Free Reply to Response to Motion - District Court of Arizona - Arizona

1 Don P. Martin (AZ Bar No. 004232) 2 Edward A. Salanga (AZ Bar No. 020654) 3 ([email protected]) 4 5 6
QUARLES & BRADY STREICH LANG LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 (602) 229-5200 ([email protected])

7 Kevin A. Russell (admitted pro hac vice) 8 9 10 11

David S. Foster (admitted pro hac vice) Michael J. Faris (admitted pro hac vice) Nicholas B. Gorga (admitted pro hac vice) LATHAM & WATKINS LLP Sears Tower, Suite 5800 Chicago, Illinois 60606 (312) 876-7700

12 Attorneys for Defendants GTCR Golder
Rauner, LLC, GTCR Fund VI, LP, GTCR VI

13 Executive Fund, LP, GTCR Associates VI, 14 Yih, David A. Donnini and Philip A. 15 Canfield 16 17 18 19 20 21 22 23 24 25 26 Plaintiffs' damages strategy in this case is now exposed for what it is: litigation by vs.
Joseph P. Nolan, Bruce V. Rauner, Daniel

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Diane Mann, as Trustee for the Estate of LeapSource, Inc., et al., Plaintiffs, Case No.: CIV-02-2099-PHX-RCB

DEFENDANTS' REPLY IN SUPPORT OF THEIR MOTION TO BAR PLAINTIFFS FROM ASSERTING UNDISCLOSED DAMAGES CLAIMS

GTCR Golder Rauner, L.L.C., a Delaware limited liability company, et al., (Assigned to the Honorable Robert C. Broomfield) Defendants.

27 ambush. They have lain in the weeds throughout fact discovery, refusing to provide 28 required initial disclosures or respond to damages interrogatories because they

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1 supposedly needed expert analysis and testimony. In spite of all that, now that fact 2 discovery is over, they have designated themselves as damages experts, and argue that a 3 loophole in Rule 26 allows them to thereby avoid altogether providing any written 4 description of their opinions or the bases therefor. Plaintiffs are wrong. 5 Under well-established authority, plaintiffs cannot refuse to disclose the mandatory

6 Rule 26(a)(1)(C) damages computation and still present damages at trial. Nor can they 7 make an end-run around this requirement by calling themselves experts but insisting that 8 they need not produce any written expert reports. Plaintiffs have elected this course 9 deliberately and must bear the consequences. Plaintiffs should be barred from presenting 10 any damages theory other than for severance ­ the only damages computed in any of their 11 prior disclosures. 12 I. 13 The Undisputed Record
As shown by defendants' opening brief, plaintiffs have attempted at every turn to

14 avoid disclosing the computation of their claimed damages. The procedural background 15 of this motion is undisputed: 16 (a) Federal Rule of Civil Procedure 26(a)(1)(C) required plaintiffs to disclose a

17 computation of all damages they intended to seek at trial. Plaintiffs did not do so, 18 contending instead that their principal damages theory ­ which seeks the value of 19 plaintiffs' interests in the so-called Kirk-GTCR Joint Venture and in LeapSource ­ "will 20 require expert analysis and opinion testimony." 21 (b) Each plaintiff was also required to detail his or her damages in answer to

22 defendants' interrogatories. But they again refused to provide any information on their 23 principal damages claim ­ for lost business value ­ stating instead that they "expect[ed] 24 to use the opinion testimony of an expert witness."1 25 26 With respect to their severance claims, plaintiffs did provide a computation of 27 severance amounts claimed to be due. With respect to claims for lost salary and expenses, their interrogatory responses did provide some information about past and 28 expected future salaries, but still failed to provide a computation.
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(c) Only after fact discovery had closed did plaintiffs announce that they would

2 not retain a damages expert. At the same time, plaintiffs announced that all eight 3 individual plaintiffs would be designated "experts" but would not provide written expert 4 reports. 5 Plaintiffs concede these facts, but insist that they can assert whatever damages

