Free Order on Motion to Strike - 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 Erchonia Medical Inc., an Arizona) ) corporation, et al., ) ) Plaintiff, ) ) vs. ) ) ) Miki Smith, et al., ) ) Defendant. ) ) No. CIV-02-2036-PHX-MHM Consolidated with No. CIV-02-2048-PHX-MHM No. CIV-02-2353-PHX-MHM ORDER IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Currently before the Court are Robert E. Moroney, LLC's Motion to Strike "Rebuttal" Expert Disclosures of Mr. Keith Walls and Dr. John M. Turner, (Dkt. #241); Robert E. Moroney, LLC's Motion to Strike Expert Witness Disclosures of John E. Grievenkamp, Jr., (Dkt. #247); Robert E. Moroney, LLC's Motion for Partial Summary Judgment Regarding Erchonia Medical, Inc.'s Tortious Interference with Contract Claim, (Dkt. #269); Robert E. Moroney, LLC's Motion for Partial Summary Judgment regarding its Claims for Breach of Implied Warranty of Merchantability, Breach of Implied Warranty of Fitness for a Particular Purpose, and Violation of the Arizona Consumer Fraud Act, (Dkt. #270); Erchonia Medical, Inc.'s Motion for Summary Judgment against Miki Smith Regarding it's Breach of Promissory Note Claim, (Dkt. #272); The Brimhall's Motion for Partial Summary Judgment Regarding Robert E. Moroney, LLC's claims under the Arizona Consumer Fraud Act, (Dkt. #273); and Erchonia Medical, Inc.'s Motion for Summary Judgment Regarding Robert E. Moroney, LLC's Claims for Conversion and Violation of the Arizona Consumer Fraud Act.
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(Dkt. #275). After reviewing the motions and after hearing oral argument on November 1, 2005, the Court issues the following Order. I. Background A. Procedural Background

This litigation involves three-consolidated actions with numerous parties, claims, counterclaims, and third-party claims. On October 15, 2002, Plaintiff Erchonia Medical Inc. ("Erchonia") filed a Complaint against Miki Smith, George Gonzales, and Lorena Guzman, husband and wife, and Robert Moroney and Barbara J. Moroney, husband and wife, alleging patent infringement. The case was assigned to this Court under case number CIV-02-2036. Subsequently, this matter was consolidated with Erchonia's action against the same defendants alleging trade secret misappropriation, breach of fiduciary duty, breach of confidentiality agreement, tortious interference with contract, conversion, and unfair competition. On November 25, 2002, Dr. Gonzales and his wife, Ms. Guzman, filed a Counterclaim against Plaintiff Erchonia and a Third Party Complaint against Richard and Deborah Amy, John and Claudette Brimhall and Steven and Debbie Schanks. On November 22, 2002, Robert E. Moroney, LLC ("REM"), filed a Complaint in U.S. District Court against Erchonia Medical Inc., George and Jane Doe Leger, and John W. and Claudette H. Brimhall alleging trademark infringement, conversion, and false advertising, which was consolidated with this action on February 6, 2003. B. Factual Background

The parties in this litigation are competitors in the holistic therapies market, selling therapeutic medical lasers and ionized foot baths. In 1996, Kevin Tucek formed Tuco Innovations, Inc., which produced medical lasers. Steven Shanks, formed an entity known as Majes-Tec Innovations, Inc. Erchonia was formed upon the merger of Tuco Innovations and Majes-Tec Innovations. Erchonia is the successor of Majes-Tec. For purposes of clarity, the Court refers solely to Erchonia throughout this order, although the actually entity may have been its predecessor Majes-Tec. Erchonia produces and distributes various therapeutic devices, including medical lasers and the BioCleanse foot bath product. -2Document 318 Filed 12/21/2005 Page 2 of 29

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From 1999 to July 22, 2002, Miki Smith was the Vice President of Sales and Marketing for Erchonia. Dr. John W. Brimhall is a chiropractor, who presents seminars regarding holistic practices and chiropractic techniques. Robert E. Moroney is the founder and President of REM. REM and Mr. Moroney similarly sell various therapeutic devices, including foot bath products and the Quantum IV Laser, which is a therapeutic medical laser. 1. Mr. Smith's employment with Erchonia.

From 1999 to July 22, 2002, Miki Smith was the Vice President of Sales and Marketing for Erchonia. It is undisputed that Mr. Moroney had a conversation with Erchonia's President, Steven Shanks, regarding Mr. Smith working for REM for the purpose of selling BioCleanse units and that Mr. Smith worked for REM from October 2001 to January 2002. Dkt. #289, ER SOF Ex. 2 Moroney Dep. p.78, ln. 3-23; p.84, ln. 12-15. At some point in 2002, the relationship between Mr. Moroney and/or REM and Erchonia soured. In June 2002, Erchonia was promoting its therapeutic laser product at a convention in Atlanta, Georgia, presented by Dr. John Brimhall. Dkt. #289 ER SOF ¶¶5-10. Mrs. Jeanne Winner attended this seminar with the intent to purchase a laser for use in her chiropractic clinic. Dkt. #289, ER SOF ¶9. Mrs. Winner met Mr. Moroney at this seminar. Dkt. #289, ER SOF 14. Erchonia claims Mrs. Winner refrained from purchasing Erchonia's laser after a nonparty, Dr. Phillips, informed her that REM was developing the Quantum IV Laser, which was less-expensive than Erchonia's laser and would soon be available. Dkt. #306 REM RESP SOF, Ex. 1. Winner Dep. p.23-24. Erchonia claims while Mr. Smith was still in Erchonia's employ, Mr. Moroney referred Mrs. Winner to Mr. Smith to obtain a "loaner" laser until the Quantum IV was available . Dkt. #289, ER SOF ¶¶17,18,23. Based on these allegations, Erchonia has moved for summary judgment on its claim REM tortiously interfered with the employment contract between Erchonia and Mr. Smith. On September 20, 2002, Miki Smith signed a promissory note payable to Erchonia in the amount of $50,000 for alleged improper personal payments from Erchonia's account. Dkt. #279, ER SOF ¶¶7-10. While Mr. Smith does not deny signing the promissory note, he -3Document 318 Filed 12/21/2005 Page 3 of 29

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contends that the note was the product of duress or undue influence, or alternatively, Charlie Shanks forgave the debt. Specifically, Mr. Smith maintains Erchonia was closely associated with the Grace Baptist Church, which was founded by Charlie Shanks, father to Erchonia's President Steve Shanks. Id. ¶¶5,6,9,14,15. All but one of Erchonia's employees were Grace Baptist members and Mr. Smith maintains the Church members were exceedingly devoted. Id. When Mr. Smith signed the note, he did so at the Shanks family home, with only the Shanks family present, including Charlie Shanks founder of the Church, without consideration, without the advice of counsel, and without advance notice. Id. at ¶¶15-23 Erchonia disputes all of the facts alleged by Mr. Smith related to execution of the promissory note. Based on these allegations, Erchonia has moved for summary judgment on its claim for breach of the promissory note. 2. Erchonia's BioCleanse Foot-bath Product

