Free Statement - District Court of Arizona - Arizona

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Peter D. Baird (001978) [email protected] Robert H. McKirgan (011636) [email protected] Richard A. Halloran (013858) [email protected] Kimberly A. Demarchi (020428) [email protected] Lewis and Roca LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 734-3746 Telephone (602) 262-5311 Attorneys for POST Integrations, Inc., et al. George C. Chen (019704) [email protected] Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406 Tel: (602) 364-7367 Fax: (602) 364-7070 Attorneys for Lexcel, Inc., et al.

William McKinnon [email protected] 800 East Ocean Boulevard, Unit 501 Long Beach, California 90802-5449 Nicholas J. DiCarlo (016457) [email protected] DiCarlo Caserta & Phelps PLLC 6750 East Camelback Road, Suite 100-A Scottsdale, Arizona 85251 Attorneys for Plaintiff MTSI and Third Party Defendant Gene Clothier

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) Defendants. ) ) ) And Related Counterclaims, Cross-Claims, ) ) and Third-Party Claims. ) Merchant Transaction Systems, Inc., No. CIV 02-1954-PHX-MHM SEPARATE STATEMENT OF FACTS IN SUPPORT OF THE JOINT PARTIES' RESPONSE TO THE NELCELA PARTIES' POSTTRIAL MEMORANDUM ON STATUTE OF LIMITATIONS (Assigned to The Honorable Mary H. Murguia)

The Joint Parties set forth herein the material facts relied upon in the Joint Parties' Response to the Nelcela Parties' Post Trial Memorandum on Statute of Limitations: 1. In 1999, Lexcel became concerned that its source code was being used and

modified by both Credit Card Services, Ltd. ("CCS") and the Nelcela Parties. E.g., Trial Trans. at 345:14 ­ 346:20 (C.Kubitz Testimony) (Dckt. 526) (Ex. 1). 2. Lexcel wrote to CCS inquiring about the use and modification of the Lexcel

software. Leonard Campagna contacted Carl Kubitz in 1999 regarding that letter. C.Kubitz Testimony at 347:23 ­ 348:17 (Ex. 1). 3. Mr. Kubitz met with Campagna and Alec Dollarhide at Lexcel's offices to

discuss the Nelcela software. Mr. Kubitz asked to see the Nelcela source code, and immediately recognized components of the Lexcel software present in the Nelcela software. C.Kubitz Testimony at 348:22 ­ 350:8 (Ex. 1).
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4.

A few weeks later in 1999, Mr. Kubitz met with Campagna at which time

Campagna personally assured Lexcel that Nelcela would never again use the Lexcel software, and Lexcel relied upon that promise to forego bringing suit. C.Kubitz Testimony at 350:9-19; id. at 352:11 ­ 353:6 (Ex. 1). 5. In early 2003, Lexcel had new reason to believe that Nelcela was infringing

Lexcel's software, and accordingly wrote to Nelcela asking if Nelcela would be interested in licensing the software. Letter from M.Sutton to M.Firestone (Jan. 22, 2003) (Ex. 2). 6. Nelcela responded on January 30, 2003 in a letter from its counsel stating:

"Nelcela remains firm that the software it has used and copyrighted is not that of Lexcel Solutions, Inc. . . . Nelcela has appropriately and legally copyrighted its own work." Letter from V.Manolio to M.Sutton (Jan. 30, 2003) (emphasis in original) (Ex. 3). Lexcel relied upon that representation to further postpone bringing suit. F.Kubitz Testimony at 1253:9 ­ 1254:1 (Ex. 4). 7. Nelcela's contention that Flora Kubitz "confirmed that Lexcel `firmly knew'