6 theories they may have without ever disclosing them during discovery. They make three 7 arguments: (1) that their "disclosures" are sufficient, despite the admitted lack of any 8 computation of non-severance damages; (2) that no written disclosure of their "expert" 9 opinions is required; and (3) that they can cure whatever discovery violations they may 10 have committed by supplementing their initial disclosures at this late date. Plaintiffs are 11 mistaken on all counts. 12 II. 13 Plaintiffs' Disclosures Are Insufficient Rule 26(a)(1)(C) is crystal clear in its requirement that plaintiffs disclose a

14 "computation" of damages. In addition, it is well-established that exclusion of 15 insufficiently disclosed evidence is "`automatic and mandatory' unless the party can 16 show the violation is `either justified or harmless.'" Miksis v. Howard, 106 F.3d 754, 760 17 (7th Cir. 1997); see also Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 18 1106 (9th Cir. 2001). Plaintiffs bear the burden of establishing that their failure to 19 disclose was substantially justified or harmless. See Yeti, 259 F.3d at 1107; Hirpa v. IHC 20 Hospitals, Inc., 149 F. Supp. 2d 1289, 1295 (D. Utah 2001). 21 Plaintiffs have ignored their burden. They do not contend their failure to disclose

22 was either substantially justified or harmless. Instead, plaintiffs argue that they complied 23 with Rule 26 because the missing damages computations were "otherwise made known" 24 to defendants through "incidental discovery." See Pltf. Resp. at 3. The facts here show 25 precisely the contrary. 26 27 28
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A. The Alleged Lost Income Damages Are Undisclosed Plaintiffs first contend that each individual plaintiff's interrogatory answers

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1 satisfied his or her disclosure obligations with respect to salary, bonus and expense 2 damages. Plaintiffs quote at length from the interrogatory answer of Kelly Powers, as an 3 example of how much "detailed information" their purported disclosures contained. See 4 Pltf. Resp. at 5-6. But the Federal Rules do not call for "detailed information" on 5 damages ­ they call for a "computation." See Fed. R. Civ. P. 26(a)(1)(C). Plaintiffs' 6 own choice of Powers' disclosure demonstrates why: Without a computation, the kind of 7 "detailed information" supplied by plaintiffs is virtually worthless. 8 How does Powers calculate her lost earnings in her interrogatory responses? She

9 doesn't. What does Powers contend her lost earnings damages to be? There is no way to 10 tell. 11 Powers' lost income claim is as much a mystery after reviewing her interrogatory

12 responses as before. For example, the highest annual income Powers ever earned at 13 Arthur Andersen, LLP ("Andersen") was $110,000. See Ex. J at 12-13.2 Currently, 14 Powers earns $155,000 plus a bonus "as yet to be determined" and has received $88,536 15 in stock options. Indeed, with the exception of 2001 ­ when Powers claims to have been 16 unemployed from March to July ­ Powers outperformed her Andersen salary every year 17 after her departure from Andersen. Even taking into account the period of Powers' 18 unemployment, her total earnings for the five years after her departure from Andersen far 19 outstrip what she would have earned had she remained a Senior Manager at Andersen. 20 Nonetheless, Powers apparently may contend she suffered monetary damage

21 because she did not receive a promotion to Andersen "partner" in 2001 and a second 22 promotion to Andersen "equity partner" in 2004 (even though she acknowledges that 23 Andersen was not even in business in 2004). How much damage she will claim to have 24 suffered is impossible to tell, because nowhere does she describe her calculation. For 25 26 References to exhibits ("Ex. __") herein refer to Exhibits A through T to the 27 Declaration of Michael J. Faris attached to defendants' opening memorandum, or to Exhibits U through V to the Supplemental Declaration of Michael J. Faris attached 28 hereto.
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1 example, if she contends that she would have earned more beginning in 2001 as a result 2 of a promotion to partner, how long does she contend that level of earnings would have 3 lasted? Until 2002, when Andersen went out of business? Until 2004, when she claims 4 that she would have made equity partner in a non-existent Andersen? What about later 5 years? Is Powers claiming damages after 2004, and if so, how are those damages 6 calculated? Without the computation required by Rule 26, it is impossible to tell. 3 7 8 B. The Alleged Lost Business Value Damages Are Undisclosed Plaintiffs' "disclosure" of their lost business value damages is even less

