Free Response to Motion - District Court of Arizona - Arizona

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LAW OFFICES

RONAN & FIRESTONE, PLC
9300 E. RAINTREE DRIVE, SUITE 120 SCOTTSDALE, ARIZONA 85260 (480) 222-9100

Merrick B. Firestone, SB #012138 Veronica L. Manolio, SB #020230 Attorneys for the Nelcela Defendants

UNITED STATES DISTRICT COURT IN AND FOR THE DISTRICT OF ARIZONA Merchant Transaction Systems, Inc., Plaintiff, vs. Nelcela, Inc., an Arizona corporation; Ebocom, Inc., a Delaware Corporation; POST Integrations, Inc., an Illinois Corp., et. al. Defendants. And Related Counterclaims, Cross-Claims and Third-Party Complaint. No. 02-CV-1954 - PHX-MHM NELCELA, INC., LEN CAMPAGNA AND ALEC DOLLARHIDE'S RESPONSE TO JOINT PARTIES' MOTION IN LIMINE NO. 2 TO EXCLUDE EXHIBIT 5 (April 1995 Agreement between Alec Dollarhide and CCS Ltd.) (Oral Argument Requested) (The Honorable Mary H. Murguia) I. INTRODUCTION Nelcela, Inc., Len Campagna and Alec Dollarhide (collectively "Nelcela") respond to the joint parties' motion to exclude Exhibit No. 5, the April 1995 Agreement that was entered into and signed by Alec Dollarhide and Charles Anderson of CCS Ltd., giving Mr. Dollarhide ownership of the software he developed ("the 1995 Agreement"). The joint parties never disputed the authenticity of the 1995 Agreement until rebutting Nelcela's statement(s) of fact on summary judgment. There is no expert testimony showing that the 1995 Agreement has been altered or is otherwise inauthentic. The two signatories to the 1995 Agreement (Alec Dollarhide and Charles Anderson) testify that the agreement was authentic and signed just as it stands today. Most importantly, it remains undisputed that MTSI had the original 1995 Agreement, not Nelcela. Since Nelcela disclosed the document (in 2002), and through six (6) years of litigation, no party has ever disputed that MTSI had the original.

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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 II.

The best evidence available of the 1995 Agreement is the photocopy that has been amply produced and used in depositions in this matter. Because MTSI is the party responsible for the original, the joint parties cannot exclude the 1995 Agreement from evidence in this case. This Court should deny the motion to exclude.

REBUTTAL FACTUAL BACKGROUND The 1995 Agreement was entered in April 1995 (not afterward), and was signed by both

Charles Anderson and Alec Dollarhide. See, Deposition of Charles Anderson attached here in relevant part(s) as Exhibit A and incorporated by this reference. Particularly, Mr. Anderson testified that he authored the Agreement and that Alec Dollarhide signed it in April 1995 in front of him: BY MR. FIRESTONE TO CHARLES ANDERSON: Q. A. Q. A. Q. Charlie, do you recognize the first page of Exhibit 5? Yes, I do. Is that your signature in the right-hand column under "Credit Card Services, Limited"? Yes, it is. Can you tell me the background and why ­ excuse me -- the background and what led up to this agreement and why you ultimately executed it on behalf of Credit Card Services, Limited? When it became obvious that Carl was not going to -- Carl Kubitz was not going to provide us with the -- with the software, I asked Alec to do it. Alec raised the question, since he was operating as an independent contractor, who would own the system. I said, All I want out of it -- if you want ownership, that's fine, I'll give you a letter stating you have ownership. But I want a perpetual license to use it for Credit Card Services, Limited and for any affiliate of Credit Card Services, Limited. Because at that time, the system was supposed to handle roughly 100,000 transactions, was the capacity of the system. And if we went beyond 100,000, it had been our intent to open a new processing center, add new banks, and create a second processing center, if you will, which would be an affiliate, and I wanted the rights to transfer the software to the affiliate. Q. *** Okay. Are you the author of this document that's marked as Exhibit 5, the first page?

A.

