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

1 Don P. Martin (AZ Bar No. 004232) [email protected] 2 Edward A. Salanga (AZ Bar No. 020654) 3 [email protected] QUARLES & BRADY STREICH LANG LLP 4 One Renaissance Square 5 Two North Central Avenue Phoenix, Arizona 85004-2391 6 (602) 229-5200 7 8 9 10 11 12 Kevin A. Russell (admitted pro hac vice) 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

13 Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund 14 VI, LP, GTCR VI Executive Fund, 15 LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel 16 Yih, David A. Donnini and Philip A. Canfield 17 18 19 20 21 22 23 24 25 26 27 28 vs. GTCR Golder Rauner, L.L.C., a Delaware limited liability company, et al., Defendants. Plaintiffs, GTCR DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON JOINT VENTURE-RELATED CLAIMS (Assigned to the Honorable Robert C. Broomfield) ORAL ARGUMENT REQUESTED Diane Mann, as Trustee for the Estate of LeapSource, Inc., et al., Case No.: CIV-02-2099-PHX-RCB UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

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3 BACKGROUND.............................................................................................................. 1 4 5 6 7 8 9 10 C. 11 1. 12 2. 13 3. 14 15 D. No Plaintiff Ever Told Anyone A Joint Venture Existed ................................................................. 10 GTCR Controlled The "Joint Venture".......................... 10 The "Joint Venture" Did Nothing...................................... 9 The Alleged Joint Venture In Action............................................ 9 I. II. Plaintiffs' Fourth Amended Complaint .................................................. 1 The Alleged Joint Venture As Revealed During Discovery................... 3 A. B. Creation Of The Alleged Joint Venture ....................................... 3 Terms Of The Alleged Joint Venture ........................................... 5 1. 2. Kirk's Version Of The Joint Venture................................ 5 Other Plaintiffs' Versions Of The Joint Venture................................................................................. 7

The Definitive Legal Agreements................................................ 11

16 ARGUMENT ................................................................................................................. 15 17 18 19 20 21 2. 22 23 24 B. 25 26 C. 27 28 Plaintiffs' Joint Venture Claims Violate the Parol Evidence Rule ............................................................................... 24 1. The Four Corners Rule Of Illinois Law .......................... 24
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III.

The Joint Venture Claims ­ Counts 11, 12, 14 and 15 ­ Are Unsupported Even By Plaintiffs Themselves and Are Barred By the Integrated Written Agreements.................................... 15 A. There Was No "Kirk-GTCR Joint Venture"............................. 15 1. The Parties Did Not Intend To Associate As Joint Venturers.................................................................. 16 The Parties Did Not Agree To An Equal Right Of Control ............................................................... 19 The Parties Did Not Agree To Share Profits And Losses ......................................................................... 21

3.

Any "Joint Venture" Terminated With The Creation Of LeapSource And The Execution Of A Definitive Legal Agreement......................................................... 22

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The Parties' Integrated Written Agreements Superseded All Previous Negotiations............................. 25

The Promissory Estoppel Claim ­ Count 16 ­ Is Simply A Re-Hash Of The Joint Venture Theory And Must Fail For The Same Reasons................................................................................... 27 The Written Agreements Cover The Same Subject Matter As The Claimed Promissory Estoppel ........................... 27 The Parol Evidence Rule And The Integration Clause Bar The Claimed Promissory Estoppel.......................... 29 Plaintiffs Cannot Establish Reasonable Reliance...................... 29 The Alleged Promises Were Part Of The Bargained-For Exchange Leading To The Parties' Definitive Agreement ................................................................... 30

The Purchase Agreement Claim ­ Count 22 ­ Fails Because It Relies On The "Joint Venture" To Assert Standing ................................................................................................... 32

CONCLUSION.............................................................................................................. 32 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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CASES

4 Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 885 (Ill. 1999)............ 24, 25, ............................................................................................................................ 27, 29 5 Arizona Public Service Co. v. Lab, 84 Ariz. 314, 317 (1958) ........................................ 15 6 Barille v. Sears Roebuck and Co., 682 N.E.2d 118 (Ill. App. 1997).............................. 24 7 Board of Trustees v. Wildermuth, 16 Ariz. App. 171, 172 (Ariz. App. 1972) ............... 31 8 Bock v. Computer Assocs. Int'l, 257 F.3d 700, 707 (7th Cir.2001)................................ 24 9 Brinson v. Linda Rose Joint Venture, 55 F.3d 1044, 1049 (9th Cir. 1995) ..................... 15 10 Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).................................................. 15 11 Chenay v. Chittenden, 115 Ariz. 32, 35 (1977).............................................................. 27 12 Edwards v. Hauff, 140 Ariz. 373, 375-6 (1984) ............................................................. 21 13 Eichengreen v. Rollins, Inc., 757 N.E.2d 952, 956 (Ill. App. 2001) .............................. 24 14 Estate of Hernandez v. Flavio, 187 Ariz. 506, 508-09 (1997) ..................... 15, 16, 18, 21 15 Estrella v. Suarez, 60 Ariz. 187, 195 (1943) .................................................................. 21 16 Helfenbein v. Barae Investment Co., 19 Ariz. App. 436, 439 (1973)............................. 16 17 In re Levy, 1981 U.S. Dist. Lexis 11112 *3 (D. Ariz. Mar. 16, 1981) ........................... 32 18 Jackson v. East Bay Hospital, 246 F.3d 1248, 1261 (9th Cir. 2001)............................... 16 19 Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994) ....................... 15 20 Krautsack v. Anderson, 768 N.E.2d 133, 146 (Ill. App. 2002) ...................................... 24 21 Magnus v. Lutheran General Health Care System, 601 N.E.2d 907 (Ill. App. 1992) ................................................................................................................ 25 22 23 Maloy v. Taylor, 86 Ariz. 356, 359 (1959).................................................................... 19 24 Marmis v. Solot Co., 117 Ariz. 499, 503-4 (1978) ......................................................... 22 25 Orient v. Pauling, 936 F. Supp. 704, 706 (D. Ariz. 1996) ............................................. 32 26 Rosenblum v. Travelbyus.com, Ltd., 299 F.3d 657, 665 (7th Cir.2002)......................... 24 27 Sanders v. Boelke, 172 A.2d 1014, 1015 (N.Y. App. Div. 1991)................................... 23 28 School Dist. No. 69 of Maricopa County v. Altherr, 10 Ariz. App. 333, 340
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(Ariz. App. 1969)...................................................................................................... 29

4 Schuster v. Largman, 162 A. 305, 305-06 (Pa. 1932) .................................................... 22 5 SutterthHome Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 408-09 (9 Cir. 1992)............................................................................................................ 27 6 Tepfer v. Deerfield Savings and Loan Ass'n, 454 N.E.2d 676, 679 (Ill. App. 1983) ......................................................................................................................... 25 7 8 Walker v. KFC Corp., 728 F.2d 1215 (9th Cir. 1984)............................................... 30, 31 9 West v. Soto, 85 Ariz. 255, 262 (1959)........................................................................... 19 10 WMW Machinery, Inc. v. Werkzeugmaschinenhandle GMBH, 960 F. Supp. 734 (S.D.N.Y. 1997)................................................................................................. 23 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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GTCR DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON JOINT VENTURE-RELATED CLAIMS Pursuant to Rule 56, Fed. R. Civ. P., the undersigned defendants (the "GTCR

