOF ¶ 66.) Second, they contend that AEG's conduct diminished the assets of LeapSource, thereby resulting in LeapSource's inability to pay them severance. (SOF ¶ 66.) Only the Trustee has standing to pursue these kinds of damages. 1. Diminution in Stock Value

The diminution in the value of the Individual Plaintiffs' stock is not independent of LeapSource's rights but is the exact same harm suffered by all of LeapSource's shareholders. What plaintiffs allege is that AEG's actions resulted in a decline in the over-all value of LeapSource, thereby lowering the value of the Individual Plaintiffs' stock. (SOF ¶ 66.) But, a decline in the value of LeapSource meant a decline in the value of every shareholders' stock. Hence, the harm plaintiffs allege is the same type of harm suffered by all shareholders. Thus, these kinds of damages are quintessentially derivative claims that the Court has already ruled must be dismissed. See Order entered January 14, 2004 (doc. 87) at 5-6 and cases cited therein; see also In re Folks (CBS, Inc. v. Folks), 211 B.R. 378, 384 (9th Cir. BAP 1997) (claim for breach of fiduciary duty enforceable by the corporation or a shareholder's derivative action before the bankruptcy petition is filed becomes property of the bankruptcy estate, and is vested in the trustee); In re All Am. of Ashburn, Inc., 805 F.2d 1515, 1518 (11th Cir. 1986) ("a suit for the recovery of the diminution of the value of the stock caused by the tortious acts of either an officer or director or third person belongs to the corporation"). 2. Non-Payment of Severance

The Individual Plaintiffs' claim for "damages" arising from their not receiving severance fares no better. The gist of their claim is that LeapSource owed them severance but did not pay them severance because it had no money, and AEG is somehow responsible. (SOF ¶ 66.) This contention is factually untenable because plaintiffs avow in their complaint that "[a]s of February 27, 2001 [the date AEG was
Document 247

Case 2:02-cv-02099-RCB

14

Filed 08/30/2005

Page 14 of 17
1665074.1

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 26 27 28

hired], and possibly earlier, and at all times thereafter, LeapSource was insolvent." (Fourth Amended Complaint ¶ 298). AEG had nothing to do with the insolvency, and the insolvency rendered LeapSource unable to meet its severance obligations. But even if the claim made sense, it cannot be pursued by the Individual Plaintiffs because their claim for unpaid severance is the kind of claim that belongs exclusively to the Trustee. Individual creditors do not have standing to seek redress for an injury that arises because the debtor was insolvent. In re Folks, 211 B.R. at 387-88. Only the Trustee can pursue such redress. "[T]he trustee is acting to benefit the debtor's estate, and is ultimately benefiting the estate's creditors upon distribution. This promotes equitable distribution and accords with the Bankruptcy Code's ultimate goal of balancing the equities and interests of all affected parties in the bankruptcy case." In re Folks, 211 B.R. at 386 (citation omitted); see also In re Schimmelpennick, 183 F.3d 347, 358 (5th Cir. 1999) (creditors are not permitted to file individual lawsuits that "constitute an `endrun,' skirting other creditors to reach the bankrupt estate"). The Individual Plaintiffs were owed severance by LeapSource, not AEG. They did not get paid severance because LeapSource lacked the wherewithal to pay them. (SOF ¶ 38.) Their alleged severance injury is no more than a complaint that they are creditors and they did not get paid. The Bankruptcy Code vests the Trustee with the sole authority to pursue the recovery of debts owed to the estate from which creditors are to be paid.4 11 U.S.C. § 541. Because the Individual Plaintiffs' quest for severance payments is nothing more than a creditors' claim, they do not have standing to pursue it in the present lawsuit. Thus, AEG is entitled to summary judgment on Count 18.

4

Indeed, Individual Plaintiffs Gilman, Hartman, Gupta, Powers-Weekes, Walker, and Scott filed claims in the Bankruptcy Court through which they seek severance/wages owed by LeapSource. (SOF ¶ 68.)
Document 247

Case 2:02-cv-02099-RCB

15

Filed 08/30/2005

Page 15 of 17
1665074.1

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 26 27
5

D.

AEG IS ENTITLED TO JUDGMENT ON COUNT 23.

The Individual Plaintiffs allege in Count 23 that AEG tortiously interfered with the Stockholders Agreement between LeapSource and the Individual Plaintiffs.5 Count 23 does not identify how AEG supposedly interfered with the Stockholders Agreement, nor have plaintiffs offered any evidence of conduct by AEG amounting to tortious interference with the Stockholders Agreement. Evidently, Plaintiffs contend that GTCR's termination of funding of LeapSource caused the value of their stock to decline. But, if that is their claim, AEG did nothing to induce or cause GTCR to end its funding, and therefore is not liable for tortious interference. Moreover, the damages Plaintiffs seek in Count 23 are derivative. Plaintiffs contend that AEG's conduct diminished the value of their LeapSource stock. (SOF ¶ 66.) As explained in the prior section, this claim is derivative because all the stockholders of LeapSource suffered diminished value of their stock. In re All American of Ashburn, 805 F.2d at 1518. The plaintiffs' alleged harm is not distinct from that of other shareholders, so only the Trustee has standing to pursue these kinds of damages. Order entered January 14, 2004 (doc. 87) at 5. Consequently, AEG is entitled to summary judgment on Count 23. III. CONCLUSION. AEG Partners and David Eaton respectfully request that the Court grant summary judgment in their favor and against the Individual Plaintiffs. DATED this 30th day of August, 2005. LEWIS AND ROCA LLP

By

s/Richard A. Halloran Richard A. Halloran Jon Weiss Candida M. Ruesga Attorneys for Defendants AEG Partners LLC and David Eaton The Court has already ruled that the portion of Count 23 (previously numbered as Count 31) alleging tortious interference with the Purchase Agreement is derivative and must be arbitrated. Order entered January 14, 2004 (doc. 87) at 7.
Document 247

28

Case 2:02-cv-02099-RCB

16

Filed 08/30/2005

Page 16 of 17
1665074.1

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 26 27 28
Case 2:02-cv-02099-RCB

CERTIFICATE OF SERVICE I hereby certify that on August 30, 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 Scot C. Stirling BEUS GILBERT PLLC 4800 North Scottsdale Road Scottsdale, Arizona 85251 Steven J. Brown STEVE BROWN & ASSOCIATES 1440 East Missouri, Ste. 185 Phoenix, Arizona 85014-2412 Attorneys for Plaintiffs Merrick B. Firestone Virginia L. Manolio RONANnd FIRESTONE PLC & 649 N. 2 Avenue Phoenix, Arizona 85003 Attorneys for Michael Makings James R. Condo Patricia Lee Refo Joseph Adams SNELL & WILMER LLP One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004-00001 Attorneys for Kirkland & Ellis Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP Renaissance One Two North Central Avenue Phoenix, Arizona 85004-2391 Kevin A. Russell David S. Foster Michael J. Faris Nicholas B. Gorga LATHAM & WATKINS Sears Tower, Suite 5800 Chicago, Illinois 60606 Attorneys for GTCR Golder Rauner, L.L.C., GTCR Fund VI LP, GTCR VI Executive Fund, L.P., GTCR Associates VI, Joseph Nolan, Bruce V. Rauner, Daniel Yih, Philip A. Canfield, and David Donnini

s/Sheri McAlister

Document 247

17

Filed 08/30/2005

Page 17 of 17
1665074.1