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A. Q. A.

Yes, I am. Okay. Was the signature of Mr. Dollarhide completed in front of you? Yes, it was.

Id. at pp. 51-53. Emphasis added. Mr. Dollarhide confirmed that he signed the 1995 Agreement in April 1995. See, Deposition of Alec Dollarhide attached here in relevant part(s) as Exhibit B and incorporated by this reference. BY MR. McKINNON TO ALEC DOLLARHIDE: Q. A. Q. You were re-employed with Mr. Anderson at the end of 1995, correct? Yes. *** ... You signed ­ when did you sign this agreement with Mr. Anderson which has been previously marked as Exhibit No. 5? Did you ­ *** April `95.

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A.

Id. at pp. 234-235. Emphasis added. Mr. Anderson also testified that the original of the 1995 Agreement was provided to counsel for Gene Clothier of MTSI. BY MR. FIRESTONE TO MR. ANDERSON: Q. A. Did you bring either this document that's marked as Exhibit 5 or the substance of it to Mr. Clothier's attention? Absolutely. *** ... I also included all of that in the documents with the lawyer [for Mr. Clothier] in Las Vegas, I'm sure they're in his file. *** BY MR. McKINNON TO MR. ANDERSON: Q. A. Do you have a copy of any document that shows that you gave notice to Mr. Clothier, or anyone representing him or associated with him, of Exhibit 5? *** ... I provided that document to the Las Vegas lawyer [for Mr. Clothier] who was handling the paperwork.

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Exhibit A, supra, at pp. 54, 126.

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Moreover, Mr. Anderson also testified that MTSI (through Gene Clothier and/or his wife), demanded that he leave the original document at MTSI when he left his employment; Mr. Anderson was not permitted to remove anything from his office at the MTSI (then CCS) building. See, e.g., Exhibit A at pp. 170-177. Therefore, even if Mr. Anderson had not provided the original 1995 Agreement to MTSI's Vegas counsel as he remembered having done, any and every other document was still retained by MTSI and/or in MTSI's possession. Id. Anything Mr. Anderson had would have been left at MTSI. Id.

BY MR. HALLORAN TO MR. ANDERSON: Q. A. ...you testified about a conversation you had with Mrs. Clothier where she told you to leave everything in the office. Yes. *** Q. A. ...she then calls you the next day [after you quit employment] ... and tells you essentially ­ Don't you take anything out of that building in any way, shape or form. But you had things in the building that didn't belong to CCS, Limited, such as the Anderson Advisors papers, right? That's right. What did you do with them? I left them there. Did you ever ask, then, for the property that didn't belong to CCS, Limited, to get it back? ***

12 13 14 15 Q. 16 17 18 19 20 21 22 A. 23 24 25 26 A. Yes. A. Q. A. Q.

*** I had done so by telephone but got told no.

Exhibit A, supra, p. 175, ll. 12-end, p. 176, ll. 1-6, 8, 16, p. 177, ll. 1-2. Emphasis added.

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BY MR. HALLORAN TO MR. ANDERSON (continued): Q. A. Q. A. Q. A. Q. A. So you called Mr. Clothier up and told him, You've got personal documents ­ I think I called Tone [Clothier], not ­ Okay. And they told you no, you can't have them? That's right. Okay. [MTSI claimed] Everything there belongs to us. Did you discuss with Tone [Clothier, of MTSI], the Anderson Advisors material? I said, There's some material there that is my personal material. She said, No. Id. at p. 177, ll. 3-15. Emphasis added.