4 defendants") hereby move for summary judgment on plaintiffs' joint venture-related 5 claims in the Fourth Amended Complaint ("Fourth Am. Cplt."), specifically: 6 -- Counts 11, 12, 14 and 15, which claim breach of contract, tortious interference

7 with contract, and fiduciary duty violations relating to the "Kirk-GTCR Joint Venture" 8 agreement. These counts fail because (1) the parties never formed a joint venture, and (2) 9 the pre-contract "promises" underlying these claims were nothing more than negotiations, 10 which were expressly superseded by the parties' integrated written agreements. 11 -- Count 16, which claims promissory estoppel based on the same alleged

12 promises underlying the Kirk-GTCR Joint Venture. This count fails because plaintiffs 13 cannot evade the integrated written agreements defining the parties' relationship. 14 -- Count 22, which claims that the individual plaintiffs have standing to assert

15 breach of the Purchase Agreement based solely on their membership in the joint venture. 16 This count fails along with its essential predicate: the supposed joint venture. 17 Summary judgment in favor of the GTCR defendants on each of these counts is

18 appropriate for all the reasons set forth in the following memorandum. 19 20 21 I. 22 MEMORANDUM OF POINTS AND AUTHORITIES BACKGROUND Plaintiffs' Fourth Amended Complaint According to the complaint, plaintiff Kirk and GTCR1 entered into the so-called

23 "Kirk-GTCR Joint Venture" on August 30, 1999, when Kirk notified GTCR she would 24 leave Arthur Andersen, LLP ("Andersen") and join with GTCR to build a Business 25 Process Outsourcing ("BPO") firm in Phoenix, Arizona. See Fourth Am. Cplt. ¶¶ 14626 27 28
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For purposes of this motion, "GTCR" will be used to refer jointly to defendant GTCR Golder Rauner LLC and the various related individuals and investment funds named as defendants in this case.
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147. Subsequently, the other individual plaintiffs (except Gilman) allegedly joined the Kirk-GTCR Joint Venture when each of them also decided to leave Andersen and join the new BPO firm. See Fourth Am. Cplt. ¶¶ 148, 152. The claimed objectives of the Kirk-GTCR Joint Venture were: (1) to create a substantial and profitable BPO firm to provide financial, accounting, and other business process services to clients in the markets identified and described in the Business Plan, (2) to grow the business of the new BPO firm through acquisitions, alliances, and operations, as contemplated in the Business Plan, and (3) to take the new BPO firm public at an opportune time. Fourth Am. Cplt. ¶ 149. To meet these objectives, the members of the Kirk-GTCR Joint Venture allegedly created a corporation that came to be known as LeapSource2 "as an instrumentality of the Kirk-GTCR Joint Venture, to provide outsourcing services for the joint venture's clients." Fourth Am. Cplt. ¶ 171. After incorporating LeapSource, the parties entered into "five major agreements in order to implement GTCR's $65 million funding commitment to the Kirk-GTCR Joint Venture, and to launch the operations of the Company under Kirk as CEO." Fourth Am. Cplt. ¶ 175. Those five agreements ­ the Purchase Agreement, Stockholders Agreement, Kirk Senior Management Agreement, Registration Agreement and Professional Services Agreement ­ were executed on September 27, 1999, in conjunction with GTCR's initial capital contributions to LeapSource. Id. Plaintiffs allege that the Kirk-GTCR Joint Venture continued to exist concurrently with but separate from LeapSource: At the time Kirk incorporated LeapSource, and at all times thereafter, GTCR and Kirk, McCollum, Hartmann, Powers, Scott, Walker, and Gupta intended that the Kirk-GTCR Joint Venture relationship 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

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The corporation was named Kirkco, Inc. ("Kirkco") when initially incorporated on September 16, 1999. Its name was subsequently changed, first to Leap, Inc. and then to LeapSource, Inc. See Certif. of Incorp. and Amendments (Ex. 5), SOF ¶ 13.
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implementing the new business venture through a corporate entity. Fourth Am. Cplt. ¶ 173. II. The Alleged Joint Venture As Revealed During Discovery A. Creation Of The Alleged Joint Venture

Kirk testified that she began to discuss forming a BPO firm outside of Andersen in the fall of 1998. Kirk Dep. (Ex 18) at 43:4-48:13, SOF ¶ 1.3 After an initial meeting with GTCR's Nolan in October of 1998, Kirk began assembling a group of fellow Andersen employees interested in starting such a BPO firm. Kirk Dep. (Ex. 18) at 77:1980:5, SOF ¶ 2. By April of 1999, the group consisted of Kirk and three other Andersen colleagues, calling themselves "The Freedom Group." Kirk Dep. (Ex. 18) at 80:6-84:6, SOF ¶ 3. On May 14, 1999, after a meeting in Chicago, Nolan sent Kirk a letter outlining GTCR's preliminary proposal to form and fund a corporation ("Newco"): Once we understand the capital requirements ... we can provide you with a detailed term sheet regarding our proposed economic arrangement with you. In general, we are willing to commit equity capital to Newco to fund initial overhead expenses for some period, 12-18 months, with a corresponding commitment to fund outsourcing contracts once they are sold. Our capital will come into Newco primarily as preferred equity. The common stock of Newco will initially be split between GTCR and your team. Your common equity ownership will not be diluted from capital coming in from GTCR. 5/14/99 Letter (Ex. 1) at 1, SOF ¶ 4. Nolan asked Kirk to send a "brief business plan" outlining the group's "business strategy and the amount of equity capital you would reasonably require for start up expenses and the funding of contracts," including a "rough