Mr. Moroney and his company REM had been in the business of selling footbath products since 2000, under the trademark BEFE. Dkt. #271, REM SOF ¶3. When selling the BEFE, Mr. Moroney advised users to add salt to the foot bath water. Id. at ¶3. Mr Moroney never experienced any significant problems when customers added salt to the BEFE's foot bath water. Id. Beginning in 2001, Mr. Tucek and Mr. Shanks began developing and testing a new foot bath product. Dkt. #293, ER SOF ¶¶4-6. In 2001, Mr. Moroney and Mr. Shanks began discussions about Erchonia developing a therapeutic foot bath, which Mr. Moroney would sell. Dkt. #271, REM SOF ¶5. During these negotiations, REM claims Erchonia and its representatives Messrs Tucek and Shank represented they would design a product that was "superior" to the BEFE product, that Erchonia would provide REM with "quality BioCleanse units," and that the "BioCleanse product would be designed to Erchonia's high standards." Dkt. #271, REM SOF ¶¶4,5,6. By April 2001 Erchonia had developed a therapeutic foot bath known as the BioCleanse, which Mr. Moroney and his company REM began selling. REM asserts when Mr. Shanks agreed to design its BioCleanse product for Mr. Moroney to sell, Mr. Shanks was aware Mr. Moroney intended to recommend users add salt -4Document 318 Filed 12/21/2005 Page 4 of 29

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to the water when using the BioCleanse product. Dkt. #271, REM SOF ¶5. In contrast, Mr. Tucek averred the use of salt in the BioCleanse was unexpected and unintended. Dkt. #293, ER SOF, Ex. A Tucek Decl. ¶¶11-15. Shortly after REM started selling the BioCleanse, there were numerous breakdowns. Dkt.#271. REM SOF ¶7. Although Erchonia assured Mr. Moroney it would correct problems with the BioCleanse, REM contends these problems were never corrected. REM RESP Ex. 4, Moroney Decl. ¶9. Both REM's experts and Mr. Tucek concur problems with the BioCleanse occurred, in pertinent part, because salt added to the foot bath water increased the conductivity of the water and caused overheating. Dkt. #271, REM SOF ¶¶8,9; REM RESP Ex. 4, Moroney Decl. REM has moved for summary judgment on its claims Erchonia's representations regarding the BioCleanse product and defects in the BioCleanse product breached the implied warranty of merchantability, breached the implied warranty of fitness for a particular purpose, and violated the Arizona Consumer Fraud Act. II. Motions to Strike A. Legal Standard

Expert witness designations are governed by FED. R. CIV. PRO. 26(a)(B)(2). Expert witness designations must be accompanied by written reports prepared and signed by the expert. Id. The report must contain: 1) the expert's opinions and basis for those opinions; 2) the data and information considered by the expert in arriving at these opinions; 3) the exhibits used to support opinions; and 4) a description of the qualifications of the expert, a list of publications of the expert, the compensation to be paid to the expert, and a list of prior testimony. Id. Rule 37 provides that "A party that without substantial justification fails to disclose information required by Rule 26(a) . . . is not, unless such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion, any witness or information not so disclosed." FED. R. CIV. PRO. 37. B. REM's Motion to Strike "Rebuttal" Expert Disclosures of Mr. Keith Walls and Dr. John M. Turner, (Dkt. #241).

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REM argues Mr. Walls' and Dr. Turner's expert reports should be stricken because: (1) Mr. Walls' opinion regarding FDA-related matters is beyond the scope of rebuttal; (2) Dr. Turner's opinions related to the IonCleanse product being a medical device subject to IEC standards for the Safety of Medical Equipment is beyond the scope of rebuttal; and (3) Mr. Walls' and Dr. Turner's reports fail to meet Rule 26(a)(2) requirements. In regards to Mr. Walls, Erchonia concedes that Mr. Walls' opinions related to "FDA approval" and "FDA market clearance" do not directly rebut any of REM's proffered experts' opinions. Instead, Erchonia claims these opinions are responsive to REM's claims, which it has asserted throughout the course of this litigation. However, under FED. R. CIV. PRO. 26(a)(2)(C), expert reply reports are limited to testimony that is "intended solely to contradict or rebut evidence on the same subject matter identified by another party." FED. R. CIV. PRO. 26(a)(2)(C). It is clear, and Erchonia does not dispute, that Mr. Walls' opinions are not appropriate rebuttal. While it may be true that his opinions rebut general claims made by REM, it does not rebut expert "subject matter identified by another party," and therefore, was not timely disclosed. See Id. Thus, the inquiry is whether REM has demonstrated sufficient prejudice to warrant the Court striking Mr. Walls' report. While a rebuttal expert report is not the place for new arguments, it appears that the issue of FDA approval has been repeatedly raised throughout this litigation. Therefore, this is not a situation where Erchonia ambushed REM before trial with a "surprise" issue, and consequently, a Rule 37 sanction is not appropriate. Cf. Johnson v. Vanguard Mfg., Inc., 34 Fed. Appx. 858, 859 (3d. Cir.2002) (prohibiting an expert witness from testifying at trial about evidence that was not included in his expert report); Baldwin v. Graphic Sys., Inc. v. Siebert, Inc., No. 03 C 7713, 2005 WL 1300763, *2 (N.D. Ill. Feb.22, 2005) (unpublished opinion) (striking expert report that challenged the validity of patents at issue for the first time in rebuttal report). REM asserts it is prejudiced because it does not have the opportunity to designate experts to rebut the FDA related issues. While the Court has made every endeavor to speed the progress of this litigation, resolution of the instant dispositive motions and pending claim -6Document 318 Filed 12/21/2005 Page 6 of 29

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construction issues must occur before trial. As there is sufficient time before trial and another available remedy, the Court will permit REM to submit a reply expert solely to rebut or contradict Mr. Walls' opinions related to "FDA approval" and "FDA market clearance." Secondly, REM argues Dr. Turner's opinions related to the IonCleanse product being a medical device subject to IEC standards for the Safety of Medical Equipment is beyond the scope of rebuttal. REM's expert Dr. Turley, opined that allegations in the Leger shockhazard memoranda contending REM's IonCleanse product poses "a serious shock hazard to users" is false because the IonCleanse had insufficient leakage current to cause any shock. Dr. Turley concluded: leakage currents of the switching power supply was well within nationally recognized safety limits, any leakage would result in less tingling than licking the terminals of a common 9 volt battery, and there is no direct connection from the AC power source to the bath regardless of the quality of the AC ground connection. Dkt. #241, Ex. 2, pg. 2-3. Erchonia's rebuttal expert, Dr. Turner, opined that the leakage currents in the IonCleanse exceeded U.S. safety standards, was subject to the standard for patient devices IEC 60601-1, had insufficient safety warnings, and that Dr. Turley underestimated the leakage current. Dkt. #241, Ex.1. While Dr. Turley's opinion did not relate to IEC standards, Dr. Turley opined leakage currents were within nationally recognized safety limits and assessed whether the IonCleanse posed a shock hazard. Dr. Turner's opinions that Dr. Turley applied an incorrect standard and that the IonCleanse was subject to the IEC medical standard directly rebuts the conclusions Dr. Turley reached, the reliability of Dr. Turley's conclusions, and whether he utilized the correct methodology. Moreover, the fact that Dr. Turner reviewed whether the IonCleanse's safety warnings were adequate is relevant to whether the product posed a shock-hazard. Accordingly, after reviewing the expert opinions of Dr. Turley and Dr. Turner, the Court concludes Dr. Turner's expert opinion was appropriate Rule 26(a)(2)(C) rebuttal because Dr. Turner contradicted or rebutted evidence on the same subject matter on which Dr. Turley opined. See, FED. R. CIV. PRO. 26 (a)(2)(C).

