Free Motion to Amend/Correct/Modify - District Court of Colorado - Colorado

Case 1:04-cv-01769-MSK-CBS

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 1:04-cv-01769-MSK-CBS A MAJOR DIFFERENCE, INC., a Colorado corporation, Plaintiff, v. ERCHONIA MEDICAL, INC., an Arizona corporation, ERCHONIA MEDICAL LASERS, L.L.C., an Arizona limited liability company, ERCHONIA PATENT HOLDINGS, L.L.C., an Arizona limited liability company, Defendants.

ERCHONIA MEDICAL, L.L.C., an Arizona limited liability company, ERCHONIA MEDICAL, INC., an Arizona corporation, Counter-Claimants and Third-Party Plaintiffs, v. A MAJOR DIFFERENCE, INC., a Colorado corporation, ROBERT E. MORONEY, an individual, ROBERT E. MORONEY, L.L.C., a Colorado limited liability company, MIKI SMITH, an individual, KMS MARKETING, INC., a Colorado corporation, STARGATE INTERNATIONAL, INC., a Colorado corporation, Counter-Defendants and Third-Party Defendants.

A MAJOR DIFFERENCE, INC.'S MOTION TO AMEND ITS COMPLAINT TO WITHDRAW CLAIMS 5, 6, 7, 9 AND 11 AND TO STREAMLINE ITS PATENT UNENFORCEABILITY CLAIM (CLAIMS 3 AND 4), WITH INCORPORATED CERTIFICATE OF COMPLIANCE WITH D.C.COLO.LCivR 7.1A

Pursuant to Fed. R. Civ. P. 15(a) and 16(b), Plaintiff A Major Difference, Inc. ("AMD") hereby moves to amend its Complaint to effectuate withdrawal of the following claims:

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· ·

Fifth Claim for Relief -- False Advertising Sixth Claim for Relief -- False Advertising and Unfair Competition Under Colorado Common Law Seventh Claim for Relief -- Violation of C.C.P.A. Ninth Claim for Relief -- Defamation Eleventh Claim for Relief -- Violation of A.C.F.A.

· · ·

Each of these Claims is predicated upon statements published by Defendants Erchonia Medical, Inc., Erchonia Medical Lasers, LLC and/or Erchonia Patent Holdings, LLC (collectively "Erchonia") and their agents in the summer of 2004 and concerning the alleged reach of U.S. Patent No. 6,746,473 ("the '473 patent"). Since assertion, AMD has continued to monitor damages resulting from Erchonia's tortious conduct. In connection with the preparation of primary expert reports (originally due to have been served August 5, 2005, but then reset to October 13, 2005), AMD concluded that provable damages have been minimal. As one might expect, AMD next compared the potential benefits it might reasonably hope to gain should it prevail on these Claims against the cost it would incur in prosecuting those Claims through trial. That analysis, completed in August 2005, convinced AMD to seek dismissal of Claims 5-7, 9 and 11. AMD agrees that it will not in the future reassert these Claims. (Declaration of Neill Moroney ("Moroney Dec."), ¶¶ 7-8.) Through its Amended Complaint, AMD also seeks to streamline the factual allegations upon which it claims the '473 patent unenforceable. AMD's proposed modification compresses original Claims 3 and 4 into a single claim, new Claim 3. That claim conforms AMD's allegations of patent unenforceability to those relied upon by AMD's expert, Mr. Thomas Bratschun, in concluding that the '473 patent is unenforceable.

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The present Motion is supported by an accompanying Brief, the Declaration of Neill Moroney and Exhibits 1-10. A proposed first Amended Complaint is also filed herewith as Exhibit 11. CERTIFICATE OF COMPLIANCE WITH D.C.COLO.LCivR 7.1A On August 31, 2005, AMD notified Erchonia that it wished to withdraw its non-patent claims, i.e. Claims 5-11. (Ex. 2.) With that correspondence, AMD provided a proposed Stipulated Motion to Dismiss, requesting Erchonia's counsel sign and return the pleading for filing with the Court.1 Erchonia did not timely respond, prompting AMD to again seek Erchonia's position. (Ex. 4.) Erchonia finally responded on September 26, 2005, stating that it would not oppose dismissal so long as AMD agreed to pay all defense fees and costs it had then incurred and to time "dismissal so as to minimize any adverse effects upon Erchonia." Erchonia justified its demands thus: Please be aware that Erchonia regards this proposal as gamesmanship on behalf of AMD. It is evident that AMD desires to dismiss these claims solely for the purpose of eliminating Erchonia's insurance coverage from this lawsuit. From the inception of this lawsuit, Erchonia has asserted that these claims were baseless and duplicative of the claims pending in other jurisdictions. It seems that having chosen to initially file and pursue these claims over Erchonia's objections, AMD now regrets its choice. (Ex. 5.) AMD responded by letter on September 29, 2005, relevantly stating: As explained in our recent telephone conversation, AMD does not seek to dismiss Claims Five through Eleven because they are baseless. Indeed, AMD believes these Claims are imminently provable at trial and has recently supplemented
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Since then, counsel discovered that where a plaintiff seeks to withdraw from an action less than all claims, a motion to amend the complaint, not a motion to dismiss claims, should be pursued. Anderberg v. Masonite Corp., 176 F.R.D. 682, 686 (N.D. Ga. 1997); see also, Boyce v. Augusta-Richmond Cty., 111 F. Supp.2d 1363, 1374 (S.D. Ga. 2000). 3

