Free Motion for Reconsideration - District Court of Arizona - Arizona

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BEUS GILBERT PLLC
ATTORNEYS AT LAW

4800 NORTH SCOTTSDALE ROAD SUITE 6000 SCOTTSDALE, ARIZONA 85251 TELEPHONE (480) 429-3000

Leo R. Beus/002687 ­ [email protected] Scot C. Stirling/005757 ­ [email protected] Steven E. Weinberger/015349 ­ [email protected] Attorneys for Individual Plaintiffs and Trustee

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STEVE BROWN & ASSOCIATES, LLC
1414 E. INDIAN SCHOOL ROAD, SUITE 200 PHOENIX, ARIZONA 85014-2412 TELEPHONE (602) 264-9224

Steven J. Brown/010792 ­ [email protected] Co-Counsel for Trustee UNITED STATES DISTRICT COURT

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DIANE MANN, as Trustee for the Estate of LeapSource, Inc., CHRISTINE V. KIRK, et al., Plaintiffs, vs. GTCR GOLDER RAUNER, L.L.C.; et al., Defendants.

Case No.: CIV-02-2099-PHX-RCB

MICHAEL MAKINGS, Counterclaimant, vs. LEAPSOURCE, INC., et al., Counterdefendants.

MOTION FOR RECONSIDERATION OF ORDER DATED 28 AUGUST 2006, REGARDING KIRKLAND & ELLIS' MOTIONS FOR SUMMARY JUDGMENT RE VICARIOUS LIABILITY, AIDING AND ABETTING AND TORTIOUS INTERFERENCE, AND MALPRACTICE / PROFESSIONAL NEGLIGENCE (Assigned to Hon. Robert C. Broomfield)

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Pursuant to LRCiv 7.2(g), the Plaintiffs respectfully move the Court to reconsider its Order dated 28 August 2006, granting the defendant Kirkland & Ellis's Motions for Summary Judgment (1) Regarding Vicarious Liability (Docket nos. 250 and 368), (2) Re Aiding and Abetting and Tortious Interference Claims (Docket No. 255), and (3) Re Malpractice and Professional Negligence Claim (Docket No. 328). MOTION FOR LIABILITY SUMMARY JUDGMENT REGARDING VICARIOUS

In their Response to K&E's Supplement to the Motion for Summary Judgment Regarding Vicarious Liability, the Plaintiffs argued that the Motion should be denied not only because the Settlement Agreement provided that it was governed by Arizona law, but also because K&E did not object to the settlement which expressly provided that only AEG Partners and David Eaton were to be released, Judge Marlar approved the settlement on

13 14 15 16 17 18 19 20 21 22 Order 28 August at page 10 lines 9-12 (emphasis added). 23 24 25 After the Bankruptcy Court approved the AEG/Eaton settlement, K&E has directly attacked the express provisions of the Settlement Agreement. 2 Filed 09/12/2006 It has argued that the those terms, and incorporated the language expressly limiting the scope of the release into his Order. Supplemental Response (Docket No. 404), Parts II B, C, and D, at pages 5-8. This was never simply a question of choice of law. As the Court recognized in its 28 August Order, after notice and an opportunity to object and to be heard with respect to the proposed settlement with AEG Partners and David Eaton, K&E "filed a Notice of Reservation of Rights, agreeing to the terms of the proposed settlement in the bankruptcy proceedings, but `specifically reserv[ing] all of its rights, claims, defenses, and/or other interests regarding the interpretation of th[e] settlement agreement by the District Court."

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Bankruptcy Court did not have authority to release only Eaton and AEG, while preserving the Trustee's claims against K&E. That is not a question of "interpretation" of the express provisions in the Bankruptcy Court's Order. K&E has argued that the Settlement Agreement is governed by Illinois law, which expressly provides that the Settlement Agreement is governed by Arizona law. That is also not a question of "interpretation" of the express provisions of the Bankruptcy ­ it is a collateral attack on the Bankruptcy Court's Order,

7 8 9 10 11 12 13 14 15 16 K&E's consent to the Bankruptcy Court's Order approving the Settlement Agreement, and 17 18 19 20 21 22 23 24 25
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which K&E expressly consented to after notice and an opportunity to be heard in the Bankruptcy Court. Thus, it is not correct to say that "Plaintiffs do not dispute the result under Illinois law, but maintain that Arizona law should apply instead due to a choice of law provision in the Settlement Agreement." Order 28 August at 13 lines 7-10. That sentence appears to be referring to the argument in Part II.A of the Plaintiffs' Supplemental Response (Docket No. 404) at 4-5. Even without regard to the issue of choice of law, the Plaintiffs opposed K&E's Supplement to its Motion for Summary Judgment Regarding Vicarious Liability because of

its failure to raise objections that go far beyond any question of "interpretation" of the Bankruptcy Court's Order. For the same reason, it is not an answer to the Plaintiffs' argument to say that "Plaintiffs cannot by their agreement with Eaton and AEG bind a nonsignatory like K&E." Order 28 August at 14 lines 16-17. The issue is whether K&E is bound by its failure to object to the proposed Settlement Agreement in the Bankruptcy Court, after being provided with notice and an opportunity to be heard concerning the terms of the proposed settlement,