References to the Statement Of Uncontested Facts In Support Of GTCR Defendants' Motion For Summary Judgment On Joint Venture-Related Claims ("SOF"), submitted herewith, take the form "SOF ¶ __." References herein to documents and deposition testimony are to exhibits to the Declaration of Michael J. Faris attached to the SOF, and take the form "Ex. __."
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estimate of the working capital required." Id. The letter nowhere mentions a "joint venture." Id. During the summer of 1999, Kirk asked other Andersen colleagues to join The Freedom Group, including plaintiffs Hartmann and McCollum. Kirk Dep. (Ex. 18) at 91:5-92:1, SOF ¶ 5. The group drafted a business plan entitled Freedom Group Business Case Summary Presented To Potential Investors dated August 1999 (the "Business Plan"). See Business Plan (Ex. 2); Kirk Dep. (Ex. 18) at 102:19-104:15, SOF ¶ 6. It stated that "Freedom is a strategic business process outsourcing (BPO) firm uniquely positioned in the market place both in experience and business model." Business Plan (Ex. 2) at 3. It projected Freedom's capital requirements to be $10 million in the first year and "minimal" amounts in the second. Id. at 11. The Business Plan nowhere mentions a "joint venture." On August 18, 1999, GTCR sent Kirk a Summary Of Understanding ("SOU") stating the terms on which GTCR would be willing to provide funding to Newco. See Kirk Dep. (Ex. 18) at 147:12-20, SOF ¶ 7. Under this draft SOU, GTCR proposed to provide: up to $65 million of equity capital in Newco. Up to $15 million of the equity capital will be used to support the company's initial capital requirements related to starting the business. In addition, up to $50 million of capital will be used to fund Board-approved acquisitions and contract acquisition costs, with appropriate debt to be arranged on an ongoing basis. 8/18/99 SOU (Ex. 3) at 2. The draft SOU stated that the parties would enter into an "investment agreement" consistent with the SOU and containing "customary private equity terms." The SOU's final paragraph was italicized for emphasis: This agreement is not binding until the execution of a definitive legal agreement and completion of due diligence. GTCR and Management will hold terms in confidence. Id. at 3 (emphasis in original). No one signed the draft SOU, which nowhere mentions a "joint venture." See id.
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After considering another venture capital proposal from Bank of America, The Freedom Group resolved on August 30, 1999 to pursue further negotiations with GTCR. Kirk Dep. (Ex. 18) at 145:7-147:11, 160:11-165:10, SOF ¶ 8. Plaintiffs cite this decision as the beginning of the Kirk-GTCR Joint Venture. Kirk Dep. (Ex. 18) at 165:1-18, SOF ¶ 8. B. Terms Of The Alleged Joint Venture

In their first set of interrogatories, the GTCR defendants asked plaintiffs to set forth in detail all the terms of the alleged Kirk-GTCR Joint Venture agreement. In addition, each of the individual plaintiffs was questioned at length during depositions regarding the alleged joint venture. Plaintiffs' answers varied widely, contradicting each other and the complaint allegations in numerous respects. 1. Kirk's Version Of The Joint Venture

Kirk described the alleged joint venture terms in detail at her deposition. She testified that those terms are set forth in the final version of the SOU dated September 14, 1999 (Ex. 4),4 supplemented by GTCR's oral promise to be her "partner for life." Kirk Dep. (Ex. 18) at 258:16-259:1, SOF ¶ 10. Notably, while the final SOU addresses NewCo's funding and management as well as Kirk's employment by the corporation, it makes no reference to a joint venture. Funding. The first substantive section (Section II) of the SOU outlined GTCR's proposed funding of the new corporation. It said: GTCR will commit to invest up to $65.0 million of equity capital in NewCo. $15 million of the equity capital will be intended to support the company's initial capital requirements related to starting the business, and up to $50 million of

Kirk and her attorney, Jeff Schumacher of Sachnoff & Weaver, negotiated with GTCR regarding the terms of the SOU during the first half of September. After the parties exchanged numerous drafts and made many changes, Nolan executed the final version dated September 14, 1999, and transmitted it to Kirk the following day. 9/14/99 SOU (Ex. 4); see Kirk Dep. (Ex. 18) at 166:6-179:11, SOF ¶ 9. Kirk signed the document on September 19, 1999. Kirk Dep. (Ex. 18) at 256:11-257:4, 244:9-19; see also id. at 243:15-25.
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capital will be used to fund Company acquisitions and contract acquisition costs, both as approved by the Board. 9/14/99 SOU (Ex. 4) at 1 (emphasis added). This section also addressed stock ownership structure, stock dilution and stock redemption in the event of an initial public offering. See id. Management. Section III of the SOU related to management and ownership of the corporation to be formed. It provided that NewCo would be governed by a Board of Directors that would be controlled by GTCR: The Board of Directors of NewCo will consist of Bruce V. Rauner, Joseph P. Nolan, David Donnini, Christine Kirk, one other member of Management TBD, and two or three outside directors to be mutually agreed upon. GTCR will have the right to control the Board. Id. (emphasis added). It also provided for Kirk to receive 9 percent of NewCo's common stock at closing, with additional shares reserved for future members of management. See id. On a fully diluted basis, management was to own 30% of the common stock, with GTCR owning the other 70%. Id. Employment. Section IV of the SOU described Kirk's responsibilities and compensation as NewCo's CEO: Kirk will be the Chief Executive Officer of NewCo. The CEO's initial compensation will consist of a base salary of $400,000 per year. Kirk will also receive an initial 2 year employment contract from NewCo. The employment contract will also contain appropriate noncompete provisions. The CEO will be eligible for an annual bonus of up to 50% of base salary, based on the attainment of financial and operating objectives to be approved by the Board, such as revenue growth or positive EBITDA. As CEO, Kirk will be responsible for all aspects of the daily operation of the business, the completion and integration of acquisitions, and the pricing and structuring of outsourcing contracts.

24 Id. at 4 (emphasis added). Section IV(B), (C) and (D) provided for Kirk to receive non25 recourse loans or other payments from NewCo in the event that she failed to receive 26 certain payments from Andersen following her departure. See id. at 2-3. The SOU did 27 not provide for any similar loans or payments to any other member of management. 28
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Further Negotiations. Immediately above Kirk's signature, the SOU made clear that the parties were still to complete due diligence and negotiate a definitive legal agreement: This agreement is not binding until the execution of a definitive legal agreement and completion of due diligence (including reference checks). GTCR and management will hold terms in confidence.

7 Id. at 4 (italics in original, boldface added). 8 9 2. Other Plaintiffs' Versions Of The Joint Venture

The other plaintiffs were also deposed regarding the alleged joint venture. None of

10 them was able to describe in any detail the purported joint venture terms. To the 11 contrary, the other plaintiffs did not seem to know much of anything about the joint 12 venture they had allegedly joined. 13 Indu Gupta, who was the first individual plaintiff to give deposition testimony,

14 denied that a Kirk-GTCR joint venture ever existed: Q. Did you understand that there was a Kirk-GTCR joint 15 venture that was separate and distinct from LeapSource, Inc.? 16 A. I did not understand that. 17 18 Gupta Dep. (Ex. 19) at 118:16-19, SOF ¶ 30. Gupta testified that she had no knowledge 19 regarding any joint venture that was intended to endure throughout the life of 20 LeapSource. Gupta Dep. (Ex. 19) at 122:17-123:4. Gupta flatly denied ever having 21 formed any such joint venture: Q. You did not separately form some joint venture with 22 GTCR, did you? 23 A. I did not. 24 25 26 27 28
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Gupta Dep. (Ex. 19) at 124:25-125:2, SOF ¶ 30. Gupta also denied that GTCR made any financial commitment to such a joint venture. Gupta Dep. (Ex. 19) at 119:10-12. Powers testified that, as far as she was concerned, the joint venture and LeapSource were one and the same. See Powers Dep. (Ex. 20) at 125:13-126:2 ("In my view . . . the

