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

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BRYAN CAVE LLP, 00145700 George C. Chen 019704 ([email protected]) Two North Central Avenue, Suite 2200 Phoenix, Arizona 85004-4406 Telephone: (602) 364-7367 Facsimile: (602) 364-7070 Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc. 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 Telephone: (602) 262-5311 Facsimile: (602) 734-3746 Attorneys for POST Integrations, 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

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UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Merchant Transaction Systems, Inc., ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) Defendants. ) ) ) And Related Counterclaims, Cross-Claims, ) and Third-Party Claims. ) ) No. CIV 02-1954-PHX-MHM LEXCEL, POST AND MTSI PARTIES' REPLY IN SUPPORT OF MOTION TO STRIKE NELCELA'S AFFIRMATIVE DEFENSES, COUNTERCLAIMS, AND THIRD-PARTY COMPLAINT

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I.

NELCELA'S COUNTERCLAIMS AND THIRD-PARTY CLAIMS ARE UNTIMELY The Nelcela Parties' filing of counterclaims and third-party claims on November

17, 2006 are too late: (1) The deadline for the Nelcela Parties' to amend pleadings and add parties expired over a year-and-a-half ago on March 6, 2005 (Dckt. 76); The deadline for all Phase I discovery issues expired over a year ago on October 14, 2005 (Dckt. 209); and The deadline for the Nelcela Parties to answer Lexcel's intervenor complaint expired on October 17, 2006 after the Court denied the Nelcela Parties' motion to dismiss the intervenor complaint on September 30, 2006 (Dckt. 383).

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(2) (3)

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Instead of filing its answer by October 17, 2006, however, the Nelcela Parties delayed a month and waited too long to file its answer, affirmative defenses, counterclaims, and third-party claims on November 17, 2006. The Nelcela Parties blame this Court's September 30, 2006 Order for their untimely filing of their counterclaims and third-party claims. The September 30 Order, however, did not instruct the Nelcela Parties to not answer Lexcel's complaint within the time period required by Fed.R.Civ.P. 12(a)(4)(A). And, Nelcela's assertion that they construed the September 30 Order as requiring them to wait to answer until after the November 20, 2006 hearing is belied by Nelcela's filing of its answer and counterclaims prior to the hearing. In short, the Court's September 30 Order did not extend the time period to answer Lexcel's complaint. Rather, Nelcela's failure to comply with Rule 12(a)(4)(A) is Nelcela's own fault, for which Nelcela offers no legitimate explanation. Nelcela's efforts to invoke Rule 15(a) to explain its conduct are likewise misplaced. Nelcela did not seek leave to amend pursuant to Rule 15(a), and if it had done so the request would have been both untimely and futile. Nelcela contends that it "deposed Lexcel's principals [Carl and Flora Kubitz] and . . . elicited the information making its claims necessary." (Response at 8, ln. 8). Nelcela fails to explain what it supposedly learned in those depositions that it did not already Case 2:02-cv-01954-MHM Document 418 2 Filed 12/29/2006 Page 2 of 7