9 enlightening. Plaintiffs admit that their Rule 26(a)(1)(C) disclosure and interrogatory 10 answers intentionally omit any computation or other description of their claimed lost 11 business value damages. Instead, plaintiffs contend they have provided documents and 12 deposition testimony "about all of these issues." Pltf. Resp. at 6. 13 Plaintiffs devote four pages of their brief to a list of such documents and testimony.

14 Plaintiffs list documents and testimony regarding the value of the ICG division of 15 LeapSource, the value of LeapSource before the first reduction in force in February 2001, 16 after the first reduction in force, and after the second reduction in force in March of 2001. 17 Plaintiffs' list actually proves defendants' point: it is utterly impossible to determine 18 from these sources what plaintiffs contend the lost business value of LeapSource to be. 19 Plaintiffs cite to the following documents and testimony "concerning" the · A March 6, 2001 Exult offer to purchase LeapSource for between $5 million and $15 million;
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20 "destroyed value of the LeapSource business enterprise:" 21 22 23 24 25 26 27 28 This problem is compounded still more by the responses of other individual plaintiffs. Bobby Scott, for example, gives projected Andersen salary figures through 2007, implying that Scott, at least, may be asserting lost salary damages into the future. See Ex. H at 12. Similarly, Kirk's interrogatory responses recited predictions of her Andersen salary through 2005. See Ex. K at 13-14. McCollum stated that she expected to make $1 million per year "for the year 2000 and beyond." See Ex. L at 12. How any of these plaintiffs purport to calculate their lost salaries into the future is an even greater mystery, given the impact of inflation, interest rates, and other factors, none of which are set forth in any of their interrogatory responses or other disclosures.
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· A handwritten note from March of 2001 reflecting a value of $40 million; · Testimony by plaintiff Kirk that EDS was negotiating to buy LeapSource for $50 million; · A January 22, 2001 presentation reflecting a value of $64 million; · Testimony by plaintiff Gilman that LeapSource was worth between $90 million and $120 million in February of 2001; · A William Blair analysis projecting values between $281.25 million and $393.75 million; · A Robertson Stephens analysis projecting values between $312.6 million and $373 million; and · A Salomon Smith Barney analysis projecting values between $440 million and $528 million.

13 See Pltf. Resp. at 6-10. 14 What do these "disclosures" tell us of the value of LeapSource? Virtually nothing.

15 All these sources say is that plaintiffs might contend the value of LeapSource to be 16 somewhere between $5 million and $528 million. Where in that range of over half a 17 billion dollars their damage claim might fall is yet another mystery. 18 Such documents and testimony tell us even less about plaintiffs' damages. First,

19 plaintiffs have never attempted to translate the value of LeapSource into an amount of 20 damages. To do so would require them to address, among other things, that defendant 21 GTCR owned the vast bulk of LeapSource (100% of the preferred stock and 22 approximately 70% of the common) and GTCR is thus entitled to share in any damages 23 recovery based on the business value of LeapSource. Second, even plaintiff Gilman ­ 24 now a purported expert on the value of LeapSource ­ repeatedly declined to testify to 25 "damages," and made clear that he could only testify to the "value of LeapSource ... at a 26 point in time." Gilman Dep. (Ex. V) at 94:3-97:11. Indeed, Gilman testified that he had 27 not attempted a damages calculation in the case, and was not aware of whether anyone 28
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1 had made such a calculation. Id. To this day, defendants do not know what plaintiffs' 2 claimed damages are, or who they claim has calculated them. Third, plaintiffs have 3 formulated their damages in this case as the loss in value of their interests in the Kirk4 GTCR Joint Venture and in LeapSource. Gilman's testimony regarding the value of 5 LeapSource says nothing about the value of the Kirk-GTCR Joint Venture ­ nor could it, 6 given that he admittedly did not even know about the joint venture claims in this case. 7 Gilman Dep. (Ex. V) at 10:7-11:6. 8 9 C. Plaintiffs' Misleading Advisory Committee Quote Is Unavailing Plaintiffs also suggest they were under no obligation to supplement their Rule