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joint venture was LeapSource"). When asked to identify joint venture terms, Powers testified that they were the same terms found in the Purchase Agreement, her LeapSource Employment Agreement, the Stockholders Agreement and "potentially other oral commitments" that she could not recall. Powers Dep. (Ex. 20) at 125:23-127:1. Scott and Walker were completely uninformed. The only joint venture term that Scott could identify was that the management team would have to leave Andersen in order to receive funding from GTCR. Scott Dep. (Ex. 21) at 88:25-90:3. When asked whether the joint venture that he joined had continued to exist after LeapSource was formed, Scott answered: "I was not privy to that information. I don't know." Scott Dep. (Ex. 21) at 91:21-92:1. When asked the financial terms of the joint venture, Scott could not identify any terms other than "65 million," and when asked whether GTCR had made a financial commitment to the joint venture separate from its commitment to LeapSource, he again said he was not "privy" to that information. Scott Dep. (Ex. 21) at 162:21163:9. Walker was able to provide only the "general terms" of the joint venture ­ i.e., that GTCR would provide funding and support to LeapSource for "two years." Walker Dep. (Ex. 22) at 242:20-243:12. When asked whether she remained a member of the joint venture after LeapSource was incorporated and she was employed there, Walker answered "I am not sure." Walker Dep. (Ex. 22) at 29:10-12. Hartmann and McCollum were the only members of the alleged joint venture other than Kirk who communicated directly with any GTCR representative prior to August 30, 1999. SOF ¶ 11. Hartmann was present at a meeting with Nolan in early August at the Dallas-Fort Worth airport, where Nolan allegedly told her that GTCR would "make me [Hartmann] whole" on any amounts relating to her departure from Andersen. Hartmann Dep. (Ex. 23) at 55:12-56:19. Hartmann denied that the alleged joint venture agreement created an "entity" of any kind, describing it instead as "a set of promises and commitments that we shook a hand on." Hartmann Dep. (Ex. 23) at 287:25-290:2.
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McCollum testified that the SOU contained most of the terms of the alleged KirkGTCR Joint Venture agreement. McCollum Dep. (Ex. 24) at 195:19-196:2. She added that the alleged joint venture agreement also: (1) provided for her to be compensated for the amount of any earned but unpaid year-end bonus that she expected from Andersen; (2) established her "compensation level" and severance at LeapSource; (3) governed the potential settlement of litigation with Anderson, and (4) contained GTCR's agreement to fund LeapSource for two years. McCollum Dep. (Ex. 24) at 196:10-197:5.5 C. The Alleged Joint Venture In Action

Plaintiffs were in complete agreement about three things: (1) after the formation of LeapSource, Inc., the alleged Kirk-GTCR Joint Venture did nothing; (2) if there were a Kirk-GTCR Joint Venture, it was under the complete control of GTCR; and (3) prior to the filing of this lawsuit, plaintiffs did not tell anyone that a joint venture existed. 1. The "Joint Venture" Did Nothing

Each of the plaintiffs acknowledged that the alleged Kirk-GTCR Joint Venture conducted no activities. SOF ¶ 14. Kirk admitted that after the creation of LeapSource, the Kirk-GTCR Joint Venture did nothing. Kirk Dep. (Ex. 18) at 250:23-251:4 . When Walker was asked what the joint venture did after the incorporation of LeapSource, she said "I don't know." Walker Dep. (Ex. 22) at 29:6-9. McCollum struggled with the same question, ultimately agreeing with Kirk that the joint venture did nothing. McCollum Dep. (Ex. 24) at 123:17-124:5. In addition, plaintiffs testified that the alleged Kirk-GTCR Joint Venture:

25 26 27 28

In addition to their depositions, plaintiffs were asked in interrogatories to identify the terms of the alleged joint venture. Kirk's interrogatory answers set out a list of 18 claimed joint venture terms. While the terms set forth in Kirk's interrogatories are not always consistent with her deposition testimony, the interrogatory responses covered the same topics addressed in the SOU and in the Kirk, Hartmann and McCollum depositions: funding (Terms 1 - 5), management (Terms 6 - 10), and employment (Terms 11 - 18). See Kirk Interrog. Resp. (Ex. 28) at 2-6, SOF ¶ 12.
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· had no revenues, profits or losses (McCollum Dep. (Ex. 24) at 124:12-15; Gupta Dep. (Ex. 19) at 122:4-10), SOF ¶ 15; · had no clients (Kirk Dep. (Ex. 18) at 249:17-18; Gupta Dep. (Ex. 19) at 121:3-22; Scott Dep. (Ex. 21) at 94:14-25), SOF ¶ 16; · owned no assets (Kirk Dep. (Ex. 18) at 250:21-22), SOF ¶ 17; · had no books and records (Kirk Dep. (Ex. 18) at 247:21-24; McCollum Dep. (Ex. 24) at 124:12-13), SOF ¶ 18; · had no bank account (Kirk Dep. (Ex. 18) at 247:25-248:1), SOF ¶ 19; · had no office (Walker Dep. (Ex. 22) at 49:24-50:3; Scott Dep. (Ex. 21) at 94:3-5; McCollum Dep. (Ex. 24) at 124:6-9), SOF ¶ 20; · had no phone number (Scott Dep. (Ex. 21) at 94:6-8), SOF ¶ 21; · had no website (Scott Dep. (Ex. 21) at 94:9-10), SOF ¶ 22; and · issued no W-2s or 1099s (Scott Dep. (Ex. 21) at 97:13-15), SOF ¶ 23. 2. GTCR Controlled The "Joint Venture"

Kirk and other plaintiffs testified that the Kirk-GTCR Joint Venture was controlled entirely by GTCR. Kirk Dep. (Ex. 18) at 252:25-253:2; McCollum Dep. (Ex. 24) at 128:10-12; Gupta Dep. (Ex. 19) at 122:11-16; Hartmann Dep. (Ex. 23) at 300:1820, SOF ¶ 24. 3. No Plaintiff Ever Told Anyone A Joint Venture Existed

Plaintiffs never told GTCR that they were entering into a joint venture. No plaintiff could identify an occasion when GTCR was asked or agreed to join a joint venture. Indeed, none could identify a time when any of them told anyone that a joint venture existed. See, e.g., Kirk Dep. (Ex. 18) at 244:24-245:8; McCollum Dep. (Ex. 24) at 114:2-10 (did not tell GTCR of any joint venture); McCollum Dep. (Ex. 24) at 128:7-9 (did not even tell her husband a joint venture had been formed); Walker Dep. (Ex. 22) at 33:9-11 (founders did not refer to themselves as being part of a joint venture); Powers Dep. (Ex. 20) at 123:8-23 (no one ever used the term "joint venture" in her presence prior
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to her termination from LeapSource); Scott Dep. (Ex. 21) at 87:2-4 (could not recall anyone ever using the term "joint venture"); Hartmann Dep. (Ex. 23) at 287:25-294:1 (could not identify any conversation or document in which "joint venture" was used), SOF ¶ 25. Other than the complaint in this action, McCollum could not identify a single document referencing the "joint venture." McCollum Dep. (Ex. 24) at 119:19-120:11; see also Hartmann Dep. (Ex. 23) at 293:10-294:1 (same), SOF ¶ 26. Perhaps most telling is the history of Kirk's communications with her lawyers. When negotiating definitive agreements to govern LeapSource, Kirk never even told her lawyers that she and GTCR were already parties to a joint venture. Kirk Dep. (Ex. 18) at 631:7-12; Gilbert Dep. (Ex. 25) at 73:5-74:13; Schumacher Dep. (Ex. 26) at 54:14-56:10; see also Matiski Dep. (Ex. 27) at 15:12-18:7 (even when primary outside counsel to LeapSource advised Kirk in late 1999 that the Purchase Agreement did not give LeapSource an unconditional right to $65 million in funding, Kirk never told counsel that a joint venture existed), SOF ¶ 27. It is therefore not surprising that Kirk's and LeapSource's lawyers had no knowledge of the alleged Kirk-GTCR Joint Venture. See id. Nolan, the GTCR principal with whom Kirk primarily negotiated, has confirmed that he neither heard of nor committed GTCR to join any Kirk-GTCR Joint Venture. See Nolan Decl. (Ex. 28) at ¶¶ 4-6, SOF ¶¶ 28-29. D. The Definitive Legal Agreements