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know from other sources including the 2002 Declarations of Mr. and Mrs. Kubitz. (See Dckt. 417 at Exs. 1 & 2). But, even assuming the truth of Nelcela's contention, the depositions of Mr. and Mrs. Kubitz occurred on October 3 and 11, 2005. (See Exs. 1 & 2). Nelcela, however, did not file its counterclaims and third-party claims until November 17, 2006. Nelcela offers no explanation of why it waited more than a year after the Kubitz depositions before attempting to assert new claims and add new parties to this lawsuit, other than to contend that Nelcela "could not have filed an Answer/Counterclaims until [Nelcela's motion to dismiss Lexcel's complaint] was resolved." (Response at 8, lns. 1617). That explanation is groundless. Upon Lexcel's intervention (which was granted on July 28, 2005 (Dckt. 209)), Nelcela was free at any time to seek leave to assert claims against Lexcel. (E.g., FED.R.CIV.P. 13(b), 13(g), 15(a)). Given the advanced stage of the case, and this Court's repeated admonitions that additional delay would not be permitted, that was the only reasonable course of action. But Nelcela chose not to assert its claims after the depositions of the Kubitzes, before discovery closed, or even before summary judgment motions were filed and decided. Nelcela should not be allowed to do so now. In sum, Nelcela offers no reasonable explanation for its delay. Accordingly, Nelcela's untimely counter-claims, third-party claims, and affirmative defenses should be stricken. Ralston-Purina Co. v. Bertie, 541 F.2d 1363, 1367 (9th Cir. 1976) (leave to add untimely counterclaim properly denied where putative counterclaimant offered no "reasonable explanation of [its] delay"). II. NELCELA'S FRAUD ACCUSATIONS ARE NOT PLED WITH PARTICULARITY In addition to being untimely, Nelcela's new claims are substantively improper. Nelcela asserts widespread accusations of fraud, without providing the particularity required by Rule 9(b). "To avoid dismissal for inadequacy under Rule 9(b), [Nelcela's] complaint would need to `state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation.'" Edwards
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v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986)). These details are missing from Nelcela's counterclaim. For example, Nelcela accuses Lexcel of fraud for meeting with POST in 2001. (See Nelcela Counterclaim p.8, ¶ 32; Response at p.6, ¶¶ 1-2). Yet Nelcela has not pled the details of any misrepresentation that supposedly occurred at that meeting. Likewise, Nelcela accuses Lexcel of filing false copyright applications, but Nelcela never says what was supposedly false. (See Nelcela Counterclaim p.10, ¶ 52; Response at p.6, ¶ 6). Specifically, Nelcela has never identified a single word of the Lexcel software that Nelcela contends was copied from Nelcela or anyone else. Similarly, Nelcela accuses Lexcel of misrepresentation and concealment of facts for the purpose of bringing false accusations against Nelcela. (See Nelcela Counterclaim p.10, ¶ 50; Response at p.6, ¶ 5). But Nelcela does not plead the time, place, and specific content of the false representations, or the identities of the parties to the alleged misrepresentations. Nelcela's failure to comply with Rule 9(b) is particularly egregious given Nelcela's delay in attempting to bring these claims. To succeed on a motion for leave to amend to assert its belated counterclaims and third-party claims, Nelcela would be required to show that its claims are not futile. California ex rel. California Dept. of Toxic Substances Control v. Neville Chemical Co., 358 F.3d 661, 673 (9th Cir. 2004), cert. denied, 543 U.S. 869 (2004). "[F]utility includes the inevitability of a claim's defeat on summary judgment." Id. (quoting Johnson v. Am. Airlines, Inc., 834 F.2d 721, 724 (9th Cir.1987)). As explained in Carl and Flora Kubitzes' Motion to Dismiss (Dckt. 416), Nelcela's counterclaims are time barred, and thus futile. Mr. and Mrs. Kubitz executed declarations in 2002 stating, among other things, that: (a) the Kubitzes met in 2001 with POST and MTSI; (b) Lexcel created and copyrighted the Lexcel source code; (c) Lexcel owned the Lexcel software, including the source code; and (d) Nelcela improperly obtained and used the Lexcel software. (See Dckt. 416 & 417). Nelcela has had these
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declarations since January 2003 (see Dckt. 26 at p.2, n.2) ­ well more than 3 years before Nelcela's attempted counterclaims. Yet, the statute of limitations for Nelcela's fraud claims is 3 years. A.R.S. § 12-543(3). Hence, Nelcela's counterclaims are time barred, and consequently futile. III. NELCELA'S NEW CONTENTIONS AGAINST POST AND MTSI SHOULD BE STRICKEN Nelcela offers no explanation whatsoever for its untimely and conclusory accusations of fraud against the POST and MTSI Parties. (See Nelcela Counterclaim at ¶¶ 34, 37, 38, 40, 43-45, 72, 74-76, 85, 109). Specifically, Nelcela offers no excuse for the untimeliness of these assertions. And, Nelcela offers no explanation for its failure to comply with Fed.R.Civ.P. 9(b) when making these accusations. Accordingly, POST's and MTSI's motion to strike these ill-pleaded accusations should be granted under Fed.R.Civ.P. 9(b) and 12(f) and LRCiv 7.2(i). IV. ALLOWING NELCELA'S UNTIMELY CLAIMS WILL PREJUDICE THE JOINT PARTIES Nelcela contends that "all parties clearly knew the claims were forthcoming." (Response at p.2, ln.14). Not so. The Joint Parties had no notice of Nelcela's belated claims. Nor did the Joint Parties expect any new claims to be brought more than a year after the close of discovery and after the resolution of summary judgment motions in which those claims were not asserted. Allowing Nelcela's untimely claims will seriously prejudice the Joint Parties. The deadline to add new parties expired long ago. Discovery on Phase I has already closed. Summary judgment motions have already been adjudicated. The Joint Pretrial Order is due next month, and trial is set for April. Allowing Nelcela to add new claims and new parties at this late date will thus be highly prejudicial, and should not be permitted. V. CONCLUSION Nelcela's counterclaims against Lexcel are untimely, futile, submitted without leave of court, and improperly pled. Accordingly, the counterclaims should be stricken
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under Rules 9(b), 12(f), and 13(f). Alternatively, the counterclaims should be dismissed for failure to state claims upon which relief can be granted, pursuant to Rules 9(b) and 12(b)(6). And, Nelcela's belated and conclusory accusations of fraud against the POST and MTSI Parties should be stricken pursuant to Rules 9(b) and 12(f) and LRCiv 7.2(i). RESPECTFULLY SUBMITTED December 29, 2006. BRYAN CAVE LLP By s/ George C. Chen George C. Chen Two N. Central Avenue, Suite 2200 Phoenix, Arizona 85004-4406 Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc.

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LEWIS AND ROCA LLP By s/ Richard A. Halloran Peter D. Baird Robert H. McKirgan Richard A. Halloran Kimberly A. Demarchi 40 North Central Avenue Phoenix, Arizona 85004-4429 Attorneys for POST Integrations, Inc., Ebocom, Inc., Mary L. Gerdts, and Douglas McKinney LAW OFFICES OF WILLIAM McKINNON William McKinnon and DICARLO CASERTA & PHELPS PLLC By s/ Nicholas J. DiCarlo Nicholas J. DiCarlo 6750 East Camelback Road, Suite 100-A Scottsdale, Arizona 85251 Attorneys for Merchant Transaction Systems, Inc., Gene Clothier, and Tone Clothier

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CERTIFICATE OF SERVICE I hereby certify that on December 29, 2006, 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 Attorneys for Defendants Nelcela Incorporated, Alec Dollarhide, and Len Campagna

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s/ Denise M. Aleman Denise M. Aleman

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