Free Response in Opposition 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. Div 02-2036-PHX-MHM ROBERT E. MORONEY, LLC'S RESPONSE TO ERCHONIA'S COMPREHENSIVE SEPARATE STATEMENT OF FACTS IN SUPPORT OF ERCHONIA MEDICAL, INC.'S MOTION FOR SUMMARY JUDGMENT CONCERNING REM'S CLAIMS FOR CONVERSION AND VIOLATION OF ARIZONA CONSUMER FRAUD ACT

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,

Robert E. Moroney, LLC ("REM") hereby responds to Erchonia's "Comprehensive" 28 Separate Statement of Facts in Support of Erchonia Medical, Inc.'s Motion for Summary

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Judgment Concerning REM's Claims for Conversion and Violation of Arizona Consumer Fraud Act ("Erchonia S.O.F."), on a paragraph-by-paragraph basis: 1. ­ 3. 4. ­ 18. REM does not dispute the statements set forth in paragraphs 1 through 3. The statements set forth paragraphs 4 through 18 of Erchonia's Statement

of Facts are not directed to Erchonia's Motion for Summary Judgment Concerning REM's Claims for Conversion or Violation of the Consumer Fraud Act. Therefore, REM does not respond to those statements at this time, but reserves the right to do so if necessary in the future. 19. ­ 36. Although REM does not dispute the statements set forth in paragraphs 19 through 36, the statements present an incomplete picture of the totality of events relating to Erchonia's and Dr. John Brimhall's ("Brimhall") actions to convert REM's Quantum IV Laser. These additional events are set forth in response to paragraphs 37, 40 through 43, and 45. 37. As set forth in paragraph 37, Erchonia nonchalantly states that

Ms. Jeanne Winner ("Winner") merely "grew concerned that REM did not obtain FDA pre-market clearance for the laser it sold to her." The facts underlying why Winner had this concern are relevant to REM's conversion and other claims for relief: (a) Upon Winner's receipt of the loaner laser provided by Miki Smith through REM, the laser would not function. (Deposition of Jeanne Winner ("Winner Depo."), p. 40, ll. 3 ­ 4, attached hereto as Exhibit 1.) Winner attempted to contact Miki Smith by telephone, but reached Steve Shanks ("Shanks") because Shanks had taken Miki Smith's cell phone. (Winner Depo., p. 41, ll. 10 ­ 15; p. 110, l. 12 ­ p. 111, l. 1.) At that time, Shanks told Winner that the loaner laser had been stolen from Erchonia. (Id., p. 41, ll. 10 ­ 15; p. 45, ll. 3 ­ 19.) In fact, the laser was not stolen and belonged to Miki Smith. (Deposition of Miki Smith ("Smith Depo."), p. 84, l. 12 ­ p. 86, l. 10, attached hereto as Exhibit 2.) Shanks also told Winner that, in dealing with REM, she was dealing with dishonest people. (Winner Depo., p. 44, l. 14 ­ p. 45, l. 19.) Shanks then convinced Winner to

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provide the loaner laser to him, in exchange for another Erchonia laser product. (Id., p. 41, l. 23 ­ p. 43, l. 9.) (b) Shanks also learned that Winner had ordered a Quantum IV Laser from REM. Shanks told Winner that REM's Quantum IV Laser was not "FDA approved," that if Winner purchased the laser she and her husband, Dr. Winner, would get in trouble with the FDA and lose their investment in the laser. (Id., p. 52, l. 24 ­ p. 53, l. 20; p. 132, ll. 4 ­ 16.) Shanks represented to Winner that he had the authority to confiscate REM's Quantum IV Laser, and that he would turn it over to the FDA on her behalf. (Id., p. 67, ll. 7 ­ 23; p. 75, ll. 3 ­ 17; p. 83, l. 22 ­ p. 84, l. 15; p. 125, l. 17 ­ p. 126, l. 5.) (c) Steve Shanks later contacted Winner on several occasions to find out if Winner had yet received the Quantum IV Laser from REM. (Id., p. 51, ll. 14 ­ 21.) During these conversations, Shanks repeated his allegations that REM's Quantum IV Laser did not have "FDA approval," and that the Winners would get in trouble with the FDA and lose their investment in the Quantum IV Laser. (Id., p. 52, l. 24 ­ p. 53, l. 20.) Shanks further represented to Winner that she did not have to pay REM for the Quantum IV Laser because it was not FDA-approved. (Id., p. 53, ll. 21 ­ 23.) (d) In August of 2002, Winner attended a Brimhall certification seminar in Mesa, Arizona. While there, Winner was approached by Shanks who asked to speak with Winner in private. (Id., p. 39, ll. 11 ­ 14.) Later Shanks met with Winner and showed her various documents that he claimed to prove that Miki Smith had stolen money, laser products and a customer list from Erchonia, and was now using that stolen property and information with REM. (Id., p. 65, l. 11 ­ p. 67, l. 17.) Shanks asked Winner to help him obtain REM's Quantum IV Laser, to which Winner agreed, convinced by Shanks that she was working with thieves. (Id., p. 67, l. 18 ­ p. 68, l. 3.)