After the SOU was finalized in mid-September 1999, Kirk and Nolan negotiated the "definitive agreement" called for by the SOU. On September 16, 1999, a Certificate of Incorporation was filed for Kirkco. See Certif. of Incorp. and Amendments (Ex. 5), SOF ¶ 13. On September 27, 1999, the parties executed their definitive agreement, which consisted of five documents that collectively defined all aspects of their business relationship:
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(1) the Senior Management Agreement between Kirk and Kirkco (the "Kirk SMA"), which defined Kirk's responsibilities and compensation as company CEO; (2) the Stockholders Agreement between Kirk, Kirkco and GTCR, which set out the terms on which shareholders would buy company stock, and specified the composition and control of the company's Board of Directors; (3) the Registration Agreement between Kirkco (by Kirk) and GTCR, which set forth the shareholders' registration rights with respect to the company's securities; (4) the Professional Services Agreement between Kirkco (by Kirk) and GTCR, which provided for business/financial consulting by GTCR to the company's Board and management; and (5) the Purchase Agreement between Kirkco (by Kirk) and GTCR, which defined the terms on which GTCR would fund the company through purchase of its stock. SOF ¶¶ 31-35. These five agreements were explicitly tied together by the Purchase Agreement. As stated at Sections 2C through 2F of the Purchase Agreement, the execution of the first four agreements ­ the Kirk SMA, the Stockholders Agreement, the Registration Agreement and the Professional Services Agreement ­ was an express condition to GTCR's agreement to invest in the company pursuant to the Purchase Agreement. See Purchase Agmt. (Ex. 10) at 3. These five agreements comprehensively addressed the various matters that plaintiffs now claim were governed by the Kirk-GTCR Joint Venture agreement: Funding. In the Purchase Agreement, GTCR agreed to an initial purchase of approximately $2 million in preferred and common stock of Kirkco. The Purchase Agreement further provided that GTCR would invest up to a maximum of $65 million in equity funding: The Purchasers [GTCR] intend to provide up to $65 million (including the Initial Capital, as defined below) in equity financing to the Company as the equity portion of the debt and equity financing necessary to fund the above, in each case
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as approved by the Board of Directors of the Company (the "Board") and the Purchasers (an "Approved Use"). Id. at 1-2. In addition, the Purchase Agreement described the use to which the funding would be put. Up to $15 million was to be available to finance Kirkco's working capital and start-up expenses, all of which were subject to approval of the Board and GTCR: The funds obtained by the Company from the Purchasers on or prior to the Closing Date, along with additional investments by the Purchasers up to an aggregate of $15 million (including the "Initial Capital"), shall be intended to finance the Company's working capital and related start-up expenses, subject to approval by the Board and the Purchasers. Id. at 2. The Purchase Agreement made clear that any obligation to purchase stock was expressly conditional: The Purchasers intend to provide the Initial Capital so long as the Company is meeting the objectives in the business plan that will be periodically approved by the Board and the Purchasers. The Purchasers' obligation to purchase any stock of the Company pursuant to this Section 1B(b) (including any stock issued in exchange for the Initial Capital) will be conditioned on the Company's not being in default under any of its material Agreements, adequate debt financing being available to fund any proposed acquisition or other Approved Use on terms satisfactory to the Purchasers, and the Company's operations and the acquisition or other use of proceeds being satisfactory to the Purchasers.

18 Id. The only unconditional commitment was GTCR's agreement to fund Kirk's salary, 19 severance and various amounts related to her departure from Andersen pursuant to 20 Sections 1(d), 1(e) and 6 of Kirk's SMA. See id. at 1-2. 21 Management. The Kirk SMA provided that Kirk would "serve as the Chief

22 Executive Officer of the Company [Kirkco]" with the "normal duties, responsibilities and 23 authority" of a CEO, including "the responsibilities associated with all aspects of the 24 daily operations of the Company...." Kirk SMA (Ex. 6) at 9. In addition, the Kirk SMA 25 clearly stated that her authority was "subject to the power of the Board to expand or limit 26 such duties, responsibilities and authority and to override actions of the Chief Executive 27 Officer." Id. Per the Stockholder's Agreement, a majority of the Board was to be 28
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designated by the company's primary investor, GTCR. See Stockholders Agmt. (Ex. 7) at 1-2. Employment. Under the Kirk SMA, Kirk's annual salary was set at $400,000. Kirk SMA (Ex. 6) at 9. It further provided that she could not be terminated without cause prior to September 27, 2000, and that she was to receive $400,000 in severance from the company if terminated without cause thereafter. Id. at 9. Finally, the Kirk SMA set forth her rights to purchase company stock, to take certain types of loans from the company related to her departure from Andersen, and potentially to receive up to $1 million relating to the Andersen Consulting spin-off. Id. at 1-2. Subsequently, by contracts dated October 5, 1999, the employment terms of all the other purported members of the joint venture were agreed to, either by Senior Management Agreement (for Hartmann and McCollum) or by Employment Agreement (for Gupta, Powers, Scott and Walker. See Hartmann SMA (Ex. 11); McCollum SMA (Ex. 12); Gupta Emp. Agmt. (Ex. 13); Powers Emp. Agmt. (Ex. 14); Scott Emp. Agmt. (Ex. 15); Walker Emp. Agmt. (Ex. 16), SOF ¶¶ 36-41. Integration. Unlike the SOU, the five agreements dated September 27, 1999, expressly state that they are the complete agreement of the parties, superseding any prior understandings, agreements or representations by or among the parties: Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