10 26(a)(1) damages disclosure based on a comment from the Rules Advisory Committee. 11 See Pltf. Resp. at 2. But the comment they rely upon is quoted in a seriously misleading 12 fashion. As presented by plaintiffs, the Advisory Committee supposedly stated as 13 follows: 14 15 There is, however, no obligation to provide supplemental or corrective information that has been otherwise made known to the parties in writing or during the discovery process...

16 Id. (emphasis in Pltf. Resp.). By their strategic cropping of the quote at this point, 17 plaintiffs omit the examples given by the Advisory Committee: 18 19 as when a witness not previously disclosed is identified during the taking of a deposition or when an expert during a deposition corrects information given in an earlier report.

20 Advisory Comm. Comment to 1993 Amendments to Rule 26(e) (emphasis added). 21 Unlike these examples of obvious corrections that need not be repeated in a supplemental 22 Rule 26(a)(1) disclosure, plaintiffs here have never provided defendants with a 23 computation of the damages they intend to seek at trial. 24 III. 25 Plaintiffs' "Expert" Disclosures Are Insufficient Plaintiffs next argue that they should not be required to produce any written

26 description of their "expert" opinions. This is a remarkable contention, coming as it does 27 after plaintiffs have spent 16 months insisting that they need not provide a Rule 28
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1 26(a)(1)(C) computation or interrogatory answers precisely because their damages claims 2 would be the subject of expert analysis. Now, however, plaintiffs assert: "as part owners 3 of the business, the Individual Plaintiffs are competent to testify about their own opinions 4 of the value of the business."4 Pltf. Resp. at 11. In sum, plaintiffs seek to whipsaw 5 defendants.5 6 Moreover, plaintiffs claim they can testify as damages experts without providing a

7 written expert report under Rule 26(a)(2)(B). They make this claim, notwithstanding 8 defendants' showing in their opening brief that the clear weight of authority requires Rule 9 26 expert reports where, as here, the non-retained expert's testimony is complex and goes 10 beyond mere opinions incidental to a witness's factual testimony. See, e.g., Day v. 11 Consolidated Rail Corp., 1996 WL 257654 (S.D.N.Y. May 15, 1996)(Ex. S). Plaintiffs 12 purport to distinguish this authority on the grounds that these cases should be restricted to 13 persons brought in to testify solely as experts. But the Day court's stated reasoning is not 14 so cramped. To the contrary, that court addressed the same contention plaintiffs offer 15 16 Defendants do not concede that any of the individual plaintiffs is "competent to 17 testify" about the value of LeapSource. Defendants' current motion is not, however, directed at their qualifications, which plaintiffs have not yet attempted to identify.. 18 5 Recent communications by plaintiffs' counsel suggest as much. After over a year 19 representing that their damages claim would be the subject of expert analysis, plaintiffs failed to serve a damages report on the July 15, 2005 due date. They did, however, 20 identify all 8 individual plaintiffs as potentially giving expert or opinion testimony. On July 19, 2005, counsel for defendant Kirkland & Ellis, Patricia Refo, contacted plaintiffs' counsel Scot Stirling and asked him to identify the subjects on which the 22 individual plaintiffs would provide expert or opinion testimony. See Refo Affidavit (Ex. U) at ¶¶1-3. Mr. Stirling identified a number of topics, but as Ms. Refo states, "never 23 said that Tom Gilman would offer testimony on the valuation issues relating to the value of LeapSource and the ICG part of the business." Ex. U at ¶¶ 4-5 (emphasis added). 24 On July 22, 2005, Ms. Refo sent Mr. Stirling a confirming letter to that effect. Mr. 25 Stirling never responded to Ms. Refo's letter. It was not until ten day later that plaintiffs' counsel announced at the Gilman deposition that Mr. Gilman would opine on the value of 26 LeapSource and ICG. Now, in response to defendants' motion, Mr. Stirling claims to have advised Ms. Refo of this fact all along. Tellingly, Gilman testified that the first time 27 he calculated the value of LeapSource or ICG was the week before his August 1-2 deposition, after Ms. Refo's letter to Mr. Stirling. This kind of cat and mouse game is 28 precisely what the initial disclosure provisions of Rule 26 are designed to prevent. 21
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1 here ­ that the only experts who must submit reports are non-employees specially 2 retained to give expert opinions and employees of a party who regularly testify as experts 3 ­ and expressly rejected it: 4 5 6 7 Id. at *2. 8 Moreover, plaintiffs' purported distinction of Day cannot explain away other cases The logic of defendant's position would be to create a category of expert trial witness for whom no written disclosure is required ­ a result plainly not contemplated by the drafters of the current version of the rules and not justified by any articulable policy.