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Lastly, REM argues Mr. Walls' and Dr. Turner's reports fail to meet Rule 26(a)(2) requirements. Specifically, REM maintains Mr. Walls' report fails to meet Rule 26(a)(2) standards because it does not include the basis of his opinion, data relied on, list of Mr. Walls' publications, compensation paid, and other cases in which Mr. Walls has testified as an expert. Similarly, REM argues Dr. Turner's report is insufficient because his opinion is not set forth in sufficient detail and is not signed. Defendants' remedy for an inadequate expert report is to seek an order compelling adequate discovery. Exclusion of an expert report or testimony is appropriate only when the failure to provide an adequate expert report is in violation of an order compelling discovery. Defendants did not seek to compel a more adequate disclosure within a reasonable time of service of the expert reports. Accordingly, defendants may not now seek to exclude Plaintiff's experts. However, the Court will order Erchonia to supplement its report to ensure its experts reports are in compliance with Rule 26(a)(2)(B). C. Robert E. Moroney, LLC's Motion to Strike Expert Witness Disclosures of John E. Grievenkamp, Jr., (Dkt. #247).

REM argues the court should strike John Grievenkamp's expert report because it was 16 not disclosed until April 25, 2005 and the expert report deadline was January 31, 2005. 17 However, the issue of claim construction was raised for the first time at a status hearing on 18 February 23, 2005. At that hearing the Court distinguished "regular discovery" and 19 discovery related to the claims construction, stating "I don't know the claims construction 20 ­ that's going to be a separate track. But the regular discovery has just been advanced by 21 that amount of time." Dkt. #252, Er. Resp. Ex. A, Tr. 2/23/05 p.24, ln. 17-19. 22 Accordingly, the Court concludes the January 31, 2005 deadline was related to 23 "regular discovery" and the Court contemplated a separate track for claim construction. 24 While REM claims Erchonia was aware of its claim construction position since February 25 2004, the fact remains the Court was unaware of the claim construction issues and when the 26 parties alerted the Court there were outstanding claim construction issues, it excluded claim 27 28 -8Case 2:02-cv-02036-MHM Document 318 Filed 12/21/2005 Page 8 of 29

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construction discovery from regular discovery. Thus, there is substantial justification for Erchonia's April 2005 disclosure, and therefore, a Rule 37 sanction is not warranted. Furthermore, the Court finds REM has asserted insufficient prejudice to warrant striking Mr. Grievenkamp's report. REM had an opportunity to reply to any of Mr. Grievenkamp's opinions in its May 20, 2005 reply Markman brief and during the Markman hearing, which occurred in August 2005. Additionally, should the special master's report and recommendation be unfavorable to REM, it can file objections to the Report and Recommendation. Therefore, the Court will deny REM's motion to strike Mr.

Grievenkamp's expert opinion. III. Summary Judgment Standard of Review A motion for summary judgment may be granted only if the evidence shows "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c) (2004). To defeat the motion, the nonmoving party must show that there are genuine factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322. The Court views the evidence in the light most favorable to the nonmoving party and draws any reasonable inferences in the nonmoving party's favor. See Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert. denied, 516 U.S. 1171 (1996).

IV.

Discussion A. Robert E. Moroney, LLC's Motion for Partial Summary Judgment Regarding Erchonia Medical, Inc.'s Tortious Interference with Contract Claim, (Dkt. #269). 1. Evidentiary Objections -9Document 318 Filed 12/21/2005 Page 9 of 29

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Erchonia's objections to ¶¶1,2 which contain background information regarding the various entities on the basis of relevancy are overruled because the Court finds this information relevant. FED. R. EVID. 401. Erchonia's objection to ¶3 on the basis statements are not supported or are contradicted by the record is sustained. See, e.g., Kennedy v. Allied Mutual Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991) (concluding court may disregard declaration prepared for purposes of opposing summary judgment motion that conflicts with declarant's deposition testimony). Erchonia's objections to ¶¶5,9 based on completeness are sustained to the extent the Court has reviewed statements asserted therein in context. Erchonia objections to ¶¶5,6,10,11 on the basis Erchonia denies or disagrees with these facts are overruled; the Court will review the statements of facts, draw reasonable inferences therefrom, and Erchonia's objections are more properly styled controverting statements of facts. Erchonia's objections to ¶¶7,10,11,12 which are supported by declarations and depositions are overruled. See Celotex Corp v. Cartrett, 477 U.S. 317, 324 (1986) (concluding facts which would be admissible at trial need not be presented to the court in an admissible form as a supplement to a summary judgment motion). Erchonia's objection to Hans Becker's witness report is overruled, this objection is inappropriate in an objection to statement of facts as REM is without opportunity to respond, and instead, a motion to strike pursuant to FED. R. CIV. PRO. 37(c)(1) is the appropriate method of objecting to an expert witness as untimely disclosed. Furthermore, courts have concluded "while Federal Rule of Civil Procedure 56(e) requires that affidavits must be supported by admissible evidence, it does not require that affiants be listed as a witnesses for trial." D.I. v. Unified School District # 497, 270 F. Supp.2d 1217, 1236-37, 1238 (D. Kan. 2002). But see, Pfingston v. Ronan Engineering Co., 284 F.3d 999, 1005 (9th Cir. 2002) (precluding evidence in summary judgment proceedings where party failed to disclose information as required by Rule 26(a)). Erchonia's objections to exhibits on hearsay grounds are overruled. See Celotex Corp., 477 U.S. at 324. Erchonia's objections as to foundation of various exhibits are overruled for failure to specify what is lacking in the exhibits. British Airways Board v. Boeing Co., 585 F.2d 946, 951 (9th Cir.1978). - 10 Document 318 Filed 12/21/2005 Page 10 of 29

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REM's objections to ¶¶4,8,9,10 on the basis REM disagrees with Erchonia's inferences are overruled; the Court will review the statements of facts, draw reasonable inferences therefrom, and REM's objections are more properly styled controverting statements of facts. REM's objection to ¶¶11,13,28,30,31 on the basis these paragraphs "imply" inferences that are not supported by the record are overruled, the Court has reviewed these paragraphs and finds they are supported by citations to the record. REM's objection to ¶12 as it is not supported by the record is sustained. REM's objection to ¶23 on the basis it is not supported by the record is overruled, Mrs. Winner testified that she contacted Mr. Smith to discuss the loaner laser and instead spoke with Mr. Shanks. See Winner Dep. Ex. 5, pgs. 40-41. REM's objection to ¶27 is sustained to the extent the record does not establish the New Orleans seminar was in June 2002. REM's objection to ¶32 on the basis the statement "Erchonia suffered damages" is a legal conclusion is sustained. 2. Discussion