24 Kirk SMA (Ex. 6) at 17 (emphasis supplied). Similar integration clauses appear in each 25 of the other individual plaintiffs' Executive SMAs or Employment Agreements. See 26 Hartmann SMA (Ex. 11) at 15; McCollum SMA (Ex. 12) at 15; Gupta Emp. Agmt. (Ex. 27 13) at 12; Powers Emp. Agmt. (Ex. 14) at 12; Scott Emp. Agmt. (Ex. 15) at 12; Walker 28
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Emp. Agmt. (Ex. 16) at 12. None of these agreements makes reference to any "joint venture." ARGUMENT A court must grant partial summary judgment if the pleadings and supporting evidence, viewed in the light most favorable to the nonmoving party, show that there is no genuine issue as to a material fact and that the moving party is entitled to judgment as a matter of law on any legal claim. Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Summary judgment is appropriate where a party "fails to make a showing sufficient to establish the existence of an essential element to that party's case and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322; see also Estate of Hernandez v. Flavio, 187 Ariz. 506, 508-09 (1997). The moving party need not disprove matters on which the opponent will have the burden of proof at trial. Celotex, 477 U.S. at 323. Plaintiffs "may not rest upon the mere allegations or denials of [their] pleadings, but ... must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Brinson v. Linda Rose Joint Venture, 55 F.3d 1044, 1049 (9th Cir. 1995). The Joint Venture Claims ­ Counts 11, 12, 14 and 15 ­ Are Unsupported Even By Plaintiffs Themselves and Are Barred By the Integrated Written Agreements To sustain Counts 11, 12, 14 and 15 (Fourth Am. Cplt. ¶¶ 389-409, 414-429),

18 III. 19 20

21 plaintiffs bear the burden of proving that GTCR entered into a joint venture agreement 22 with Kirk and other members of The Freedom Group. No such agreement existed. What 23 plaintiffs have labeled the "Kirk-GTCR Joint Venture" for purposes of this litigation is 24 nothing more than the negotiations that resulted in the parties' definitive written 25 agreements governing LeapSource. Those negotiations did not create a joint venture. 26 27 28
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A.

There Was No "Kirk-GTCR Joint Venture"

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Under Arizona law, a joint venture is a "special combination of two or more persons where in some special venture a profit is jointly sought." Arizona Public Service Co. v. Lab, 84 Ariz. 314, 317 (1958). To establish the existence of a joint venture, plaintiffs bear the burden of proving: (1) an agreement between the parties to associate themselves as joint venturers; (2) a common purpose; (3) a community of interest; (4) an equal right of control; and (5) participation in profits and losses of the alleged joint venture. Estate of Hernandez, 187 Ariz. at 509. A joint venture may arise only where both parties "intend to associate themselves as such." Helfenbein v. Barae Investment Co., 19 Ariz. App. 436, 439 (1973) (emphasis supplied); see also Jackson v. East Bay Hospital, 246 F.3d 1248, 1261 (9th Cir. 2001) (applying California law) ("whether parties to a contract have created a joint venture ... depends upon their actual intention"). In this case, plaintiffs' joint venture claim is refuted by plaintiffs' own testimony, which establishes that (1) the parties never intended to associate as joint venturers, (2) the parties never agreed to an equal right of control, and (3) the parties never agreed to participate in profits and losses. 1. The Parties Did Not Intend To Associate As Joint Venturers

Plaintiffs contend that the Kirk-GTCR Joint Venture was created on August 30, 1999, when Kirk told Nolan that she intended to leave Andersen to start a BPO firm with GTCR. Fourth Am. Cplt. ¶¶ 146-147. The undisputed facts prove otherwise. First, the Kirk-GTCR Joint Venture could not have come into existence on August 30, 1999 because the terms of the supposed joint venture remained under negotiation until September 14, 1999. See supra at 4-5 and n.4. Second, the SOU itself demonstrates that the purpose of the parties' ongoing negotiations was to form a corporation that would provide BPO services. With the incorporation of Kirkco and the execution of the definitive agreements dated September 27, 1999, the parties fulfilled that purpose. Neither the SOU nor any other
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document exchanged by these parties referenced a joint venture. Indeed, the very first document referencing the "joint venture" supposedly formed on August 30, 1999 is the complaint filed by plaintiffs nearly thirty months later in Maricopa County Superior Court. See 2/26/02 Complaint (Ex. 17) at ¶¶ 207-304. Third, the SOU itself made clear that its terms were not independently binding, and that they served only to memorialize terms that would ultimately be included in definitive agreements, subject to due diligence: The parties will enter into an investment agreement consistent with this understanding and containing customary private equity terms such as information rights, registration rights, a co-sale agreement, and appropriate non-competition provisions. This agreement is not binding until the execution of a definitive legal agreement and completion of due diligence (including reference checks). GTCR and management will hold terms in confidence.

14 Ex. 4 (italics in original, boldface added). Every draft SOU exchanged by the parties 15 contained a similar provision. Nothing contained in any of the drafts or the final SOU 16 constitutes a joint venture agreement. 17 Fourth, plaintiffs' own testimony under oath is insufficient to meet their burden to

18 prove that they had the requisite intent to form a joint venture. Kirk never told anyone ­ 19 not any of the individual plaintiffs, not Kirk's or LeapSource's lawyers, and not any 20 representative of GTCR ­ that she intended to create a joint venture that would exist 21 throughout the life of LeapSource: Q. Did you ever tell anyone that you were forming a joint 22 venture with GTCR that would exist separate and apart from LeapSource after LeapSource was formed? 23 A. I don't recall. 24 Q. As you sit here today, can you identify anyone that you told you were forming a joint venture with GTCR that 25 would exist separate and apart from LeapSource after LeapSource was formed? 26 * * * 27 A. I can't, as of today. 28
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Kirk Dep (Ex. 18) at 253:24-254:8. It is simply inconceivable that a joint venture was formed where its principal architect never told a soul of her supposed intentions. Still less could GTCR have joined such a venture with the other individual plaintiffs, who knew virtually nothing about the terms of the alleged joint venture and had little if any communication with GTCR. Indeed, there were nearly as many versions of the joint venture agreement as there were joint venturers.6 Plaintiff Gupta disavows the joint venture altogether. Gupta Dep. (Ex. 19) at 118:16-19. Other individual plaintiffs cannot identify any of the supposed terms of the joint venture. Scott Dep. (Ex. 21) at 88:25-90:3, 91:21-92:1, 162:21-163:9 and Walker Dep. (Ex. 22) at 242:20-243-12. Still others contend that the terms of the joint venture are none other than the terms of the written agreements relating to LeapSource. Powers Dep. (Ex. 20) at 125-13-126:2. In any event, all plaintiffs acknowledge that the alleged joint venture ­ if it ever existed ­ did absolutely nothing after the creation of LeapSource. Fifth, GTCR neither heard of nor joined a joint venture. Nolan Decl. (Ex. 28) at ¶¶ 4-5. Sixth, the parties' five written agreements dated September 27, 1999 expressly embody the "complete agreement and understanding among the parties," and "supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way."