that Nelcela was `claiming ownership' of the Lexcel code in June 2001" misstates Mrs. Kubitz's trial testimony. The words "firmly knew" were those of Mr. Firestone, not Mrs. Kubitz. See Trans. at 1253:11-13 (Ex. 4). Mrs. Kubitz testified that Lexcel relied upon Nelcela's repeated assurances that Nelcela was not using the Lexcel software: Q. But, Mrs. Kubitz, and then you knew again in May and June of 2001 that they were using it. With whatever your understanding was by June 2001, you and your husband firmly knew what you thought was your software was being claimed by Nelcela and Mr. Dollarhide and Mr. Campagna, correct? A. I believe we sent another letter after that to Nelcela from one of our lawyers. I believe it was Mike Sutton. And he asked them again if they wanted to license our code and they assured us again they were not using our code. Q. Mrs. Kubitz, by June of 2001, isn't it true you knew, there were no questions in your mind, that Mr. Dollarhide and Mr. Campagna, Nelcela, Inc., claimed ownership in software you believed you and your husband owned through Lexcel Solutions? A. We did not know until all of the experts reviewed all of the software and we were being pulled into this case. We sent a letter, I believe it was in
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2003, asking once again if they were using our source code. And they said no. Trans. at 1253:9 ­ 1254:1 (Ex. 4). 8. Nelcela's reference to MTSI's use of the Lexcel software is immaterial

because Lexcel believed that MTSI was the successor to CCS and therefore licensed to use the software. C.Kubitz Testimony at 57:15-17 (Ex. 1). 9. The evidence establishes that in 2001, Nelcela sought to sell its software,

facilities, and personnel to a company called Electronic Payment Exchange a/k/a "EPX." E.g., Memo from Campagna to R.Moyer (March 23, 2001) (Ex. 5). Evidently, that sale never occurred. Nevertheless, Nelcela provided EPX with the software at issue in the ownership trial: the "Nelcela Authorization System" and "Nelcela Merchant System" software. E.g., letter from T. Ronan to T. Barnett (March 26, 2003) at NELRFP354, ¶ B (Ex. 6). As compensation for that software, Dollarhide was employed by EPX at an annual salary of $300,000, Dollarhide was given a substantial amount of stock in EPX, and EPX began paying rent to Campagna for use of the Nelcela facilities. E.g., Email from Campagna to R.Moyer (May 14, 2001) at NELRFP336, 337 (Ex. 7); Dep. of R.Moyer at 33:18 ­ 34:8 (Ex. 13) . This scheme is documented in a letter and accompanying license agreement transmitted by Nelcela's counsel on March 26, 2003, wherein Nelcela acknowledges that Dollarhide "was employed by EPX . . . as a software programmer with the understanding that, while he remained employed, Leonard Campagna, President of Nelcela would permit EPX to utilize the proprietary software developed and owned by Nelcela, commonly known as Nelcela Terminal Driver System, Nelcela Merchant System and Nelcela Authorization System." Ex. 6 at NELRFP354, ¶ B. 10. Dollarhide was employed by EPX as its Chief Information Officer, where he

was in charge of the development and implementation of credit card processing software for use by EPX. E.g., EPX Management Team at 2-3 (Ex. 8). 11. Lexcel did not learn until in or about 2005, during discovery in Phase I of

this lawsuit, about: (a) Nelcela's licensing of the "Nelcela Authorization System" and the "Nelcela Merchant System" software to EPX; and (b) EPX's use and modification of that
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software. Decl. of C.Kubitz (Ex. 15). 12. In 2002, EPX was acquired by a company named InterCept Payment

Solutions ("InterCept"). Nelcela Complaint ¶ 15 (Ex. 9). As part of that acquisition, Dollarhide became employed by InterCept as a computer programmer, and Nelcela provided the so-called Nelcela credit card software to InterCept. Nelcela averred in its complaint against InterCept that Nelcela orally licensed the Nelcela Merchant System software to InterCept in December 2002. Ex. 9 at ¶ 17. "The license was contingent on employment of Alec Dollarhide at a certain rate of pay and the same for two of his brothers." Id. 13. Dollarhide's job duties for InterCept included both modifying the so-called