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and expressly declaring that it did not object to the terms of the Settlement Agreement, reserving only the right to raise issues "regarding the interpretation of th[e] settlement agreement." In Part III.A.2 of the 28 August Order, the Court has apparently conflated two distinct issues into one. The K&E Supplement to the Motion for Summary Judgment Regarding Vicarious Liability was based upon the specific claim that release of an agent releases the

7 8 9 10 11 12 13 14 15 16 several and that the release of one releases all" suggests that the Court has concluded that its 17 18 19 20 21 22 23 24 25
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principal under Illinois law. At page 20 of the 28 August Order, the Court has apparently treated that specific issue relating to the liability of agents and principals as identical to the issue of the liability of joint tortfeasors generally. Order 28 August at 20, lines 1-14. They are not the same issue, because the former is plainly concerned only with the liability of those in an agency-principal relationship, and not with the liability of joint tortfeasors generally/ However, the Court's citation to Fagerberg v. Phoenix Flour Mills Co., 71 P.2d 1022, 1025 (Ariz. 1937), for the proposition that "the liability of joint tortfeasors is joint and

resolution of the vicarious liability issue in the context of the release of AEG and Eaton (and based upon the Illinois law that the release of an agent releases the principal) was conclusive of any issue concerning the potential for joint liability between K&E and David Eaton. That appears to be the reasoning behind the Court's conclusion in Part II.B of the 28 August Order (regarding the Aiding and Abetting and Tortious Interference claims) that, because the Court had granted the Motion for Summary Judgment Regarding Vicarious Liability,

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"Eaton's conduct is irrelevant to the issues discussed here." See 28 August Order at 24, lines 7-8, and again at 27 lines 3-4. Plaintiffs believe this analysis is incorrect for at least two reasons. First, if the Court has cited Fagerberg v. Phoenix Flour Mills Co. for the broad proposition that "the liability of joint tortfeasors is joint and several and that the release of one releases all"1 ­ a claim that goes well beyond the specific question of whether the release of an agent releases a principal

7 8 9 10 11 12 13 14 15 16 17 18 19 agent's conduct, and the broader issue of K&E's potential joint liability with Eaton for 20 21 22 23 24 25
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­ that has not been the law in Arizona since it was amended by statute in 1984. A.R.S. § 122504 provides that: If a release or a covenant not to sue or not to enforce judgment is given in good faith to one of two or more persons liable in tort for the same injury or the same wrongful death both of the following apply: 1. It does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide, but it reduces the claim against the others to the extent of any amount stipulated by the release or the covenant or in the amount of the consideration paid for it, whichever is the greater. 2. It discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor. (Emphasis added.) Second, this distinction between the "purely vicarious" liability of a principal for an

tortious interference and for aiding and abetting is precisely what the Plaintiffs had in mind in Part II.F of their Response to K&E's Supplement to the Motion for Summary Judgment

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Regarding Vicarious Liability (Docket No. 404) at 9-10. That is, even if the Court were to decide that K&E were released from any "purely vicarious" liability for the conduct of David Eaton as its agent, that would not automatically lead to the conclusion that K&E was not jointly liable with David Eaton for conduct that they undertook together, under theories such as aiding and abetting and tortious interference. Thus, it is not correct to say that Eaton's conduct is "irrelevant" to the claims of aiding and abetting and tortious interference.

7 8 9 10 11 12 Eaton for his role at LeapSource. 28 August Order at 23, lines 16-25, at 24, lines 10-12, and 13 14 15 16 17 18 19 20 21 22 23 24 25 That is not the proposition for which the case was cited by the Plaintiffs in their Response to K&E's Supplement to its Motion for Summary Judgment Regarding Vicarious Liability (Docket No. 404) at page 9.
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II.