9 that have required expert reports even where the witness will testify as both a fact and 10 expert witness. See, e.g., McCulloch v. Hartford Life and Accident Ins. Co., 223 F.R.D. 11 26, 28-29 (D.Conn. 2004) (even where witness is not solely testifying as an expert, he or 12 she may be required to produce an expert report if the opinion testimony will "provide 13 substantially more than a recital of facts about what they may have observed on the job" 14 and would "develop opinions specifically for trial, the basis of which the defendant is 15 entitled to be informed about"). Where, as here, the damages testimony plaintiffs offer 16 goes far beyond what the witness may have observed on the job and touches on opinions 17 specifically developed for the case at bar, an expert report is required. 18 Plaintiffs note that one case cited by defendants, Ordon v. Karpie, 223 F.R.D. 33,

19 35-36 (D.Conn. 2004), said that the court had "discretion" to order a report to be 20 produced. Plaintiffs conclude that "there is no authority for exercising such discretion 21 after the fact to preclude otherwise admissible opinion testimony by an individual 22 plaintiff from whom no such report is required by Rule 26." Pltf. Resp. at 15. What 23 plaintiffs fail to grasp is that their purported expert testimony is not otherwise admissible. 24 Plaintiffs failed throughout this case to provide the mandatory Rule 26(a)(1) damages 25 computation based on supposedly forthcoming expert analysis and opinion testimony. 26 When plaintiffs' expert reports came due, the mandatory damages computation was still 27 not provided. Given that choice by plaintiffs, their undisclosed damages claims are now 28
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1 simply inadmissible. 2 IV. 3 Plaintiffs Misconstrue The Nature Of Defendants' Motion In the last section of their response memorandum, plaintiffs suggest that

4 defendants' motion is based entirely upon the notion that the Court should order 5 sanctions for plaintiffs' discovery violations. Plaintiffs further suggest that the issue 6 could have been resolved altogether with a "meet and confer" among counsel "without 7 the necessity of court intervention." Pltf. Resp. at 15-16. This misses the point of 8 defendants' motion ­ a motion seeking to bar evidence or argument as to undisclosed 9 damages claims because plaintiffs have no damages case to present. 10 It is undoubtedly true that plaintiffs' conduct has been in clear violation of their

