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

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Michael S. Rubin (#005131) David Bray (#014346) MARISCAL WEEKS MCINTYRE & FRIEDLANDER, PA 2901 North Central Avenue, Suite 200 Phoenix, Arizona 85012-2705 Robert R. Brunelli (#20070) Benjamin B. Lieb (#28724) SHERIDAN ROSS P.C. 1560 Broadway, Suite 1200 Denver, Colorado 80202-5141 Attorneys for Robert E. Moroney, LLC, Robert Moroney, and A Major Difference, Inc. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Erchonia Medical, Inc., et al. Plaintiffs, v. Miki Smith, et al. Defendants. Erchonia Medical, Inc., et al. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. CIV 02-2036-PHX-MHM

17 Plaintiffs, 18 v. 19 Miki Smith, et al. 20 Defendants. 21 22 23 24 25 26 27 v. Erchonia Medical, Inc., et al. Defendants. Robert E. Moroney, LLC, et al. Plaintiffs,

REPLY IN FURTHER SUPPORT OF ROBERT E. MORONEY LLC'S CONSOLIDATED MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING ERCHONIA MEDICAL, INC.'S TORTIOUS INTERFERENCE WITH CONTRACT CLAIM (ORAL ARGUMENT REQUESTED)

Mr. Robert Moroney ("Moroney") and Robert E. Moroney LLC (collectively 28 "REM"), hereby replies in further support of REM's Consolidated Motion for Partial

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Summary Judgment Regarding Erchonia Medical, Inc.'s ("Erchonia") Tortious Interference With Contract Claim (the "Motion"). Through its response to REM's Motion (Erchonia's "Response"), Erchonia effectively concedes that it has failed to timely supplement its responses to REM's discovery requests, as required by Fed. R. Civ. P. 26(e), or provide a damages calculation for its tortious interference with contract claim, as required by Fed. R. Civ. P. 26(a)(1). For this reason alone, REM's Motion should be summarily granted. Furthermore, when the Court examines the record, it will see that there are no genuine issues of material fact on at least the intent and damages elements of Erchonia's tortious interference with contract claim, and that Erchonia has grossly misrepresented the factual record in an attempt to avoid the inevitable. For these reasons, and as further explained below, REM respectfully requests that the Court grant REM's Motion. I. ERCHONIA'S FAILURE TO TIMELY PROVIDE INFORMATION Erchonia has provided only conclusory responses to REM's Interrogatory Nos. 16 and 18, which sought the principal facts supporting, among other things, Erchonia's claim for tortious interference with contract, and a detailed calculation of its damages relating thereto. (See Motion, pp. 4 ­ 7.) Now, in its Response, Erchonia has revealed, for the first time, the factual basis for this claim. Indeed, the contents of pages 3 through 7 of Erchonia's Response could and should have been provided long ago. Incredibly, Erchonia continues to withhold the calculation of its alleged lost profit damages. Erchonia had the necessary information to provide a damages calculation, no later than October 8, 2004, when the deposition of Jeanne Winner ("Winner") was completed. (See Erchonia's Supplemental Statement of Facts in Response to REM's Consolidated Motion for Partial Summary Judgment Regarding Erchonia's Tortious Interference with Contract Claim ("Erchonia S.S.O.F."), ¶¶ 5 ­ 10, 13 ­ 19, 22 ­ 26 and 30 ­ 32.) Within thirty days, Erchonia could and should have easily supplemented its responses to Erchonia's Interrogatory Nos. 16 and 18, and supplemented its Rule 26(a)(1) disclosures to provide the factual basis for its tortious interference with contract claim that it now

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relies upon in opposing REM's Motion. Erchonia should not now be permitted to rely upon this information. II. ERCHONIA'S NUMEROUS FACTUAL MISREPRESENTATIONS Should the Court consider the substance of Erchonia's Response, it will find that Erchonia's factual allegations are completely inaccurate, and that Erchonia has misrepresented the record. The bulk of these efforts are directed to attempting to show that, while Smith was still employed by Erchonia, he assisted REM in selling a single Quantum IV Laser to Winner. While it is undisputed that Smith was involved in the sale of the Quantum IV Laser to Winner, there is no evidence that Smith's involvement occurred prior to his leaving Erchonia on July 22, 2002. REM addresses each of Erchonia's misrepresentations in the order in which they appear in the Response: · Erchonia asserts that "[p]rior to attending the seminar [Winner] made the

decision to purchase a laser." (Response, p. 4.) In fact, Winner testified that her interest in purchasing a therapeutic laser product did not arise until she attended the June 2002 Brimhall seminar in Atlanta (the "Seminar"), (REM's Response in Opposition to Erchonia Medical, Inc.'s Supplemental Statement of Facts in Response to Robert E. Moroney LLC's Consolidated Motion for Partial Summary Judgment Regarding Erchonia Medical, Inc.'s Tortious Interference with Contract Claim ("REM R.S.O.F."), ¶ 8), and that her decision to purchase a laser was not made until after the Seminar. (Id., ¶ 9.) · Erchonia next suggests that Winner "held off purchasing an Erchonia laser

at this seminar" as a result of speaking with Smith. (Response, p. 4.) In fact, there is no evidence that Winner "held off" anything. There is no evidence that Winner was going to purchase an Erchonia laser at the Seminar or otherwise. (REM R.S.O.F., ¶ 10.) · Erchonia claims that there is "conflicting testimony that [Winner] spoke to