MOTION FOR SUMMARY JUDGMENT REGARDING AIDING AND ABETTING AND TORTIOUS INTERFERENCE CLAIMS Because the Court has concluded that Eaton's conduct is "irrelevant" to the claims of

aiding and abetting and tortious interference, the Court reduced the Plaintiffs' claims for aiding and abetting and tortious interference to a single complaint ­ that K&E recommended

at 27, lines 6-9. The Plaintiffs believe that K&E's recommending Eaton for his role at LeapSource, in the circumstances in which it occurred, including K&E's knowledge of conflicting interests and its awareness of the existing disputes concerning breaches of duty by GTCR and by the GTCR members of the LeapSource board of directors, is sufficient to satisfy the requirement of "substantial assistance" for the aiding and abetting claim. However, the Plaintiffs also argued and provided evidence that Eaton was cooperating with K&E, with GTCR, and with Makings, with respect to the conduct that formed the basis

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for the aiding and abetting and tortious interference claims.

Those claims were not

addressed by K&E's Motion for Summary Judgment Regarding Vicarious Liability ­ which K&E acknowledged by filing separate motions to address the vicarious liability issues and the aiding and abetting and tortious interference claims. Neither K&E nor any of the other Defendants have ever conceded that Eaton was acting as K&E's agent ­ thus, K&E's Motion for Summary Judgment Regarding Vicarious Liability, based upon the argument that the

7 8 9 10 11 12 13 14 15 16 Eaton to GTCR, and not to LeapSource. 28 August Order at 28, lines 24-25. However, that 17 18 19 20 21 22 23 24 25
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release of Eaton also released K&E to the extent that the claims against K&E were based upon the claim that Eaton was K&E's agent, did not purport to address K&E's potential liability for aiding and abetting or for tortious interference. The Plaintiffs believe it was error to conclude that granting the Motion for Summary Judgment Regarding Vicarious Liability necessarily disposed of any part of the aiding and abetting and tortious interference claims. With respect to the fact that K&E recommended Eaton for his role at LeapSource, the Court has apparently attached some importance to the suggestion that K&E recommended

is incorrect, and the Plaintiffs believe it is contradicted (1) by the evidence cited by the Court at page 37 of the 28 August Order, lines 12-15, where K&E partner Kevin Evanich testified that he "referred David Eaton to GTCR, to represent G ­ to talk to GTCR about working for LeapSource" (emphasis added), and by the fact that the people at GTCR to whom Mr. Evanich made the recommendation (and who subsequently made the motion to hire Mr. Eaton), were members of the LeapSource board ­ Mr. Rauner, Mr. Nolan, and Mr. Yih. See

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Plaintiffs' Statement of Additional Facts ("SOAF" at Docket No. 292), ¶¶ 15-16 (identifying Rauner, Nolan, and Yih as members of the LeapSource board of directors). Even without Mr. Evanich's admission, the nature of the recommendation, the circumstances in which it was made, the people to whom it was made, and the subsequent action on that recommendation all support the inference ­ which is for a jury to determine ­ that Eaton was recommended for a position of responsibility with respect to LeapSource, and

7 8 9 10 11 12 13 14 15 16 97-99, 102); regarding the attempts to intimidate or coerce Christine Kirk and Tom Gilman 17 18 19 20 21 22 23 24 25
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with obvious consequences for LeapSource. Thus, to say that the recommendation was made "to GTCR only" is not correct. 28 August Order at 37 lines 6-7. With respect to the question of K&E's conduct, including its conduct in concert with Mr. Eaton ­ that is, apart from the fact and the circumstances surrounding K&E's recommendation of Mr. Eaton for his role at LeapSource ­ the Plaintiffs cited evidence of K&E's participation in decisions regarding the reductions in force at LeapSource (Plaintiffs' SOAF Docket No. 292 at ¶¶ 30, 69, 71, 86, 137, and 143); regarding the termination of Individual Plaintiffs and opposing their claims for severance (SOAF Docket No. 292 at ¶¶

into releasing GTCR of any claims (SOAF Docket No. 292 at ¶¶ 119, 123); regarding the attempts to prevent Tom Gilman from inspecting LeapSource documents (SOAF Docket No. 292 at ¶¶ 125); regarding the decision to put LeapSource into bankruptcy (SOAF Docket No. 292 at ¶ 149); and more generally (SOAF Docket No. 292 at ¶¶ 127-128). The Plaintiffs submit that the inferences to be drawn from that evidence are properly left to the jury to decide. That evidence is more than sufficient to support the conclusion that K&E's role in the tortious conduct complained of by the Plaintiffs is sufficient to meet the

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requirement for the aiding and abetting and tortious interference claims. Mr. Eaton was both recommended by K&E for his role at LeapSource and assisted by K&E in accomplishing GTCR's objectives, beginning almost immediately after the GTCR members of the LeapSource board received Tom Gilman's memorandum dated 24 February 2001, reciting a history of questionable and wrongful acts by the representatives of GTCR. (SOAF Docket No. 292 at ¶¶ 36-46).