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(e) Brimhall also met privately with Winner at the Arizona certification seminar and told Winner that Moroney and Smith were thieves. (Id., p. 101, l. 4 ­ p. 102, l. 18.) Brimhall represented to Winner that he was working together with Shanks to obtain the Quantum IV Laser from REM. (Id., p. 115, ll. 6 ­ 11; p. 140, l. 21 ­ p. 142, l. 24.) Brimhall also told Winner that whatever Steve Shanks said to Winner was true. (Id., p. 63, l. 7 ­ p. 64, l. 3; p. 141, l. 10 ­ p. 142, l. 23.) Winner trusted Brimhall based on his notoriety. (Id., p. 101, ll. 4 ­ 19; p. 143, ll. 1 ­ 15.) (f) Several weeks after the Arizona certification seminar, Winner received REM's Quantum IV Laser and sent it to Shanks to turn over to the FDA. (Id., p. 115, l. 24 ­ p. 116, l. 3.) Winner never told REM that she intended to immediately turn the Quantum IV Laser over to Erchonia. (Id., p. 116, ll. 4-7.) 38. ­ 39. REM does not dispute the statements set forth in paragraphs 38 and 39. 40. As set forth in paragraph 40, Erchonia asserts that Winner "was told that

she already 'closed the deal' and that she 'had already signed the deal away' for the purchase of the laser." (Erchonia S.O.F., ¶ 40.) As set forth in the Declaration of Richard Larry Fox ("Fox Dec."), attached hereto as Exhibit 3, Fox has no recollection of ever making such statements to Winner and does not believe that he would have ever made such statements. (Fox Dec., ¶ 4.) Therefore, it is disputed whether such statements were ever made to Winner. 41. ­ 43. As set forth in paragraphs 41 through 43, the statements therein are irrelevant to the determination of Erchonia's Motion for Summary Judgment Concerning REM's Claims for Conversion and Violation of the ACFA. (Erchonia S.O.F., ¶¶ 41 ­ 43.) Nevertheless, Steve Shanks did represent to Winner that the lack of a serial number on the Quantum IV Laser indicated that the device was not "FDA approved." (Winner Depo., p. 78, ll. 5 ­ 15.) This representation is literally false because a serial number is nothing more than a number used by the manufacturer or distributor to track products after they are released into the marketplace. (Declaration of Robert E. Moroney ("Moroney Dec."),

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¶ 5, attached hereto as Exhibit 4.) REM does not further respond to the statements in paragraphs 41 through 43 at this time, but reserves the right to do so if necessary in the future. 44. 45. REM does not dispute the statements set forth in paragraph 44. As set forth in paragraph 45, Erchonia claims that Winner traded the

Quantum IV Laser for an Erchonia laser. (Erchonia S.O.F., ¶ 45.) Winner emphatically denies that she gave the Quantum IV Laser to Erchonia in trade or exchange for any Erchonia laser. (Winner Depo., p. 77, l. 20 ­ p. 78, l. 4; p. 129, l. 13 ­ p. 130, l. 1.) Alternatively, Erchonia claims that Winner merely "gave the laser she purchased to Steve Shanks from Erchonia . . . ," implying that Winner simply intended for Shanks to take title to the laser device. (Erchonia S.O.F., ¶ 45.) However, Winner's testimony is clear that she was providing the Quantum IV Laser to Shanks because Shanks had represented to her that he was authorized to confiscate the laser and would turn the laser device over to the FDA on her behalf. (Winner Depo., p. 75, ll. 3 ­ 17; p. 83, l. 22 ­ p. 84, l. 15; p. 125, l. 17 ­ p. 126, l. 5.) Later, Winner demanded Erchonia to return the Quantum IV Laser to her, which Erchonia refused. (Id., p. 126, l. 25 ­ p. 127, l. 16.) At that time, Shanks told Winner that Erchonia had disassembled the Quantum IV Laser and it could no longer be returned. (Id., p. 87, l. 22 ­ p. 88, l. 1; p. 127, ll. 5 ­ 18.) 46. REM does not dispute the statement set forth in paragraph 46.