Erchonia's claim for tortious interference with contractual relations arises from REM allegedly inducing Miki Smith to breach his employment contract with Erchonia. The tort of wrongful interference with a contract requires that the contract must be one between the plaintiff and a third party. Payne v. Pennzoil Corp., 672 P.2d 1322, 1326 (Ariz. Ct. App. 1983). To state a claim for tortious interference with a contractual relation, Erchonia must establish: (1) the existence of a valid contractual relationship; (2) REM had knowledge of the contract; (3) REM induced or caused a breach or termination of the contract; (4) REM acted improperly; and (5) Erchonia's resulting damages. Wagenseller v. Scottsdale Mem'l Hosp., 710 P.2d 1025, 1041-42 (Ariz. 1985). REM argues summary judgment is appropriate because Erchonia has neither established REM knew of a contract between Erchonia and Mr. Smith nor has Erchonia established damages. First, in its papers REM argues that through its responses to interrogatories and at depositions, Erchonia has narrowed its tortious interference claim to breach of a confidentiality agreement between Mr. Smith and Erchonia, instead of the

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employment contract. Although REM's counsel appeared to waive this argument during oral argument, the Court will address the issue as it was raised in the papers. REM cites Rule 30(b)(6) deposition answers and two responses to interrogatories in support of this position. Notably, REM provides no authority for "narrowing" a claim based on responses to interrogatories. The purpose behind Rule 30(b)(6) of the Federal Rules of Civil Procedure is to create testimony that will bind the corporation. Sanders v. Circle K Corp., 137 F.R.D. 292, 294 (D. Ariz. 1991). Thus, it would seem had an Erchonia agent avowed during a 30(b)(6) deposition that Erchonia was claiming only REM induced Mr. Smith's breach of the confidentiality agreement, then potentially Erchonia's claim could be limited. However, under any fair reading of Erchonia's response, the Court cannot construe it as narrowing its claim. Instead, it supports an inference Erchonia is asserting a tortious interference with an employment contract claim. Erchonia stated "REM was aware of Smith's employment with Erchonia and his obligation of confidentiality at the time it induced Mr. Smith to breach . . ." REM SOF 18 (Dkt. #271). Mr. Steven Shanks, Erchonia's President and Rule 30(b)(6) representative stated he "had no idea if Bob [Moroney] knew [of a contract between Erchonia and Smith." Mr. Shanks also stated "I would assume that most employees sign confidentiality agreements with companies, I would assume that [Mr. Moroney] would probably have asked [Mr. Smith] that before they started . . ." REM SOF. 19 (Dkt. #271). Neither statement purports to narrow or focus Erchonia's claims. Instead, the confidentiality agreement seems to be one aspect of the employment agreement, which may support Erchonia's claim REM's conduct was improper and it intended to induce Mr. Smith's breach. While Mr. Shank's knowledge of what Mr. Moroney knew may be appropriate fodder for impeachment and cross-examination, it certainly cannot be construed as Erchonia narrowing its claim. Therefore, the Court will construe Erchonia's tortious interference claim as alleging REM induced Mr. Smith to breach his employment contract with Erchonia. Turning to the merits of REM's argument, first REM argues there is no evidence that REM or Mr. Moroney knew of an Erchonia-Smith contract. In this case, Erchonia has - 12 Document 318 Filed 12/21/2005 Page 12 of 29

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proffered evidence that Mr. Moroney had a conversation with Erchonia's President, Steven Shanks, regarding Mr. Smith working for REM for the purpose of selling BioCleanse units. Dkt. #289, ER SOF Ex. 2 Moroney Dep. p.78, ln. 3-23. Mr. Moroney concedes that Mr. Smith worked for REM from October 2001 to January 2002, while he was an Erchonia employee; presumably, Erchonia agreed to Mr. Smith working for REM, although it is unclear from the record. Id. at p.84, ln. 12-15. Accordingly, there is sufficient evidence to infer that REM or Mr. Moroney knew that Mr. Smith was an Erchonia employee and for Mr. Smith to work for REM an agreement with Erchonia or Mr. Shanks was necessary. Next, REM argues Erchonia has failed to present any evidence Erchonia intended to interfere with Mr. Smith's contract and/or induce Mr. Smith's breach. However, as noted above, Erchonia has presented evidence that Mr. Moroney previously employed Mr. Smith, after having conversations with Mr. Shanks regarding Mr. Smith promoting REM's products. Dkt. #289, ER SOF Ex. 2 Moroney Dep. p.78, ln. 3-23; p.84, ln. 12-15 Further, there is evidence Mr. Moroney referred customers to Mr. Smith while he was an Erchonia employee. Dkt. #289, ER SOF ¶¶17,18,23. Thus, this evidence creates a genuine issue of material fact regarding Mr. Moroney's intent to induce Mr. Smith to breach his duties to his employer. Furthermore, this evidence goes beyond establishing Mr. Moroney or REM merely engaged in conversations with Mr. Smith regarding future potential employment, and instead, viewing the facts in the light most favorable to Erchonia creates a genuine issue of material fact regarding whether REM referred clients to Mr. Smith while he was still an Erchonia employee. Finally, REM argues Erchonia has not provided evidence of damages and it failed to supplement its discovery responses regarding its damages, which has prejudiced REM. Specifically, REM cites to the following answer to an interrogatory seeking Erchonia's damage calculation's, Erchonia stated "Erchonia is entitled to damages from REM's tortious interference with contract. Erchonia believes that REM's actions resulted in lost sales the exact number of which is unknown at this time, but additional discovery on this issue is

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anticipated . . ." Dkt. #271, REM SOF ¶18. It should be noted that REM's interrogatory was focused on damages related to Erchonia's patent infringement claim. Nonetheless, the proper vehicle for this dispute was for REM to work in good faith to obtain further discovery and to file a motion to compel, if necessary. Rule 26 (e) requires a party to "seasonably" amend a response to a request for production of documents "if the party learns that the response is in some material aspect incomplete." FED. R. CIV. PRO. Rule 26 (e)(2). Moreover, "the fact that Defendant's response to discovery was less than satisfactory does not relieve Plaintiff of its obligation to at least attempt to obtain the information through other avenues, such as motions to compel." Wright v. Fred Hutchinson Cancer Research Center, 206 F.R.D. 679, 680 (W.D. Wash. 2002). The Court cannot now ascertain, with this limited glimpse into no doubt voluminous discovery, whether Erchonia failed to supplement its discovery, whether a calculation of Erchonia's lost profits was available or necessary for REM to defend against Erchonia's claims for damages, or whether REM was prejudiced. Furthermore, Mr. Shanks testified that Erchonia had lost sales to Mrs. Winner, Ms. Campbell, and between five and twenty other sales. Accordingly, REM's argument the Court should strike or disregard Erchonia's evidence regarding the lost sale to Mrs. Winner fails. Turning to Erchonia's evidence of damages, Mrs. Winner testified she attended a seminar presented by Dr. John Brimhall in June of 2002. Dkt. #289, ER SOF ¶7. Mrs. Winner intended to purchase a laser for use in her chiropractic clinic. Dkt. #289, ER SOF ¶9. Mrs. Winner met Mr. Moroney at this seminar. Dkt. #289, ER SOF 14. During the seminar, Mrs. Winner learned from a Dr. Phillips that REM was developing the Quantum IV Laser, which was less-expensive than Erchonia's laser and would soon be available. Dkt. #306 REM RESP SOF, Ex. 1. Winner Dep. p.23-24. After the seminar, Mrs. Winner contacted Mr. Moroney to purchase the Quantum IV Laser. Mr. Moroney informed Mrs. Winner he could not provide her with the Quantum IV Laser, and instead, referred Mrs. Winner to Mr. Smith. Dkt. #289, ER SOF ¶¶17,18. There is evidence Mr. Smith was in contact with Mrs.