During all of the testimony quoted above ­ whether discussing the signatures contained on the 1995 Agreement or whether discussing that the original document was provided to MTSI's counsel ­ no party to this lawsuit objected. Id. all. There was never a question of the authenticity of the 1995 Agreement, nor was Mr. Anderson asked if the 1995 Agreement was done in multiple drafts, whether it made "a second pass" through a printer, or even who printed the document. Id. Instead, Mr. Anderson was simply asked if he had authored and signed the 1995 Agreement with Alec Dollarhide, and he admitted he had done so and given the original copy to MTSI's lawyer. Id. Likewise, in the six (6) years of litigation (these cases were originally filed in 2001 in the state court and then were later removed to this Court) and since October 2002 (when Nelcela first disclosed the 1995 Agreement), no party ever disputed that MTSI held the original document. There has never been an affidavit by Gene Clothier to dispute Mr. Anderson's testimony. MTSI's counsel in Las Vegas never submitted an affidavit claiming it did not receive the original. MTSI's present counsel informed Nelcela that he received the documents from Vegas counsel, yet MTSI has never produced the original document.

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Noticeably, MTSI never attacked the 1995 Agreement because MTSI knew it held the original. See, Exhibit 2 to the joint parties' motion (CCS retained the original, not Alec Dollarhide. The original of the 1995 Agreement should be in MTSI's files or with Gene Clothier, not Nelcela.) Instead, Post, who was not even a party to the agreement hired expert William Flynn to attempt an attack on Nelcela's copy of the document.1 See, Report of William J. Flynn attached as Exhibit 3 to the joint parties' motion to exclude. However, Mr. Flynn couldnot opine that Nelcela's copy was altered. See, joint parties' Exhibit 3. Mr. Flynn simply offered that the document may have made, "a second pass" through a printer. Id. Mr. Flynn did not state when this "second pass" was done, who did it, whether it was done prior to the signatures on the agreement, or if it was improper in any way. Id. The suggestion that a "second pass" was made is inconclusive of any alteration -- and MTSI (who retained the original of the 1995 Agreement) has never provided a copy that varies from Nelcela's copy. Id. Nelcela disclosed this 1995 Agreement and its intent to use the document in October 2002. Mr. Anderson demonstrated in his original Affidavit ­ back in 2003 ­ that he had entered into this 1995 Agreement with Alec Dollarhide. Mr. Anderson also indicated that MTSI (then CCS) had the original of the agreement. In 2005, Mr. Anderson appeared in Arizona and gave sworn deposition testimony that MTSI had the original of this document and that Mr. Anderson personally provided it to MTSI's Vegas counsel. Through all of these facts, and in all of these years in litigation, MTSI has never disputed that it had the original of the 1995 Agreement. Instead, MTSI sat back and pretended not to be interested while Post attempted to make an argument for it. Perhaps most telling of all is that when Nelcela attempted to subpoena the MTSI files from its Las Vegas counsel, MTSI's current counsel (Mr. McKinnon) indicated he would receive them, remove privileged items and remit copies to all parties. He never did that.

At the time Post hired Mr. Flynn, the "joint parties" were not "joint." Mr. Flynn's expert report was done in 2005, and the parties did not align and/or become "joint" until January 2006. Thus, MTSI (the holder of the original) did not hire an expert to review the 1995 Agreement. To this date, MTSI has not produced any dispute of the originality nor any expert testimony on the authenticity.

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III.

REBUTTAL LAW AND ARGUMENT A. 1. The Federal Rules of Evidence Make the 1995 Agreement Admissible. MTSI (not Nelcela) had the Original of the 1995 Agreement.

The joint parties blanketly argue that Rule 1002 of the Federal Rules of Evidence ("FRE") requires an "original" of all document. They fail to address the portion of FRE 1002 which states that originals do not have to be used if based on circumstances, "otherwise provided in these rules." In addition to the "original" requirement of FRE 1002, Rule 1003 FRE allows duplicates to be used in lieu of original copies. Rule 1004 FRE additionally states, "The original is not required" if all originals are lost or have been destroyed. See, Rule 1004(1). Emphasis added. And, the joint parties would have to show that Nelcela, "lost or destroyed the [original] in bad faith" in order to disregard the duplicate copy. Id. Emphasis added. The joint parties have not even argued that Nelcela had control of the original agreement, much less that Nelcela lost or destroyed that original in bad faith. There cannot be any argument that Nelcela acted improperly (or in bad faith) to lose or destroy the 1995 Agreement because Nelcela never had the original of the 1995 Agreement. MTSI (and/or its counsel) always had the original document. See, Exhibit A, supra, at pp. 54, 126. MTSI has never disputed that it had the original 1995 Agreement. When questioned about this document, MTSI's then-President, Gene Clothier, admitted he was given a copy of the 1995 Agreement but has never even looked for it during the course of this lawsuit: BY MR. FIRESTONE TO MR. CLOTHIER: Q. A. Q. Would you take a look at Exhibit 5 and tell me if you've seen that before today? I don't know anything about this. *** ...you don't remember the last time you saw those documents? No, I don't. Who was your lawyer during that transaction? May I ask my counsel (Mr. McKinnon) if he can help me remember? *** I don't remember, basically.