Miki Smith about purchasing a laser at [the] seminar." (Response, p. 4.) In fact, the evidence shows that Winner never spoke to Smith at the Seminar. John Taft

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("Taft"), who was present at the Seminar, testified that he did not know whether Winner ever spoke to Smith. (REM R.S.O.F., ¶ 12.) Winner's testimony confirms that she never spoke to Smith at the Seminar. (Id.) · Erchonia next suggests that REM directed Winner to Smith to obtain a

loaner laser, while Smith was still working for Erchonia. (Response, p. 5.) Specifically, Erchonia states that "[t]he timing of the telephone call to Miki Smith establishes this. Winner made these calls to Miki Smith's cellular telephone that was provided to him while he worked for Erchonia and which Erchonia repossessed upon Smith's termination." (Id., emphasis added.) First, there is no evidence that Winner called a cellular telephone. Indeed, although Erchonia has produced records showing every call made to Smith's confiscated cellular telephone from June of 2002 through July 22, 2002, Erchonia cannot point to the alleged phone call from Winner. (Erchonia S.S.O.F., ¶ 23.) Second, the only evidence as to when this telephone call was made is from Smith, and his testimony is that he first received a telephone call from Winner in August of 2002. (REM R.S.O.F., ¶ 15.) Winner has no recollection of when the telephone call was made. (Id.) · Erchonia claims that "[t]he facts demonstrate that Miki [Smith] was

[generating] interest in a competing product while he was still working for Erchonia." (Response, p. 6.) However, the record that Erchonia cites does not support this statement. Instead, Smith's testimony merely shows that Moroney sent a prototype of the Quantum IV Laser to Smith so that Smith could deliver it to another individual for evaluation. (REM R.S.O.F., ¶ 26.) · Erchonia then states that there is "conflicting information from which can

be inferred that Miki Smith was involved in diverting sales to REM prior to his departure from Erchonia." (Response, p. 6.) Erchonia supports this statement with the suggestion that there is some inconsistency in Smith's testimony concerning his sale of Quantum IV Laser products: "While [Smith] testified that he did not have [Quantum IV] lasers to sell prior to August 2002, Smith later admitted that he had

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prototypes with him at least as early as June 2002. (Id., emphasis added.) There is no such inconsistency. Smith testified that he was provided a single Quantum IV Laser prototype by Mr. Moroney to deliver it to another individual for evaluation purposes. (REM R.S.O.F., ¶ 27.) There is no evidence that Smith was attempting to sell that prototype or any other device other than Erchonia's products before he left Erchonia. Next, Erchonia claims that "[Smith] stated that he was not selling any lasers at the June 2002 Brimhall seminar." (Response, p. 6.) However, there is no citation to the record supporting this statement. Actually, Smith was selling lasers at the June 2002 Brimhall seminar ­ he was selling Erchonia's laser products. (REM R.S.O.F., ¶¶ 11 ­ 12.) Finally, Erchonia claims that other individuals asked Taft about purchasing lasers at the Seminar, the implication being that these questions concerned REM's Quantum IV Laser. (Response, p. 6.) However, Taft's testimony indicates these inquiries were related to Erchonia's laser products. (REM R.S.O.F., ¶ 11.) Erchonia has produced no evidence showing that Smith diverted any sales to REM while he was working for Erchonia. · The first lost laser sale that Erchonia claims to have suffered was to Winner.

However, Winner's undisputed testimony is that she decided to purchase REM's Quantum IV Laser because it was less expensive than Erchonia's laser products, and that she learned of the Quantum IV Laser and the price difference from Dr. Bonnie Phillips ("Phillips") and Taft, not from Smith. (Winner Depo., p. 20, l. 12 ­ p. 24, l. 5.) · Erchonia claims that Phillips "failed to purchase a laser at the same

seminar." (Response, p. 7, emphasis added.) This statement presumes that Phillips was going to actually purchase a laser from Erchonia at the Seminar. However, there is no admissible evidence of what Phillips' intentions were.1 Furthermore, the record cited by Erchonia does not support Erchonia's claim that Phillips never The evidence that Erchonia relies upon is hearsay testimony from Winner and, in any event, does not indicate that Phillips intended to purchase a laser from Erchonia at the Seminar. (REM R.S.O.F., ¶ 32.) -5Document 305 Filed 09/09/2005