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Winner while he was an Erchonia employee. Dkt. #289, ER SOF ¶23. Mr. Smith ultimately furnished Mrs. Winner with a "loaner" laser. Id. at ¶¶19-23. Viewing the facts and reasonable inferences therefrom, in the light most favorable to Erchonia, Erchonia has proffered evidence that Mr. Moroney knew Mr. Smith was an employee of Erchonia, REM had previously employed Mr. Smith after discussing that possibility with Mr . Shanks, Mr. Moroney referred Mrs. Winner to Mr. Smith, while he was an Erchonia employee, and but for Mr. Moroney's interference Mrs. Winner would have purchased a laser from Erchonia. Accordingly, there is sufficient evidence to create a genuine issue of material fact that REM induced Mr. Smith to breach his employment contract with Erchonia, REM intended to induce Mr. Smith's breach, and the breach resulted in a lost sale of Erchonia's laser to Mrs. Winner during the June 2002 seminar. Therefore, REM's motion for summary judgment regarding Erchonia's tortious interference claim is denied. B. Robert E. Moroney, LLC's Motion for Partial Summary Judgment regarding its Claims for Breach of Implied Warranty of Merchantability, Breach of implied Warranty of Fitness for a Particular Purpose, (Dkt. #270). 1. Implied Warranty of Merchantability

17 The elements of a claim for breach of the implied warranty of merchantability are: (1) 18 the seller is a merchant with respect to goods of that kind; (2) the goods do not pass without 19 objection in the trade or are not fit for the ordinary purposes for which such goods are used; 20 (3) the buyer provided the merchant notice and opportunity to cure; (4) damages; and (5) 21 causation. Dietz v. Waller, 685 P.2d 744, 748-49 (Ariz. 1984); McCormick v. Ornstein, 580 22 P.2d 1206, 1209-10 (Ariz. Ct. App. 1978); ARIZ. REV. STAT. § 47-1314. At issue is whether 23 the BioCleanse product was not merchantable or not fit for its ordinary purpose. To establish 24 a product is not merchantable a plaintiff must proffer evidence the goods he received were 25 defective in that they were not fit for their ordinarily intended use. Id. 26 The dispute involves Erchonia's BioCleanse product, which Mr. Tucek and Mr. 27 Shanks designed. REM asserts when Mr. Shanks agreed to design its BioCleanse product 28 - 15 Case 2:02-cv-02036-MHM Document 318 Filed 12/21/2005 Page 15 of 29

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for Mr. Moroney to sell, Mr. Shanks was aware Mr. Moroney intended to recommend users add salt to the water when using the BioCleanse product. Dkt. #271, REM SOF ¶5. REM asserts that the BioCleanse product was plagued with breakdowns. Id. at 7. Additionally, REM has presented experts' opinions that the BioCleanse product was defective. Id. at 8,9. One expert, Mr. Becker advised Mr. Moroney that the BioCleanse product would fail 80 to 100% within the warranty period. Id. at 9. REM's experts reasoned the BioCleanse was defective because the output polarity relay contacts were welded shut or burned out, overloaded, and overheated when the conductivity of the water was altered by the addition of "large amounts of salt." Id. In contrast, Mr. Tucek averred the use of salt in the BioCleanse was unexpected and unintended. Dkt. #293, ER SOF, Ex. A Tucek Decl. ¶¶11-15. Additionally, Mr. Tucek indicated problems and consumer complaints from BioCleanse users were related to users unexpectedly using salt, because salt over-mineralized the water, which caused overheating. Id. REM has not presented evidence that foot bath products ordinarily are intended for use with salt added to the water. Furthermore, there is a contradicting evidence regarding whether the BioCleanse product was intended for use with salt added to the water. While REM argues Mr. Tucek's deposition and declaration contradict whether Mr. Tucek knew Mr. Moroney intended to recommend users add salt to the foot bath water, Mr. Tucek has never denied he knew "at some point" Mr. Moroney was recommending users add salt to the foot bath water. The issue is not whether Mr. Tucek eventually learned of Mr. Moroney's

intended use, but instead, whether this use was intended when the footbath was designed and sold. Additionally, both REM's experts and Mr. Tucek noted the BioCleanse failed because it overheated, which was due to salt being added to the water, changing the conductivity of the water. Therefore, there is a genuine issue of material fact regarding REM's claim for breach of the implied warranty of merchantability. 2. Implied Warranty of Fitness for a Particular Purpose.

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purpose; (2) that Erchonia had reason to know REM was relying on Erchonia's skill or judgment to furnish suitable goods; (3) REM in fact relied on Erchonia's skill or judgment; (4) that the BioCleanse product was not fit for the purpose for which it was required;(5) REM has sustained damages; (6) the unfitness of the BioCleanse product was the proximate cause of REM's damages; and (7) that REM was a person whom Erchonia would reasonably have expected to use the product. ARIZ. REV. STAT. § 47-1315. There can be no recovery for breach of the implied warranty of fitness for a particular purpose where the product has been used for other than the stated particular purpose. Pac. Am. Leasing Corp. v. S.P.E. Bldg. Sys., Inc., 730 P.2d 273, 279 (Ariz. Ct. App.1986). As stated above there is a genuine issue of material fact regarding whether Mr. Moroney communicated to Messrs Tucek or Shanks that he intended to tell customers to add salt to the water when using the BioCleanse. Dkt. #271, REM SOF ¶5; Dkt. #293, ER SOF, Ex. A Tucek Decl. 11-15. Accordingly, there is a genuine issue of material fact regarding whether Erchonia had reason to know of REM's particular purpose to tell customers to add salt to the water in the BioCleanse product. Therefore, summary judgment is inappropriate and the Court will refrain from addressing the remaining elements of this claim.

C.

Violation of the Arizona Consumer Fraud Act, (Dkt. ##270, 273, 275).

REM's claims under the Arizona Consumer Fraud Act are related to the Leger Memoranda and Erchonia's alleged representations regarding the superior quality of the BioCleanse product. REM has moved for summary judgment as to the latter, that Erchonia's representations regarding the superior quality of the BioCleanse product violated the Arizona Consumer Fraud Act ("ACFA"). Defendant's Erchonia and Brimhall have filed a crossmotion for summary judgment as to all of REM's claims regarding Defendants Erchonia and Brimhall allegedly violating the ACFA. The Court will address the arguments raised in various motions on this count together.