11 discovery obligations, and has had the effect of hiding critical information from 12 defendants throughout discovery. It is also true that defendants are entitled to sanctions 13 under Rule 37(c)(1). Indeed, defendants pointed out in their opening memorandum that 14 the case for sanctions against plaintiffs here is even more compelling than that presented 15 to the Ninth Circuit in Wong or Colombini ­ neither of which is addressed in any way by 16 plaintiffs' response. See Wong v. Regents of University of California, 379 F.3d 1097, 17 1105 (9th Cir. 2004) ("Disruption to the schedule of the court and other parties in that 18 matter is not harmless" under Rule 39(c)(1)) and Colombini v. Members of the Board of 19 Directors of the Empire College School of Law, 2001 WL 1006785 (N.D. Cal. August 17, 20 2001), aff'd 61 Fed. Appx. 387 (9th Cir. 2003) (Ex. R) (barring evidence of plaintiff's 21 damages claim and entering summary judgment of no damages on that basis). 22 The gravamen of defendants' motion is not, however, about resolving a discovery

23 dispute. It is, instead, a motion in limine premised on plaintiffs' failure ever to provide a 24 computation of any non-severance damages in this case. 25 V. 26 Conclusion To this day, plaintiffs have refused to provide the damages computation required

27 by Rule 26(a)(1). They have done so based on supposedly forthcoming expert analysis 28
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1 and testimony. Yet, now that both fact and plaintiffs' expert discovery periods are 2 closed, they are attempting ­ without providing any justification ­ to reverse course. 3 They cannot do so. If plaintiffs were not able to provide damages calculations 16 months 4 ago, they must not be able to now. If, on the other hand, plaintiffs were able to prove 5 damages calculations 16 months ago, why didn't they? Plaintiffs have not even 6 attempted to explain or justify their failure to do so. Their non-severance damages claims 7 should be barred.6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Defendants continue to request, in the event the Court declines to bar plaintiffs from asserting non-severance damages, that plaintiffs be required to disclose fully all "expert" 27 testimony they intend to present at trial. However, in light of plaintiffs' response, defendants submit that it is even more clear that the most appropriate remedy is to bar 28 non-severance damages altogether. 26
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1

I hereby certify that the content of the document is acceptable to all persons

2 required to sign. 3 Dated: August 25, 2005 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
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s/ Edward A. Salanga Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 (602) 229-5200 Kevin A. Russell David S. Foster Michael J. Faris Nicholas B. Gorga LATHAM & WATKINS LLP Sears Tower, Suite 5800 Chicago, Illinois 60606 (312) 876-7700 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

s/ Merrick B. Firestone Merrick B. Firestone RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, AZ 85260 Attorneys for defendant Michael Makings

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s/ Jon Weiss Richard A. Halloran Jon Weiss LEWIS & ROCA, LLP 40 North Central Phoenix, Arizona 85004-4429 Attorneys for defendants David Eaton and AEG Partners LLC

s/ James R. Condo James R. Condo Patricia L. Refo SNELL & WILMER LLP One Arizona Center 400 East Van Buren Phoenix, Arizona 85004 Attorneys for defendant Kirkland & Ellis

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CERTIFICATE OF SERVICE

I hereby certify that on August 25, 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 Stirling Steven Weinberger BEUS GILBERT PLLC 4800 North Scottsdale Road, Suite 6000 Scottsdale, Arizona 85251 Attorneys for Plaintiffs Steven J. Brown STEVE BROWN & ASSOCIATES LLC 1440 E. Missouri, Ste. 185 Phoenix, Arizona 85014-2412 Co-Counsel for Trustee James R. Condo Joseph G. Adams SNELL & WILMER LLP One Arizona Center 400 East Van Buren Phoenix, Arizona 85004 Attorneys for defendant Kirkland & Ellis Merrick B. Firestone RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Attorneys for defendant Michael Makings Richard A. Halloran LEWIS & ROCA, LLP 40 North Central Phoenix, Arizona 85004-4429 Attorneys for defendants David Eaton and AEG Partners LLC s/ Edward A. Salanga

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