6

23 24 25 26 27 28

In fact, separate and apart from their disagreements as to the joint venture terms, plaintiffs could not agree on the number and identity of their joint venturers. At one extreme, the Fourth Amended Complaint identifies seven plaintiffs ­ Kirk, Gupta, Powers, Scott, Walker, Hartmann and McCollum ­ as the members of the Kirk-GTCR Joint Venture. See, e.g., Fourth Am. Cplt. ¶ 390. At the other extreme, Kirk testified that all LeapSource employees were members of that same joint venture. See Kirk Dep. (Ex. 18) at 133:1-3, 359:7-20. By Kirk's count, the joint venture's membership swelled from 40 in September 1999 to nearly 400 in December 2000 (see Kirk Dep. (Ex. 18) at 394:19-395:2), but no one apprised these "members" of their status as co-venturers. See supra. at 10-11. Plaintiffs' inability to agree on such a fundamental issue confirms the parties' failure to agree on any joint venture.
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See, e.g., Kirk SMA (Ex. 6) at 15. If any Kirk-GTCR Joint Venture were ever formed, it did not survive the parties' execution of these five agreements. 2. The Parties Did Not Agree To An Equal Right Of Control

Under Arizona law, the parties to a joint venture must have an equal right of control over the venture. See Estate of Hernandez, 187 Ariz. at 509-10. This means that "each of the parties to such joint adventure has authority to act for all in respect to the control of the means or agencies employed to execute such common purpose." West v. Soto, 85 Ariz. 255, 262 (1959). The law thus requires that each joint venture party have an "equal right to direct and govern the movement and conduct of each other with respect thereto. Each must have some voice and right to be heard in its control or management." Maloy v. Taylor, 86 Ariz. 356, 359 (1959). On this basis, the GTCR defendants previously moved to dismiss the joint venture claims in plaintiffs' First Amended Complaint. See GTCR Defts. 12/2/02 Motion To Dismiss. As the GTCR defendants pointed out, the essential element of "equal right of control" was lacking because the employment contracts with the individual plaintiffs expressly made each of them an at-will employee who could be terminated at any time. Id. at 9. Even Kirk, as CEO, was subject to termination by the LeapSource Board of Directors, and her actions were subject to override by the Board. Id. In response, plaintiffs made crystal clear their theory that the alleged joint venture was a parallel universe of promises that were not set forth in the LeapSource agreements. As plaintiffs then asserted: GTCR's argument is flawed because it confuses the KirkGTCR Joint Venture alleged in the First Amended Complaint with LeapSource, and the terms of the joint venture agreement with the LeapSource agreements.

25 Pltfs. 1/24/03 Response To GTCR Defts. Motion To Dismiss at 15. Plaintiffs claimed 26 that their complaint had "carefully distinguish[ed] the joint venture that was formed when 27 Christine Kirk and other Individual Plaintiffs agreed to form the joint venture with 28 GTCR, and the formation of LeapSource and the execution of the LeapSource
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Agreements that came weeks later." Id. at 15 n.10. Plaintiffs' bald allegation of a parallel universe of joint venture rights and obligations, existing side-by-side with but distinct from the LeapSource agreements, was critical to preventing dismissal at the Rule 12(b)(6) stage of these proceedings. As this Court explained at the time: [A]s the argument goes, apparently the at-will relationship created under the [Senior Management Agreement] only governed the relationship of the parties as far as the LeapSource entity was concerned, but that no at-will relationship existed under the joint venture agreement. This rather odd situation presents the hypothetical question of what would occur if a Plaintiff were fired by the LeapSource board ­ would they continue as co-adventurers in the joint venture? It appears that LeapSource was intended to be the vehicle through which the joint venture was to be carried out. As a result, the court is unclear how the employees could have equal management responsibilities under the joint venture agreement, but not under the LeapSource agreements ­ especially when LeapSource was formed as the instrumentality for carrying out the joint venture agreement. The court's duty at this stage, however, is not to consider evidence, but to accept the material allegations in the complaint as true. Since Plaintiffs have alleged that there was a joint venture and a joint venture agreement, they must also be given the opportunity to sustain their claim that it was breached. The effect of the LeapSource governing documents on the joint venture agreement, which the court has not even been able to evaluate (as it has not been provided with the contents of this agreement), is a matter that cannot be determined at this stage. While Plaintiffs have not specifically argued that the joint venture agreement contained an equal right of control, since the contents of the agreement are not before the court, it cannot be evaluated at this time. 9/30/03 Order re GTCR Defts. Motion at 21-23 (citations omitted) (hereafter, "Order"). The evidence regarding the alleged Kirk-GTCR Joint Venture is now in, and plaintiffs admittedly lacked the requisite equal right of control. Kirk herself conceded she had no such control over the alleged joint venture: Q. A. With reference to the Kirk-GTCR joint venture, who controlled the joint venture? GTCR.
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Kirk Dep. (Ex. 18) at 252:25-253-2. Similarly, plaintiff Gupta acknowledged that she had no control over the alleged joint venture: Q. A. Q. A. To your knowledge, you had no control over the affairs of the Kirk-GTCR joint venture, did you? Not to my knowledge. And you certainly didn't exercise such control, did you? I did not.

Gupta Dep. (Ex. 19) at 122:11-16. Plaintiffs Hartmann and McCollum concurred. See Hartmann Dep. (Ex. 23) at 300:18-20; McCollum Dep. (Ex. 24) at 128:10-12. Indeed, the SOU that Kirk contends embodied the terms of the joint venture agreement relates solely to the corporation that plaintiffs claim was an instrumentality of the joint venture. Even as to the corporation, the SOU did not provide plaintiffs with an equal right of control. All corporate "financial and operating objectives" were to be decided by the corporation's Board of Directors, and "GTCR will have the right to control the Board." 9/14/99 SOU (Ex. 4) at 1-2 (emphasis supplied). As this Court noted previously (see Order at 20-21), pursuant to their Senior Management Agreements and Employment Agreements, the individual plaintiffs were "at will" employees of the corporation, governed by a board of directors controlled by GTCR. Nothing in the SOU suggests otherwise. 3. The Parties Did Not Agree To Share Profits And Losses

Similarly, absent an agreement to share in profits and losses, there can be no joint venture. See, e.g., Estate of Hernandez, 187 Ariz. at 509. Without express agreement as to each party's share of participation in profits and losses, an alleged joint venture agreement is too "indefinite" to be enforceable. Edwards v. Hauff, 140 Ariz. 373, 375-6 (1984); Estrella v. Suarez, 60 Ariz. 187, 195 (1943) ("where parties did not intend that they should share in the profits or losses of the undertaking," no joint venture could be

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found). No such sharing of profits or losses was ever contemplated or occurred within the alleged Kirk-GTCR Joint Venture. Plaintiffs' own testimony, as well as the terms set forth in the SOU, settle the matter once again. As Gupta testified: Q. A. To your knowledge, you didn't share in any profits or losses of a Kirk-GTCR joint venture, did you? I did not.

8 Gupta Dep. (Ex. 19) at 122:11-13; see also Scott Dep. (Ex. 21) at 96:12-17. Indeed, 9 because the alleged joint venture did nothing, it generated no profits or losses, making 10 "sharing" impossible. See Hartmann Dep. (Ex. 23) at 298:2-5 (the joint venture had no 11 profits or losses to share); McCollum Dep. (Ex. 24) at 124:14-15 (same). Although Kirk 12 testified that she may have incurred certain expenses when The Freedom Group was 13 investigating the potential transaction with GTCR, Kirk could not identify any alleged 14 losses that she shared after August 30, 1999. Kirk Dep. (Ex. 18) at 245:6-250:20. To the 15 contrary, the SOU specifically provided that Newco would reimburse all reasonable legal 16 expenses incurred by Kirk and other members of management during the negotiation and 17 execution of the definitive agreements. See 9/14/99 SOU (Ex. 4) at 3. 18 19 20 21 22 23 24 25 26 27 28
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B.