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A claim of fraud under the Arizona Consumer Fraud Act is governed by ARIZ. REV. STAT. § 44-1522, which states in pertinent part: The act, use, or employment by any person of any deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise whether or not any person has in fact been misled, deceived, or damaged thereby, is declared to be an unlawful practice. 1. Leger "Shock Hazard" Memoranda

REM claims statements made by Erchonia and Dr. Brimhall in the Leger Shock Hazard Memoranda falsely stated that REM's IonCleanse product poses a shock hazard. The Brimhalls and Erchonia contend that judgment as a matter of law on REM's ACFA claim related to the Leger Memoranda is appropriate because REM is a competitor and not a consumer. While section 44-1522 does not specifically address whether a competitor has a cause of action under the ACFA, "[t]he purpose of the Consumer Fraud Act is to eliminate unlawful practices in merchant-consumer transactions." See, e.g., Enyart v. Transamerica Ins. Co., 985 P.2d 556(Ariz. Ct. App.1998) (emphasis added). Furthermore, the ACFA further provides that it should be construed consistent with the Federal Trade Commission Act, 15 U.S.C. §§ 44, 52 and 55(a)(1). However, "[t]he Federal Trade Commission Act may be enforced only by the Federal Trade Commission. Nowhere does the Act bestow upon either competitors or consumers standing to enforce its provisions." Alfred Dunhill, Ltd. v. Interstate Cigar Co., 499 F.2d 232, 237 (2d Cir.1974) (emphasis added) Furthermore, when interpreting whether a private plaintiff, as opposed to the state, had standing to allege a violation of ACFA, Arizona Courts recognized a plaintiff must show reliance on any misrepresentation. Holeman v. Neils, 803 F. Supp. 237, 242 (D. Ariz. 1992). A plaintiff must allege "a false promise or misrepresentation made in connection with the sale or advertisement of merchandise and the hearer's consequent and proximate injury" in order to state a cause of action under the Arizona Consumer Fraud Act. Id. "It is clear that before a private party may exert a claim under the statute, he must have been damaged by - 18 Document 318 Filed 12/21/2005 Page 18 of 29

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the prohibited practice. A prerequisite to such damages is reliance on the unlawful acts." Peer y v. Hansen, 585 P.2d 574, 577 (Ariz. 1978) (emphasis added); see also State of Arizona v. Hameroff, 884 P.2d 266, 269 n. 4 (Ariz. Ct. App. 1994) (noting "that plaintiffs bringing a private cause of action under the Act may not recover unless they prove that they relied on the defendant's unlawful practice and were damaged thereby"). A cause of action under the ACFA differs from common law fraud because the consumer's reliance does not need to be reasonable. Peery, 585 P.2d at 578; see also Correa v. Pecos Valley Dev. Corp., 617 P.2d 767, 771 (Ariz. Ct. App. 1980) (commenting "[i]njury occurs when the consumer relies on the misrepresentation, even though reliance need not be reasonable."). In the instant case, REM cannot assert it relied on any of the alleged misrepresentations contained in the Leger memoranda, because REM was not a consumer who reviewed the memoranda before purchasing or declining to purchase the IonCleanse product. Instead only consumers who relied on the memoranda and were damaged by misrepresentations made therein could bring a cause of action under the ACFA. Whether viewed as standing or failing to adduce any evidence creating a genuine issue of material fact regarding REM's reliance on the alleged misstatements, REM's claim fails. Accordingly, summary judgment in favor of the Brimhalls and Erchonia is appropriate. 2. BioCleanse Product.

This dispute involves Erchonia's BioCleanse product, which Mr. Tucek and Mr. Shanks designed, in part, for Mr. Moroney to sell. REM asserts that at a convention in February of 2001, Mr. Moroney and Mr. Shanks agreed to market the BEFE product at Erchonia-sponsored seminars. Dkt. #271, REM SOF ¶4. However, when the BEFE product did not perform to expectations, Mr. Moroney, Mr. Shanks, and Mr. Tucek discussed Erchonia designing a similar therapeutic foot bath product. Id. at ¶5. REM claims, Erchonia and its representatives Messrs Tucek and Shank, violated the ACFA when they represented they would design a product that was "superior" to the BEFE product, that Erchonia would provide REM with "quality Bio-Cleanse units," and that the "BioCleanse product would be designed to Erchonia's high standards." Id. at ¶¶5,6; Dkt. #286, REM RESP Ex. 4, Moroney - 19 Document 318 Filed 12/21/2005 Page 19 of 29

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Decl. ¶8. Additionally, REM contends after Mr. Moroney communicated problems with the BioCleanse product, Erchonia violated the ACFA by stating "the problems with the BioCleanse would be solved." REM RESP Ex. 4, Moroney Decl. ¶9. The ACFA is governed by a one-year statute of limitations contained in ARIZ. REV. STAT. §12-541(5). See Sparks v. Republic Nat'l Life Ins. Co., 647 P.2d 1127, 1139 (Ariz. 1982). Both parties note, that it is unclear from the record exactly when these alleged misrepresentations were made. However, it is undisputed Mr. Moroney began selling the BioCleanse product in the spring of 2001. Dkt. #279, ER SOF ¶¶ 66,67; Dkt. #286, REM RESP 66-70. Furthermore, it is undisputed as soon as Mr. Moroney started selling the BioCleanse product it began to malfunction. Dkt. #279, ER SOF ¶¶ 68-70; Dkt. #286, REM RESP 66-70. On February 28, 2003 Mr. Moroney testified "that there were design flaws that were never corrected." Dkt. #293, ER SOF, Ex. C. p. 61, ln. 19-21. Thus, viewing the facts in the light most favorable to REM, these representations regarding the quality of the BioCleanse product would have been made prior to April 2001, because favorable statements regarding the quality of the BioCleanse product were made when Mr. Moroney and Erchonia were negotiating a suitable agreement for the BioCleanse product and in April of 2001 Mr. Moroney had already commenced selling the BioCleanse product and noting its failures. Dkt. #271, REM SOF ¶¶6. Additionally, statements that the problems would be fixed must have been made before February 2003, as Mr. Moroney indicated he knew of design flaws that were never corrected. However, REM did not assert Erchonia violated the ACFA when it stated the BioCleanse would be a "superior" and "quality product" and "problems would be solved" until March 7, 2005 in its Second Amended Complaint. REM has not argued, that the limitations period should be tolled to when REM filed its first complaint on November 22, 2002. Accordingly, any such argument is waived. REM asserts its ACFA claims related to statements made regarding the BioCleanse product is not barred by the statute of limitations because the claim did not accrue until REM obtained the Leger Memoranda on November 23, 2004. REM argues it was only upon - 20 Document 318 Filed 12/21/2005 Page 20 of 29