23 A. 24 Q. 25 A. 26 A.

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Q.

Did that lawyer give you a copy of all the executed documents when you completed the purchase of Credit Card Services, Inc. or Credit Card Services, Limited? Yes. Did you keep a set? Well, I would have at the time. Do I have a set [now]? I don't remember. Well, have you looked for a set either during the state court action or any ant time in this action? Personally, I haven't. Exhibit C and

A. Q. A. Q. A.

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Because MTSI had the original, it is incumbent upon MTSI to produce the original document or to show that Nelcela acted in bad faith to destroy or lose the original. See, Rule 1004 FRE (The joint parties have to prove that Nelcela "lost or destroyed the [original] in bad faith" to disregard the duplicate copy Nelcela produced.) No party has asserted that Nelcela ever had control over the original. Thus, Nelcela is entitled to use the photocopy/duplicate of the original because the original is lost without any fault by Nelcela. See, e.g., Seiler v. Lucasfilm, Ltd., 808 F.2d 1316, 1319 (9th Cir. 1986) (If the original is unavailable without "serious fault" by Nelcela, Nelcela is entitled to use a duplicate copy.), see also, McCormick on Evidence (3rd ed. 1984) §230 at 704 (If the original is unavailable for any reason other than Nelcela's fault, a duplicate photocopy is permitted to be used.) 2. The Joint Parties Cannot Dispute the veracity of the 1995 Agreement. See, Deposition of Gene Clothier (Volume I) attached here in relevant part(s) as incorporated by this reference at pp. 44-46. Emphasis added.

Aside from the fact that MTSI had and either lost or destroyed the original 1995 Agreement, there is no real dispute about the authenticity of the contents of the 1995 Agreement. The two parties who signed the 1995 Agreement, Charles Anderson and Alec Dollarhide, have both testified that the agreement was legitimate and that its contents are valid. See, Exhibit A, supra, at pp. 51-53;

Exhibit B, supra, at pp. 234-235. The joint parties' expert cannot challenge that testimony; he merely found the document may have made two passes through a printer. See, Exhibit 3 to motion.

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The expert testimony that there "may" be an inconsistency in printing is insufficient to raise a true question of authenticity. Instead, the testimony of the witnesses with knowledge authenticate the 1995 Agreement for purposes of admissibility of evidence. See, Rule 901 FRE. If there is any

question of fact between the witnesses' testimony and the purported expert testimony, that question must be left to a trier of fact at trial. See, e.g., Graham C. Lily, An Introduction to the Law of Evidence, §112 (1978)(A proponent of a writing may provide the evidentiary basis for admissibility of the writing, and the trier of fact can conclude if the writing was in fact signed by the proponent.); see also, Thomas C. Mauet, Fundamentals of Trial Techniques, §8.5(7)(1980) (Signed writings can be authenticated by the persons who have executed the documents.) The Court should not exclude the 1995 Agreement, but should let the jury decide the weight of testimony by both Mr. Anderson and Mr. Dollarhide. Id.; see also, U.S. v. Mayans, 17 F.3d 1174, 1185 (9th Cir. 1994) (Extrinsic evidence of witness testimony about the contents of a writing may be relevant and can be used.); see also, U.S. v. Georgalis, 631 F.2d 1199, 1205 (5 th Cir. 1980) (Duplicate copies should and can be admitted; joint parties bear the burden of showing lack of trustworthiness of the duplicate; Nelcela is entitled to elicit evidence at trail about the contents of the document from those who authored it.)