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purchased a laser at the Seminar. (See Erchonia S.S.O.F., ¶¶ 11 and 30.) What is undisputed is that Phillips never purchased a Quantum IV Laser from REM. (REM R.S.O.F., ¶ 32.) · Finally, Erchonia guesses that it lost another five to twenty laser sales at

other seminars due to Smith's alleged promotion of REM's products while he was still employed with Erchonia. (Response, p. 7.) This allegation is based solely on the unsupported testimony of Steve Shanks, Erchonia's President. (Erchonia S.S.O.F., ¶ 32.) These alleged lost sales are nothing more than pure speculation. (REM R.S.O.F., ¶ 32.) That Erchonia cannot even establish the exact number of alleged additional lost sales proves this point. ARGUMENT When the undisputed facts are viewed in light of the required elements of Erchonia's tortious interference with contract claim, it is readily apparent that REM is entitled to summary judgment. A. Erchonia's Damages Evidence Must Be Striken

Erchonia has not even attempted to explain why it has failed to provide any damages calculation for its tortious interference with contract claim, or why it never supplemented its Responses to REM's Interrogatory Nos. 16 and 18. Erchonia's silence effectively concedes its failure to comply with Fed. R. Civ. P. 26(a)(1) and 26(e). These failures are not harmless. REM has been severely prejudiced by Erchonia's failure to timely provide this information, as it precluded REM from understanding the basis for Erchonia's damages claims and taking appropriate discovery. For this reason alone, REM respectfully submits that the Court should find that Erchonia may not rely upon this evidence at trial. See Colombini v. Empire College, No. C-97-04500-CRB, 2001 U.S. Dist. LEXIS 13405, at *24-26 (N.D. Ca. Aug. 17, 2001); Fed. R. Civ. P. 37(c)(1). With no competent evidence that Erchonia was damaged by REM's alleged tortious interference with contract, and no evidence regarding the extent of those damages, no reasonable jury

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could find that Erchonia suffered any damage and Erchonia's claim must fail. For this reason alone, REM's Motion should be granted. B. Even If Considered, Erchonia's Damages Evidence Is Legally Insufficient

Erchonia bears the burden to show the amount of its alleged lost profits damages 5 with reasonable certainty. Gilmore v. Cohen, 386 P.2d 81, 82 (Ariz. 1963). Erchonia's 6 damages claims cannot be based upon mere "conjecture or speculation." Id., citing, 7 McNutt Oil & Refining Co. v. D'Ascoli, 281 P.2d 966 (Ariz. 1955). That is, Erchonia 8 must prove its lost profits damages are the direct and proximate result of REM's alleged 9 tortious interference. See, e.g., B&P Holdings I, LLC v. Grand Sasso, Inc., No. 99-4072, 10 2002 U.S. Dist. LEXIS 12161, at *36-37 (E.D. Pa. Apr. 15, 2002), citing, National 11 Controls Corp. v. Nat'l Semiconductor Corp., 833 F.2d 491, 496 (3d Cir. 1987) (proof of 12 "but-for" and proximate causation is prerequisite to recovery of lost profit damages.) 13 Even if the Court were to consider Erchonia's evidence of alleged lost sales to 14 Winner, Phillips and the other unspecified lost sales, Erchonia has failed to come forth 15 with facts sufficient to show that even one of these sales were lost as a direct and 16 proximate result of any action by REM. Winner's undisputed testimony is that she learned 17 of REM's Quantum IV Laser from Phillips and John Taft, not REM or Smith, and that she 18 decided to purchase that product because it was less expensive than Erchonia's laser 19 products. (REM R.S.O.F., ¶ 32.) There is no evidence that Winner's decision to purchase 20 the Quantum IV Laser was a result of any improper action by REM. Next, Erchonia has 21 presented no evidence that it lost a sale to Phillips. (Id.) In fact, REM has never sold a 22 Quantum IV Laser product to Phillips. (Id.) Finally, the other unspecified five to twenty 23 lost laser sales that Erchonia claims to have suffered are based upon nothing but pure 24 speculation. Erchonia has not presented any evidence showing that, but for any improper 25 action by REM, Erchonia would have made these alleged sales. Such speculation cannot 26 be the basis for an award of lost profits damages. Gilmore, 386 P.2d at 82. Erchonia's 27 failure to come forth with sufficient evidence to show that it can meet its burden to prove 28

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the damages element of its tortious interference with contract claim is, alone, another sufficient basis to grant REM's Motion. C. Erchonia Has Failed To Point To Any Evidence Showing That REM Had Any Intent To Interfere With Any Contract Between Erchonia And Smith