47. ­ 48. As set forth in paragraphs 47 and 48, Erchonia claims that Winner agreed to pay REM for the Quantum IV Laser and that such offer was refused by REM. Actually, Winner's offer to pay REM for the Quantum IV Laser was meant to satisfy the entire dispute between REM and Winner concerning the Quantum IV Laser and the second loaner laser provided to Winner. (Id., p. 86, l. 8 ­ p. 87, l. 3; Moroney Dec., ¶ 4.) Winner has never offered to simply pay REM for the Quantum IV Laser without condition. (Moroney Dec., ¶ 4.) REM continues to be owed $10,030.00 for the Quantum IV Laser that was taken from REM through Winner by the false and misleading statements of Shanks and Brimhall. (Id.)

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49. ­ 63. REM does not dispute the statements set forth in paragraphs 49 through

64.

As set forth in paragraph 64, Erchonia claims that Dr. Karen Kelly

("Kelly") was the only person outside Erchonia to receive the Leger Shock Hazard Memo. (Erchonia S.O.F., ¶ 64.) This assertion is categorically false. In fact, the evidence shows that the Shock Hazard Memo, or its contents, were distributed to numerous individuals outside of Erchonia, and potentially to hundreds or thousands of potential REM customers: (a) In a letter dated February 21, 2003, Erchonia's counsel represented that the Shock Hazard Memo had been distributed to "less than three" customers. (Erchonia Feb. 21, 2003 Letter, attached hereto as Exhibit 5.) (b) In response to REM's Interrogatory No. 1, which seeks a detailed description of how Erchonia had distributed the Shock Hazard Memo, Erchonia admitted that the Shock Hazard Memo had been distributed to Brimhall and Dr. Richard Amy ("Amy"), as well as Kelly. (Robert E. Moroney, LLC's First Set Of Discovery Requests To Erchonia Medical, Inc. And Defendant Erchonia Medical, Inc.'s Responses Thereto, p. 2, attached hereto as Exhibit 6.) Amy has admitted seeing the Shock Hazard Memo. (Deposition of Richard Amy ("Amy Depo."), p. 91, l. 5 ­ p. 92, l. 15, attached hereto as Exhibit 7.) In turn, Amy has admitted that the Shock Hazard Memo or its contents, were provided to Don Rein ("Rein") and Jon Foster ("Foster"), individuals involved in selling Erchonia's EB-305 Ionization footbath product. Amy concedes that Rein and Foster had access to the Shock Hazard Memo. (Dr. Amy's Response To Motion Regarding Contempt, p. 4, attached hereto as Exhibit 8.) (c) Rein and Foster subsequently distributed the Shock Hazard Memo, or its contents, to actual or potential REM customers. Kelly was told that the IonCleanse posed a shock hazard by Rein. (Deposition of Karen Kelly ("Kelly Depo."), p. 111, l. 4 ­ p. 112, l. 2; p. 122, l. 12 ­ p. 123, l. 23, attached hereto as Exhibit 9.) Similarly, Dr. Ronald Stellmacher has testified by declaration and

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deposition that Rein told him that the IonCleanse product posed a shock hazard during an Erchonia-sponsored seminar at which the EB-305 product was being offered for sale. (Deposition of Ronald Stellmacher ("Stellmacher Depo."), p. 60, l. 11 ­ p. 62, l. 9, attached hereto as Exhibit 10; Declaration of Ronald L. Stellmacher ("Stellmacher Dec."), ¶¶ 3 ­ 5, also attached hereto as Exhibit 10.) As a result of these comments, Dr. Stellmacher purchased Erchonia's EP-305 product instead of REM's IonCleanse product. (Stellmacher Dec., ¶ 4.) Douglas Baldwin has testified that Foster told him that the IonCleanse product posed a shock hazard, in the course of demonstrating the EB-305 product for sale. (Declaration of Douglas Baldwin ("Baldwin Dec."), ¶ 4, attached hereto as Exhibit 11.) (d) George Leger, the Shock Hazard Memo's author, has testified that he filled out an FDA report form at the request of Shanks or Debra Engolia, Shank's assistant, and ultimately gave it to Engolia. (Deposition of George Leger ("Leger Depo."), p. 127, l. 10 ­ p. 132, l. 10, attached hereto as Exhibit 12.) The report was subsequently sent by Erchonia to the FDA and was forwarded to REM by the FDA on or about October 25, 2002. (Moroney Dec., ¶ 6.) (e) On October 30, 2002, Shanks prepared the "Dear Erchonia Laser Owner" letter attached hereto as Exhibit 13. In that letter, Shanks asserts that REM's IonCleanse product is dangerous, attaching a copy of the Shock Hazard Memo. (Ex. 13, ERCCOM1026.) The metadata for this letter indicates that Shanks completed drafting the letter on October 30, 2002 at 10:49 a.m. (Id., ERCCOM1028.) Next, Shanks forwarded the letter to Engolia at 11:50, as

indicated from the email attached hereto as Exhibit 13. (Ex. 13, ERCCOM1024). Kelly's testimony is that she and at least one of her customers subsequently received this letter. (Kelly Depo., p. 39 ­ 40; 43 ­ 48, Ex. 9.) (f) Finally, REM has received numerous inquiries from customers concerning a potential shock hazard for its IonCleanse product that were generated