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receiving the Leger memoranda, did Mr. Moroney become aware that Mr. Leger, Erchonia's electrical engineer, was not involved in designing the BioCleanse unit. Furthermore, upon reading the memoranda Mr. Moroney became aware problems in the BioCleanse were inherent to the design of the product itself and could not be solved. Under the discovery rule, as adopted in Arizona, the statute of limitations for common law fraud begins running "when the defrauded party discovers or with reasonable diligence could have discovered the fraud." Mister Donut of Am., Inc. v. Harris, 723 P.2d 670, 672 (Ariz. 1986); see also Alaface v. National Inv. Co., 892 P.2d 1375, 1379 (Ariz. Ct. App. 1994). In Alaface, the Alafaces purchased from and contracted with Defendants to build a cabin on a piece of property. Prior to the purchase, the Alafaces received a letter indicating that water service would be available on any lot purchased in the area. Id. at 1377. However, after their cabin was completed, in July 1986, the Alafaces application for water service was denied. Id. The Alafaces filed a complaint in October 1987, alleging Defendants representations regarding the availability of water service violated the ACFA. The Alafaces contended the discovery rule applied and that the Alafaces only became aware of their cause of action when they discovered in March of 1987 Defendants should have been aware of the water shortages. Id. at 1379. Concluding the Alafaces AFCA claim was barred by the statute of limitations because their cause of action accrued in July 1986, the Arizona Court of Appeals reasoned, Plaintiffs had actual knowledge of the "who element" - defendant had misrepresented the availability of water and the "what element" ­ there was no available water. The Court reasoned in March 1987, when the Alafaces learned years earlier the City had informed defendants it did not have enough water, plaintiffs merely learned the misrepresentations were made knowingly. The Court held "[t]hey did not have to know all of the underlying details of the misrepresentation before their cause of action accrued." Id. Similarly, in the instant case, Mr. Moroney had actual knowledge of the "who element" in April 2001, because he knew Defendants had stated they would produce a "superior" product. Furthermore, on February 28, 2003, Mr. Moroney had actual knowledge of the "what element" that the BioCleanse was not a superior or quality product and that - 21 Document 318 Filed 12/21/2005 Page 21 of 29

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Erchonia had not fixed the problems. Specifically, Mr. Moroney testified "that there were design flaws that were never corrected." Dkt. #293, ER SOF, Ex. C. p. 61, ln. 19-21. Furthermore, viewing the facts in the light most favorable to REM, the discovery of the Leger memoranda simply would have alerted REM the alleged misrepresentations were knowingly made. However, the cause of action accrued on February 28, 2003 when Mr. Moroney knew that Erchonia's statements were not true and these misstatements had damaged REM. See Alaface, 892 P.2d at 1379. Accordingly, REM's ACFA claims related to statements made regarding the BioCleanse product, which were first raised on March 7, 2005, are barred by the statute of limitations. D. Erchonia Medical, Inc.'s Motion for Summary Judgment against Miki Smith Regarding Erchonia's Beach of Promissory Note, (Dkt. #272).

The elements of a breach of a promissory note are the same as any breach of contract: 12 execution (offer and acceptance), receipt of the loan proceeds (consideration), and failure to 13 repay the payee (breach). Commercial Cornice & Millwork Inc. v. Camel Constr. Serv. 14 Corp., 739 P.2d 1351, 1355 (Ariz. Ct. App. 1987). Mr. Smith does not deny signing a 15 promissory note but asserts three reasons why he is not obligated to pay the promissory note 16 (1) he signed the note under duress; (2) under undue influence; or (2) Charlie Shanks, Steve 17 Shanks father, forgave Mr. Smith's obligation on the note. 18 Mr. Smith maintains that he was friends with Steve Shanks before he began working 19 at Erchonia. Mr. Smith contends he moved to Arizona, after Mr. Shanks informed him if Mr. 20 Smith wanted to be a part of Erchonia he would have to move to Arizona and become a part 21 of the Grace Baptist Church. Id. ¶¶5,9. According to Mr. Smith, Charlie Shank founded the 22 Grace Baptist Church. Id. at ¶5. When the Church moved, its members followed, moving 23 from Chicago to Florida to Denver to Arizona. Id. at ¶6. In 1999, Mr. Shanks moved to 24 Arizona, began attending the Grace Baptist Church, and began working as the Vice President 25 of Sales and Marketing for Erchonia. Id. at ¶¶14,15. 26 According to Mr Smith, Erchonia operated out of the same building as the Grace 27 Baptist Church and all but one Erchonia employee were members of the church. Id. at ¶¶1028 - 22 Case 2:02-cv-02036-MHM Document 318 Filed 12/21/2005 Page 22 of 29

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12. Mr. Smith asserts that Mr. Shanks gave him permission to write checks from the Erchonia account to pay his personal bills and Mr. Shanks directed him to pay any debt back later. Dkt. #298, Sm SOF ¶¶17,18. On September 20, 2001, Steve Shanks requested that Mr. Smith attend a meeting at Charlie Shank's house, without informing him as to the purpose of the meeting. Id. at ¶22. In attendance at the meeting were Steve Shanks, Charles Shanks, Lil Shanks, John Shanks, Mark Shanks, and Charlie Shanks [Jr.] Id. at 23. The Shanks presented Mr. Smith with a promissory note, which he allegedly signed because he was pressured and "brainwashed" by the Shanks family. Id. at ¶¶25-30. Arizona has adopted the definition of duress set forth in RESTATEMENT (SECOND) OF CONTRACTS § 175 (1981); Republic Nat. Life Ins. Co. v. Rudine, 668 P.2d 905, 908 (Ariz. Ct. App. 1983) Duress in the Restatement of this Subject means: (a) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. RESTATEMENT (SECOND) OF CONTRACTS § 175 (1981). While the facts alleged show that this was not an arms-length transaction, Mr. Smith fails to allege he was subject to improper threats or Defendants engaged in wrongful acts. Johnson v. Am. Nat'l Ins. Com., 126 Ariz. 219 (Ariz. Ct. App. 1980); Silver v. Starrett, 674 N.Y.S.2d 915 (Sup 1998) (neither emotional nor economic pressures justify a finding of duress enabling avoidance of contract); Quigley v. KPMG Peat Marwick, LLP, 330 N.J. Super. 252, 749 A.2d 405 (App. Div. 2000) (the decisive factor is the wrongfulness of the pressure). Turning to Mr. Smith's second argument, undue influence in the RESTATEMENT (SECOND) OF CONTRACTS § 177 means: Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare. RESTATEMENT (SECOND) OF CONTRACTS § 177 (1981).

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Erchonia accurately notes that a majority of cases applying undue influence occurs where a close relationship exists between a beneficiary and testator and the beneficiary can exert influence over the testator. See, e.g., Matter of Estate of Kerr, 667 P.2d 1351, 1355 (Ariz. Ct. App. 1983). Erchonia argues that Mr Smith has failed to product evidence of such a relationship here. However, courts have long held there is a duty on the part of a person capable of asserting a spiritual dominion over another to make certain, before accepting a nontestamentary gift, that an individual has benefit of competent and independent advice. See, e.g., Love v. Love (In re Love), 182 B.R. 161 (Bkrtcy.W.D.Ky.1995) (concluding $156,000 transferred to a spiritual advisor was held recoverable under the theory of undue influence); In re The Bible Speaks, 869 F.2d 628, 642 (1st Cir.1989) (holding the mere existence of a spiritual advisor/client relationship is not enough to prove undue influence). Although the facts in the instant case relate to a promissory note, as opposed to a nontestamentary gift, viewing the facts and reasonable inferences in the light most favorable to Mr. Smith, there is a genuine issue of material fact regarding whether Mr. Smith was under undue influence when he signed the subject promissory note. Significantly, he was friends with the Shanks, Charlie Shank was the head of a church Mr. Smith attended, Mr. Smith worked with and in the same building as his church. Clearly, this was not an arms length transaction. According to Mr. Smith, the promissory note was not executed in a neutral location, but instead in the Shanks home, with the entire Shanks family present. Mr. Smith had no notice of the purpose of the meeting. Moreover, Mr. Smith's representations regarding the close affiliation between Erchonia and the Grace Baptist Church, the small membership in the church, and the fact its members traveled cross country whenever the church moved, gives rise to an inference Church officials exerted significant, if not total, control over Church members. Erchonia's arguments regarding the inadmissibility of Mr. Smith's statements of facts are without merit. Mr. Smith's statements as to his beliefs and the pressure he was under when signing the promissory note are clearly relevant to whether Mr. Smith was under the - 24 Document 318 Filed 12/21/2005 Page 24 of 29

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dominion and control of the Shanks. Furthermore, Mr. Smith's testimony as to his perceptions, beliefs, observations would be admissible at trial. Additionally, Erchonia's assertion Mr. Smith must have asserted he personally contributed to the church or the hardship he suffered at the church has no basis in authority. The facts asserted give rise to an inference the transaction was not arms length, for which Mr. Smith received no consideration, for which he was ambushed, for which Mr. Smith had no opportunity to have advice of counsel. Based on the foregoing, the Court concludes there is a genuine issue of material fact regarding whether Mr. Smith was under undue influence when he executed the promissory note. Accordingly, summary judgment is not appropriate.