Assuming arguendo that REM knew of a contract between Erchonia and Smith, Erchonia must still prove that REM intended to interfere with that contract. Antwerp Diamond Exch. of America, Inc. v. Better Bus. Bureau, 637 P.2d 733, 740 (Ariz. 1981); Safeway Ins. Co., Inc. v. Guerrero, 106 P.3d 1020, 1024 ­ 25 (Ariz. 2005). While Erchonia claims that REM "actively induced Smith to breach his obligations of loyalty" to Erchonia, at best, the evidence shows that Moroney merely provided a prototype Quantum IV Laser to Smith in order to deliver it to another individual for evaluation. (REM R.S.O.F., ¶ 27.) There is no evidence that REM intended to induce Smith to take any other action with respect to that prototype product. Moreover, the mere fact that Smith had conversations with Moroney concerning potential employment with REM, does not, in of itself, constitute a breach of Smith's duty of loyalty to Erchonia. R ESTATEMENT S ECOND OF A GENCY § 393, cmt. e. Erchonia has failed to point to any evidence, whatsoever, showing any intention by REM to improperly interfere with any contract between Erchonia and Smith. IV. CONCLUSION Based on Erchonia's failure to timely provide requested and mandatory information concerning its tortious interference with contract claim during discovery, Erchonia should be precluded now from relying upon this evidence in opposition to REM's Motion. However, even if that evidence is considered, it is legally insufficient to prove that Erchonia's alleged lost profits damages are the direct and proximate result of any improper action by REM. Erchonia has also failed to come forth with any evidence showing any intention by REM to interfere with any contract between Erchonia and Smith. There is no genuine issue of material fact as to the intent or damages elements of Erchonia's tortious interference with contract claim. Therefore, for the foregoing reasons,

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as well as those set forth in REM's Motion, REM respectfully requests that the Court enter summary judgment in favor of REM on Erchonia's tortious interference with contract claim. In the event that the Court is inclined to deny REM's Motion, REM requests oral argument to further address the basis for that inclination.

Dated: September 9, 2005

Respectfully submitted, By: s/ David G. Bray Michael S. Rubin David G. Bray MARISCAL WEEKS MCINTYRE & FRIEDLANDER, P.A. Robert R. Brunelli Benjamin B. Lieb SHERIDAN ROSS P.C. Attorneys for Robert E. Moroney, LLC, Robert Moroney, and A Major Difference, Inc.

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CERTIFICATE OF SERVICE I hereby certify that on September 9, 2005, I electronically transmitted or caused to be transmitted the attached REPLY IN FURTHER SUPPORT OF ROBERT E. MORONEY LLC'S CONSOLIDATED MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING ERCHONIA MEDICAL, INC.'S TORTIOUS INTERFERENCE W ITH CONTRACT CLAIM (ORAL ARGUMENT REQUESTED) on behalf of Robert E. Moroney, LLC, to the Clerk's Office using the CM/ECF system for filing and transmittal of a Notice of Electronic Filing to the following ECF registrants: David Geoffrey Bray: [email protected], [email protected]

7 Michael S. Rubin: [email protected], [email protected] 8 Ray Kendall Harris: [email protected], [email protected] 9 Timothy R. Hyland: [email protected], [email protected], [email protected] 10 Steven Plitt: [email protected], [email protected], [email protected] 11 12 13 14 Michael Warzynski: [email protected], [email protected] 15 Scott A. Salmon: [email protected] 16 17 18 19 20 21 22 23 24 25 26 27 28 In addition, a copy of the above-referenced pleading was mailed to the following: Robert R. Brunelli Benjamin B. Lieb Sheridan Ross P.C. 1560 Broadway, Suite 1200 Denver, CO 80202-5141 Gordon Samuel Bueler Bueler Jones LLP 1300 N. McClintock Drive, #B-4 Chandler, AZ 85226 Gregory L. Miles Lori A. Curtis Davis Miles PLLC P.O. Box 15070 Mesa, AZ 85211-3070 Gale Peterson Cox Smith Matthews 112 E Pecan Street, Suite 1800 San Antonio, TX 78205-1521 Ira M . S ch w a rtz: [email protected] M ic h a e l A . C o rdier: [email protected] isch w a rtz@ dm ylphx.com , m cordier@ dm ylphx.com , kkirk@ d m ylph x .c o m , D om inic L ew is V erstegen: [email protected] B r a d le y R . J a r d i n e : [email protected] dlv@ kunzlegal.com , firm @ kunzlegal.com , lroasa@ jbhhlaw .com ,

bjardine@ jbhhlaw .com ,

m cordier@ d m ylphx.com ,

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DATED THIS 9th day of September, 2005. MARISCAL, WEEKS, MCINTYRE & FRIEDLANDER, P.A. By: s/ David G. Bray

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