Nelcela software for use by InterCept, and overseeing and directing InterCept's use of that software. Ex. 6 at NELRFP354-55. 14. On March 26, 2003, Nelcela wrote to InterCept "to clarify the relationship

of Nelcela and its proprietary software with InterCept Payment Solutions in such a way that it will allow InterCept Payment Solutions the continued use of Nelcela's software while protecting the interests of Nelcela and Alec Dollarhide." Ex. 6 at NELRFP353. Nelcela attached to that letter a proposed Software License and Services Agreement in which Nelcela offered InterCept a license for the continued use of the "Nelcela Merchant System and Nelcela Authorization System" in exchange for "the consideration previously provided to [Dollarhide]" and "InterCept's payment obligations pursuant to [Dollarhide's] employment terms." Ex. 6 at NELRFP354-56, ¶¶ 1.4, 2.2, 4.2. 15. The relationship between Nelcela and InterCept soured when "Dollarhide

and Campagna, on behalf of themselves and Nelcela, demanded millions of dollars from InterCept" in May 2003 for use of the Nelcela software. Declaration of John Perry ¶ 7 (Ex. 12). 16. In June 2003, Nelcela filed suit against InterCept in Arizona, and in August

2003, InterCept filed suit against Nelcela in Georgia. E.g., Ex. 9.

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17.

Nelcela represented in its pleadings in those lawsuits that from 2002

through at least May 2003, Nelcela licensed its software to InterCept. Ex. 9 at ¶ 19. Nelcela further represented that as of August 2003, Nelcela's "Merchant" or "Merchant Suites" software was being used by InterCept. Nelcela First Amended Complaint ¶¶ 14, 20, 79(b) (Ex. 10). 18. Nelcela sought in its lawsuit against InterCept a declaratory judgment "[t]hat

the copyrighted Nelcela Merchant System is the property of Nelcela, Inc." Ex. 9 at ¶ 79(b). 19. Dollarhide testified in a sworn declaration dated January 20, 2004 that "the

Nelcela software was being used by EPX and is now being used by Intercept." Declaration of A.Dollarhide ¶ 13 (Ex. 11). 20. The InterCept/Nelcela litigation concluded with the divestiture of the EPX

assets to a company called Phoenix Payment Systems which operates under the name EPX. Dep. of R.Moyer at 9:17 ­ 10:13 (Ex. 13). Dollarhide became employed as Phoenix Payment Systems' Chief Technology Officer, and evidently remains in that capacity to this very day. Id. at 11:6-9; Ex. 8 at 2-3. 21. Dollarhide was instructed not to answer questions during his deposition

about Nelcela's distribution of software to Phoenix Payment Systems. Dep. of A.Dollarhide at 123:19 ­ 124:5 (Ex. 14). DATED: October 30, 2007. BRYAN CAVE LLP By s/ George C. Chen George C. Chen Attorneys for Lexcel, Inc., Lexcel Solutions, Inc., Carl Kubitz, and Flora Kubitz DICARLO CASERTA & PHELPS PLLC Nicholas J. DiCarlo and LAW OFFICES OF WILLIAM McKINNON By s/ William McKinnon William McKinnon Attorneys for Merchant Transaction Systems, Inc., Gene Clothier, and Tone Clothier
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LEWIS AND ROCA LLP By s/ Kimberly A. Demarchi Peter D. Baird Robert H. McKirgan Richard A. Halloran Kimberly A. Demarchi Attorneys for POST Integrations, Inc., Ebocom, Inc., Mary L. Gerdts, and Douglas McKinney

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CERTIFICATE OF SERVICE I hereby certify that on October 30, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Merrick B. Firestone [email protected] Veronica L. Manolio [email protected] RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Ray K. Harris [email protected] FENNEMORE CRAIG, P.C. 3003 North Central Avenue, Suite 2600 Phoenix, Arizona 85012-2913

s/

Debi Garrett

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