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E.

Erchonia Medical, Inc.'s Motion for Summary Judgment Regarding Robert E. Moroney, LLC's Claims for Conversion, (Dkt. #275).1

As has been discussed above, Mrs. Jeanne Winner received a "loaner" laser. The Brimhalls contend this laser belonged to REM, however, REM asserts the laser belonged to Mr. Smith. Dkt. #285, REM SOF ¶18. In the end of August 2002, Mrs. Winner received a Quantum IV Laser from REM. Id. at ¶19. REM contends Erchonia and the Brimhalls made various misrepresentations regarding the laser. Specifically, REM maintains that Mr. Shanks informed Mrs. Winner the loaner laser had been stolen from Erchonia and that people at REM were dishonest. Id. at ¶37. Additionally, Mrs. Winner testified Mr. Shanks informed her that REM's Quantum IV Laser was not FDA approved and Mrs. Winner would "get in trouble with the FDA" if she purchased the Quantum IV laser. Id. Dr. Brimhall also corresponded with Mrs. Winner regarding the Quantum IV laser and informed Mrs. Winner whatever Mr. Shanks said was true. Id. REM asserts Mr. Shanks informed Mrs. Winner she did not have to pay REM for the Quantum IV laser. Id. Based on these conversations, upon receiving the Quantum IV Laser, Mrs. Winner sent the Quantum IV Laser to Mr. Shanks. Id. "Conversion is an intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel." See Focal Point, Inc. v. U-Haul Co. of Ariz., 746 P.2d 488, 489 (Ariz. Ct. App.1986). To maintain an action for conversion, a plaintiff must either have actual possession of the personal property or the right to demand immediate possession of the personal property at the time of the alleged conversion. Sears Consumer Fin. Corp. v. Thunderbird Prods., 802 P.2d 1032, 1034 (Ariz. Ct. App. 2004). It is undisputed that Mrs. Winner had possession of the Quantum IV Laser at the time she sent it to Mr. Shanks. Accordingly, to maintain an action for conversion, REM must

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have had the right to demand immediate possession of the Quantum IV Laser at the time Mrs. Winner sent the laser to Mr. Shanks. A secured party has the right to take possession of the collateral upon default, and so has sufficient possessory interest to bring a conversion action in those circumstances. Empire Fire & Marine Ins. Co. v. First Nat'l Bank of Ariz.,546 P.2d 1166, 1168 (Ariz. Ct. App.1976). In contrast, a conversion claim cannot be maintained to collect on a debt that could be satisfied by money generally. Autoville, Inc. v. Friedman,510 P.2d 400, 402 (Ariz. Ct. App. 1973). A conversion claim does not lie where "[t]he only relationship between the parties was that of debtor and creditor based upon a contract." Empire Fire & Marine Ins. Co., 546 P.2d at 1168. In the case at hand, REM has presented no evidence whatsoever of a security interest in the Quantum IV Laser. Instead the relationship between Mrs. Winner and Erchonia was that of debtor/creditor. However, REM maintains resolution of whether REM had immediate right to possession of the Quantum IV Laser is governed under Georgia law. REM fails to cite any facts, affidavits, or other exhibits in support of this argument. Other than representations made during oral argument, there has been no evidence presented regarding the place of contracting, the place of negotiation of the contract, the place of performance, the location of the subject matter of the contract, the domicile, residence, nationality, place of incorporation, or place of business of the parties. Accordingly, the Court finds REM's failure to adequately address the issue, concedes the point. Whetzel v. Mineta, 364 F. Supp 2d. 1077, 1083 (D. Alaska 2005). Based on the foregoing, summary judgment in favor of Erchonia on REM's conversion claim is appropriate because the only relationship between the parties was that of debtor and creditor based upon a contract. See Empire Fire & Marine Ins. Co., 546 P.2d at 1168.

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F.

The Brimhall's Motion for Partial Summary Judgment Regarding Robert E. Moroney, LLC's claims for Intentional Interference with Prospective Economic Advantage, (Dkt. #273).

Assuming arguendo that Arizona recognizes the tort for intentional interference with prospective economic advantage, REM has failed to state a claim or create any issue of material fact related to its claim. The elements of the tort of intentional interference with prospective economic advantage are as follows: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional wrongful acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. Westside Ctr. Assoc. v. Safeway Stores 23, Inc., 49 Cal. Rptr.2d 793,808 (Cal. Ct. App. 1996). REM fails to adduce any evidence establishing a specific economic relationship containing the probability of future economic benefit between it and Mrs. Winner or any other prospective customer. REM has conceded it has failed to raise any issues of fact regarding its claim for intentional interference with prospective economic advantage. Instead, REM argues the Brimhalls should have known REM was actually asserting a claim for tortious interference with contract. REM cites no authority whatsoever supporting the contention the Court should refuse to grant summary judgment and construe a claim as something other than what was pleaded. Moreover, the contention violates the requirement of Rule 8 "notice" pleading. FED. R. CIV. PRO. Rule 8. This litigation was commenced over three years ago, the time for amendment of pleadings has passed. Summary judgment on REM's claim for intentional interference with prospective economic advantage is appropriate. Accordingly, IT IS HEREBY ORDERED Robert E. Moroney, LLC's Motion to Strike "Rebuttal" Expert Disclosures of Mr. Keith Walls and Dr. John M. Turner is DENIED. (Dkt. #241). Erchonia shall within ten days of the entry of this order, take all action and make all - 28 Document 318 Filed 12/21/2005 Page 28 of 29

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supplemental disclosures necessary to ensure its experts', Mr. Walls' and Dr. Turner's, reports are in full compliance with FED. R. CIV. PRO. 26(a)(2)(B). REM is granted leave to submit a reply expert solely to rebut or contradict Mr. Walls' opinions related to "FDA approval" and "FDA market clearance" within twenty days of the entry of this order. IT IS FURTHER ORDERED Robert E. Moroney, LLC's Motion to Strike Expert Witness Disclosures of John E. Grievenkamp, Jr. is DENIED. (Dkt. #247). IT IS FURTHER ORDERED Robert E. Moroney, LLC's Motion for Partial Summary Judgment Regarding Erchonia Medical, Inc.'s T