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as a result of Erchonia's dissemination of the Shock Hazard Memo. (Moroney Dec., ¶ 6.) 65. As set forth in paragraph 65, Shanks claims that he believed the Leger

memo was accurate at the time he sent it to Kelly. (Erchonia S.O.F., ¶ 65.) This statement is irrelevant to the determination of Erchonia's Motion for Summary Judgment Concerning REM's Claims for Conversion and Violation of the ACFA. Nevertheless, REM contends that, at trial, the totality of facts concerning Erchonia's unlawful actions directed towards REM will cast heavy doubt over Shanks claim that he believed the Leger Shock Hazard Memo was accurate. 66. ­ 70. REM does not dispute the statements set forth in paragraphs 66 through

71.

As set forth in paragraph 71, while REM does not dispute the statements

set forth therein, the evaluation of the BioCleanse product by Mr. DeAngelis was not made in the context of Erchonia's representations to REM. (Moroney Dec., ¶ 7.) As such, Mr. DeAngelis did not analyze or opine on the veracity of these representations. (Id.) REM did not have the expertise in-house to make such an evaluation. (Id.) It was not until November 23, 2004, when REM obtained copies of memorandums authored by George Leger (attached hereto as Exhibit 14), that REM was able to ascertain that Leger, Erchonia's electrical design engineer, was not involved in designing the BioCleanse product. (Moroney Dec., ¶ 8.) This suspicion was later confirmed in discovery when Leger testified that he was not involved with the BioCleanse product until several months before it was discontinued. (Leger Depo., p. 140, ll. 10 ­ 17.) Moreover, these

memoranda revealed that, contrary to Erchonia's representations, the problems with the BioCleanse product design and construction were inherent in the design itself. (See Exhibit 14.) REM then moved to amend its complaint to include its new claim under the ACFA. (REM Amended Complaint, attached hereto as Exhibit 15.) 72. ­ 73. As set forth in paragraphs 72 and 73, Erchonia implies that, although REM knew the BioCleanse units were "crap," that REM is somehow responsible for its

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own harm because REM continued to purchase them because "there was nothing else to sell." REM disputes this implication ­ it was Erchonia's continuing representations to REM that the problems with the BioCleanse product design and construction would be solved that induced REM to continue purchasing the BioCleanse product. (Moroney Dec., ¶ 9.)

Dated: August 22, 2005

Respectfully submitted,

By:

s/ David Bray Michael S. Rubin David Bray MARISCAL WEEKS MCINTYRE & FRIEDLANDER, PA 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 August 22, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to those attorneys registered with CM/ECF: Gregory L. Miles Lori A. Curtis DAVIS MILES, PLLC P.O. Box 15070 Mesa, Arizona 85211-3070 Steven Plitt Timothy R. Hyland Dominic L. Verstegen KUNZ, PLITT HYLAND DEMLONG & KLEIFIELD A Professional Corporation 3838 North Central Avenue, Suite 1500 Phoenix, Arizona 85012 Attorneys for John W. Brimhall and Claudette Brimhall Ira M. Schwartz Michael A. Cordier DECONCINI MCDONALD YETWIN & LACY, P.C. 7310 N. 16 th Street, Suite 330 Phoenix, Arizona 85020 Attorneys for Erchonia Medical, Inc., George Leger and Gina Leger, Steven Shanks and Debbie Sue Shanks, Kevin Tucek and Carolyn Tucek Ray K. Harris FENNEMORE CRAIG, P.C. 3003 North Central Avenue, Suite 2600 Phoenix, Arizona 85012-2913 Attorney for Richard Amy and Deborah Amy Bradley R. Jardine, Esq. Michael Warzynski, Esq. JARDINE, BAKER, HICKMAN & HOUSTON, P.L.L.C. 3300 North Central Avenue, Suite 2600 Phoenix, Arizona 85012 Attorneys for Erchonia Medical, Inc. Scott A. Salmon, Esq. THE CAVANAGH LAW FIRM 1850 North Central Avenue, Suite 2400 Phoenix, Arizona 85004-4527 Attorney for George Gonzales and Lorena Guzman Gordon S. Bueler, Esq. 1300 N. McClintock Drive, Suite B-4 Chandler, Arizona 85226 Attorney for Miki Smith and KMS Marketing, Inc. _______________________________

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