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 to support the requirement of causation. 23 24 25 Moreover, the Plaintiffs believe that the Court has applied an inappropriate standard to the expert report of Professor Hazard at pages 34-36 of the 28 August Order, and may 9 Filed 09/12/2006 The GTCR Defendants' strong reaction to the Gilman Memorandum, their immediate consultation with K&E ((SOAF Docket No. 292 at ¶¶ 47-48), and their subsequent conduct to "avoid embarrassment" and protect other GTCR investments (SOAF Docket No. 292 at ¶ 50) while moving to dismantle LeapSource and get rid of Kirk and Gilman (SOAF Docket No. 292 at ¶¶ 73, 76-77, and particularly ¶ 80), all support the inference that K&E knew exactly what GTCR intended and desired, and knowingly assisted GTCR in accomplishing its objectives. III. MOTION FOR SUMMARY JUDGMENT REGARDING MALPRACTICE AND PROFESSIONAL NEGLIGENCE. The same evidence of facts and circumstances showing K&E's knowing and substantial assistance in the breaches of duty to LeapSource (see for example Plaintiffs' Statement of Additional Facts Precluding Summary Judgment SOAF Docket No. 375 at ¶¶ 146-152, 157, and 259-260), also supports the inference that the conduct of K&E was a proximate cause of damage to LeapSource. The Plaintiffs believe that evidence is sufficient

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have misunderstood the Plaintiffs' argument with respect to the issue of causation. The Court has not been asked to make any assumptions about the evidence that will be offered at trial ­ see the 28 August Order at 36, lines 9-10. Instead, the Plaintiffs presented evidence that the Defendants' misconduct ­ which was knowingly and substantially assisted by K&E ­ damaged the assets and business of LeapSource that could have been preserved and either as a going concern (bearing in mind that the ICG part of the business was "sold" as a going

7 8 9 10 11 12 13 14 15 16 substantial cause of injury to LeapSource and Ms. Kirk and her associates." 28 August 17 18 19 20 21 22 23 24 25
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concern, although to an insider and for an amount that made the transaction a fraudulent conveyance), or turned around. (SOAF Docket No. 375 at ¶¶ 150-154, 159 at p. 83 lines 1115, 227-228, and Gilman Memorandum SOAF Exhibit 6, pages 6-7). The fact that the Gilman Memorandum does not mention K&E ­ a fact noted by the Court in the 28 August Order at 36, line 22 ­ does not change the fact that the Gilman Memorandum supports the claim that the business of LeapSource, if properly assisted, could have survived. The existence of that evidence is what Professor Hazard assumed as the basis for his own opinion that K&E's course of conduct and conflicts of interest "were a

Order at 35 lines 9-15. Professor Hazard was not assuming and was not asked to assume that there would be other opinion testimony about K&E, whether from Mr. Gilman or from anybody else. Conclusion. The Plaintiffs respectfully ask the Court to reconsider its Order dated August 28, 2006, and to deny K&E's Motions for Summary Judgment Regarding Vicarious Liability (Docket Nos. 250 and 368), on the Aiding and Abetting and Tortious Interference Claims

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(Docket No. 255), and on the Malpractice and Professional Negligence Claim (Docket No. 328). Dated this 12th day of September, 2006. BEUS GILBERT PLLC By s/ Scot C. Stirling Leo R. Beus Scot C. Stirling Steven E. Weinberger 4800 North Scottsdale Road Suite 6000 Scottsdale, AZ 85251 Attorneys for Individual Plaintiffs and Trustee

STEVE BROWN & ASSOCIATES, LLC Steven J. Brown 1414 E. Indian School Road, Suite 200 Phoenix, AZ 85014 Co-Counsel for Trustee

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CERTIFICATE OF SERVICE I hereby certify that on 12 September, 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: Kevin A. Russell David S. Foster Nicholas B. Gorga LATHAM & WATKINS LLP [email protected] [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Merrick B. Firestone Veronica L. Manolio RONAN & FIRESTONE, PLC [email protected] [email protected] Attorney for Defendant Michael Makings

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Richard A. Halloran Jon Weiss LEWIS & ROCA, L.L.P. [email protected] [email protected] Attorneys for Defendants David Eaton and AEG Partners LLC John Bouma James R. Condo Patricia Lee Refo SNELL & WILMER LLP [email protected] [email protected] [email protected] Attorneys for Kirkland & Ellis Steven J. Brown STEVE BROWN & ASSOCIATES, LLC Co-Counsel for Trustee [email protected]

__s/ Scot C. Stirling___

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