B.

The 1995 Agreement Cannot be Precluded by Rules 402-403 FRE.

Because MTSI had the original 1995 Agreement and cannot disprove the authenticity of the duplicate copy, the joint parties then try to assert "relevance" and "prejudice" to preclude it. Under Rule 402 FRE, the joint parties must prove that the 1995 Agreement is irrelevant to be excluded. The joint parties are correct that the 1995 Agreement relates to software Mr. Dollarhide created, "independently" of the Lexcel software. At trial, the Nelcela experts will show that there is no correlation between the Nelcela software and the 1994/1995 Lexcel software (which the joint parties' experts never chose to evaluate). Nelcela will show that its Merchant software was created "first in time," and that any and all software Mr. Dollarhide created was owned solely by him. These issues are clearly relevant to the ownership issues this Court designated for the Phase I trial.

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Likewise, pursuant to Rule 403 FRE, the joint parties have to show that there is a substantial danger of "unfair prejudice" or jury confusion to exclude the 1995 Agreement. There is no risk of confusion in the trial issues and no risk that the jury will be misled here. Lexcel did not have a Merchant System in 1994/1995; the Merchant System is the only code at issue in this litigation; Nelcela's Merchant System was created "first in time"; and, Nelcela's experts will prove these issues at trial. See, e.g., Nelcela's Motion in Limine No. 2 To Exclude Expert Analysis of Authorization Systems on file with this Court (Docket #423) and Affidavit of expert witness Jeffrey Pell attached there as Exhibit B, incorporated by this reference. (Lexcel never had a Merchant System in its 1994/1995 code, making the Nelcela first in time under this Court's analysis.) Unless the joint parties could show that the 1995 Agreement would produce a substantially prejudicial effect, which will not be outweighed by the probative value of Alec Dollarhide's ownership of software he wrote, the Agreement cannot be excluded. See, United States v. Hitt, 981 F.2d 422, 424 (9th Cir. 1992); see also, State v. Berger, 108 Ariz. 396, 499 P.2d 152 (1972)(The 1995 Agreement should only be excluded if the joint parties prove how it would prejudice the jury.); see also, State v. Hensley, 142 Ariz. 598, 691 P.2d 689 (1984) (Joint parties have to demonstrate the actual danger, prejudice or confusion to the jury in order for the Court to exclude the 1995 Agreement.) The 1995 Agreement is wholly relevant and will not confuse or mislead the jury, leaving this Court no reason to exclude it from evidence at trial.

CONCLUSION MTSI held the original 1995 Agreement, and the original document is "unavailable" through

no fault of Nelcela. Thus, the duplicate copy of the document cannot be excluded from trial. Moreover, the 1995 Agreement is both relevant and its probative value will outweigh any risk of confusion to the jury. The joint parties have not (and cannot) meet any of their respective burdens to exclude the 1995 Agreement, and this Court should not exclude the 1995 Agreement from being used at trial in this matter.

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RESPECTFULLY SUBMITTED this 2nd day of February, 2007. RONAN & FIRESTONE, PLC

/s/ Veronica L. Manolio Merrick B. Firestone Veronica L. Manolio 9300 E. Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Attorneys for Nelcela, Inc., Leonard Campagna and Alec Dollarhide ORIGINAL filed electronically with the Clerk's Office and COPIES electronically transmitted to the following CM/ECF registrants this same date to: Nicholas J. DiCarlo [email protected] Local Counsel for Merchant Transaction Systems William McKinnon [email protected] Attorney for Merchant Transaction Systems George C. Chen [email protected] or [email protected] Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc. Peter D. Baird [email protected] Robert H. McKirgan [email protected] Richard A. Halloran [email protected] Kimberly Demarchi [email protected] Attorneys for POST, Ebocom, Mary Gerdts, and Douglas McKinney /s/ Diana Renteria

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