Any "Joint Venture" Terminated With The Creation Of LeapSource And The Execution Of A Definitive Legal Agreement

Even aside from all the above, it is clear that the entire purpose of the parties' negotiations was to create LeapSource and execute a definitive legal agreement governing its operation. Under Arizona law, a joint venture agreement terminates when "the purposes of the agreement have been accomplished." Marmis v. Solot Co., 117 Ariz. 499, 503-4 (1978). Accordingly, once LeapSource was formed and the written agreements dated September 27, 1999 were executed, any supposed joint venture based on the terms of the SOU would have terminated. The fact that no joint venture survived these events is confirmed by plaintiffs' frank admissions that the "joint venture" did nothing after September 27, 1999.

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The Pennsylvania Supreme Court addressed an analogous situation in Schuster v. Largman, 162 A. 305, 305-06 (Pa. 1932). There, three parties formed a joint venture whose purpose was to create a corporation. One of the parties became an employee of the new corporation, executing an employment agreement and receiving shares in the new corporation. Id. at 306. Subsequently the parties had a dispute over the operation of the business and the employee was dismissed. Id. at 307. The employee brought an action alleging, among other things, that he and the other two parties had entered into a partnership to form the corporation and thus he was entitled to seek remedies based upon his status as a partner. Id. The Pennsylvania Supreme Court rejected plaintiff's claim, holding that where the "sole business" of the parties was carried on by the corporation, and where "[n]o such business was previously carried on by ... the stockholders acting as individuals or as partners," the employee could not sustain his claim that the parties were concurrently operating as partners. Id. at 307-08. Similarly, in WMW Machinery, Inc. v. Werkzeugmaschinenhandle GMBH, 960 F. Supp. 734 (S.D.N.Y. 1997), the court was called upon to determine whether two parties who (unlike here) had entered into an express joint venture agreement, continued to owe each other fiduciary duties once the object of their venture ­ the creation of a Panamanian corporation ­ was accomplished. The court concluded that where the only purpose of the joint venture was to form the corporation, the parties had only the rights of stockholders in that corporation and not as co-venturers once the corporation was formed. 960 F. Supp. at 746. See also Sanders v. Boelke, 172 A.2d 1014, 1015 (N.Y. App. Div. 1991) (where two parties entered into a joint venture and then subsequently decided to carry on their entire business as a corporation, the parties' rights and duties as co-venturers ceased).

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C.

Plaintiffs' Joint Venture Claims Violate the Parol Evidence Rule

Counts 11, 12, 14 and 15 fail for the additional reason that the alleged Kirk-GTCR

3 Joint Venture contradicts the terms of the parties' integrated written agreements and thus 4 violates the Parol Evidence Rule. This is squarely foreclosed by Illinois law: 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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When parties sign a memorandum expressing all the terms essential to a complete agreement they are to be protected against the doubtful veracity of the interested witnesses and the uncertain memory of disinterested witnesses concerning the terms of their agreement, and the only way in which they can be so protected is by holding each of them conclusively bound to the terms of the agreement as expressed in the writing. Air Safety, Inc. v. Teachers Realty Corp., 706 N.E.2d 882, 885 (Ill. 1999) (citation and internal quotes omitted). 1. The Four Corners Rule Of Illinois Law

As this Court has already noted, Illinois follows the four-corners rule of contract interpretation: "If the terms of the contract are clear and unambiguous, the court may not refer to any evidence or allegations outside the contract itself." Order at 10. Unless a court determines that the writing is incomplete or unambiguous, evidence of other agreements or understandings is inadmissible even "to show additional consistent terms of a contract." Eichengreen v. Rollins, Inc., 757 N.E.2d 952, 956 (Ill. App. 2001). "Written contracts are presumptively complete in and of themselves; when merger clauses are present, this presumption is even stronger." Bock v. Computer Assocs. Int'l, 257 F.3d 700, 707 (7th Cir.2001) (collecting cases); accord, e.g., Rosenblum v. Travelbyus.com, Ltd., 299 F.3d 657, 665 (7th Cir.2002) ( "The presence of a merger clause is strong evidence that the parties intended the writing to be the complete and exclusive agreement between them") (internal quotation marks and citation omitted). Integration is of special importance under the "four corners" rule, because as the Illinois Supreme Court observed, "where parties formally include an integration clause in their contract, they are explicitly manifesting their intention to protect themselves against

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misinterpretations which might arise from extrinsic evidence." Air Safety, 706 N.E.2d at 885. Whether a writing is complete is "a legal question to be determined by the trial judge" by reviewing the four corners of the document. Id. at 958. Under Illinois law, "[a] court may only consider the writing itself in determining whether a contract is complete and integrated." Krautsack v. Anderson, 768 N.E.2d 133, 146 (Ill. App. 2002) (citing Eichengreen). Consequently, "a written agreement which is complete on its face supersedes all prior agreements on the same subject matter and bars the introduction of evidence concerning any prior term or agreement on that subject matter." Barille v. Sears Roebuck and Co., 682 N.E.2d 118 (Ill. App. 1997) (citing Magnus v. Lutheran General Health Care System, 601 N.E.2d 907 (Ill. App. 1992)). Where two or more instruments are executed in the course of a single transaction, the instruments will be construed together and construed with reference to one another because they are, in the eyes of the law, one contract. Tepfer v. Deerfield Savings and Loan Ass'n, 454 N.E.2d 676, 679 (Ill. App. 1983). Here, the various written LeapSource agreements executed by plaintiffs on and after September 27, 1999 defined an integrated contract among the parties, a contract that explicitly superseded all the prior representations that supposedly gave rise to the Kirk-GTCR Joint Venture. 2. The Parties' Integrated Written Agreements Superseded All Previous Negotiations

Illinois law is clear that "where parties formally include an integration clause in

22 their contract, they are explicitly manifesting their intention to protect themselves 23 against misinterpretations which might arise from extrinsic evidence." Air Safety, 706 24 N.E.2d at 885 (emphasis supplied). An integration clause makes clear that the 25 negotiations leading to the written contract are not the agreement. Id. 26 In this case, on September 27, 1999, Kirk, GTCR and the corporation they created,

27 Kirkco, entered into a fully integrated series of agreements governing all aspects of their 28 relationship. GTCR's funding obligations were set forth in a Purchase Agreement, and
25
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Case 2:02-cv-02099-RCB

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the effectiveness of the Purchase Agreement was made expressly subject to execution of the other four agreements, including the Kirk SMA and the Stockholders Agreement. See Purchase Agmt. (Ex. 10) at 3 (§§ 2B-2