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its Responses to Erchonia discovery, further proving the point. As explained, however, AMD has been monitoring its business over the past year to determine what effect Erchonia's complained-of activities have had upon its business. Surprisingly, AMD recently determined that Erchonia's false and misleading advertisements and other complained-of activities have had virtually no measurable impact upon its overall business. That fact, coupled with the understanding that it would cost tens of thousands of dollars, if not more, to properly prosecute Claims Five through Eleven through a trial have convinced AMD that it makes no economic sense to continue pressing the Claims. It is based upon that cost benefit analysis that AMD decided to no longer pursue Claims Five through Eleven. Next, Claims Five through Eleven are not factually duplicative of claims pending in other jurisdictions. AMD does recognize that some factual allegations within its Complaint may be duplicative of allegations pled in other actions. Those duplicative allegations, however, do not form the basis of Claims Five through Eleven. Rather, such allegations were simply included within the current Complaint to show an overall course of dealing between the parties. As you may by now realize, the allegations upon which AMD relies to prove Claims Five through Eleven, as set forth in AMD's Supplemental Responses to Erchonia's Interrogatories, all deal with enforcement of the '473 patent, deceptive advertising of the scope of the '473 patent and deceptive advertising of the PL-5 device[ which Erchonia claims is covered by the '473 patent]. As you know, none of these allegations are part of either . . . prior . . . actions. We assumed Erchonia recognized this distinction, as it did not move to dismiss or strike duplicative allegations, even though Erchonia injudiciously moved to dismiss and strike other claims and allegations. In any case, it is and has always been AMD's understanding that Claims Five through Eleven were based upon very different factual allegations concerning event[s] [sic] and property that are not part of any pending action. As such, Claims Five through Eleven were, in our opinion, appropriately brought in the present case. Finally, Erchonia suggests that the timing of AMD's decision to withdraw several of its Claims is suspect, evidencing gamesmanship. Erchonia's allegation is simply not true. As already explained, AMD only recently concluded its cost and benefits analysis. Based upon that, AMD decided that it simply was not economically viable to continue to press Claims Five through Eleven. That decision was only made shortly before AMD contacted Erchonia, requesting that it agree to dismissal of Claims Five through Eleven. As I am sure you would agree, AMD's decision does not evidence gamesmanship, but rather a desire to only press meaningful claims. That said, AMD is not unreasonable. If Erchonia would truly suffer some form of legally recognized prejudice as a result of dismissal of Claims Five through Eleven at this point in time, AMD would certainly consider postponing, for a reasonable time period, filing any paper seeking the Court's leave to withdraw Claims Five, Six, Seven, Nine and Eleven (Erchonia has already agreed to dismissal 4

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of Claims Eight and Ten). If you would like, please contact me at your earliest possible convenience to discuss this issue. If I do not hear from you, however, I must assume that Erchonia's position is simply posturing and it can present no evidence of legal prejudice. (Ex. 6.) Erchonia responded on October 18, 2005, generally reiterating, without substantiation, its previous positions and, more relevantly stating: We continue to believe that AMD knew or should have known at the time it filed its claims, or at least far earlier in the litigation, that the claims it now wishes to dismiss could not be legally or factually supported. . . . Based on your recent statements, it is evident that AMD knew or should have known that it could not prove any damages for its tort claims when it filed them. . . . As you know, damages is a necessary element of these claims and the failure to have any proof of damages causes Erchonia to believe AMD's claims were at all times incapable of proof. We believe this alone supports Erchonia's position that it is entitled to recovery of its attorney's fees on these claims when they are dismissed. (Ex. 7.) AMD responded by letter dated October 21, 2005, pointing out to Erchonia that damages is in fact not an element of Claims 5, 6, 7 or 11 and that its other assertions were equally incorrect. (Ex. 8.) AMD subsequently contacted Erchonia, again requesting the basis for its claim to entitlement of attorney's fees and costs and to discuss the timing issue. At that time, Erchonia's counsel, Mr. Schwartz, conceded that Erchonia is probably not entitled to all of its attorney's fees and costs. Most surprisingly, however, counsel admitted that the purpose of the timing requirement was so that Erchonia's insurance company, which has apparently been paying the majority of Erchonia's attorney's fees and costs in this action, would have an obligation to continue paying those fees and costs well into the future. Erchonia made this statement even knowing that AMD has no interest in

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pressing the claims which apparently triggered insurance coverage in the first place. Erchonia confirmed its extraordinary positions in its letter of October 26, 2005. (Ex. 9.) CONCLUSION AMD's proposed amendment is timely and based upon a desire to pursue only meaningful claims. The proposed amendment will greatly simplify this case, a benefit to all concerned and is certainly in the interests of justice. AMD's agreement not to reassert the to-be-withdrawn Claims in the future also makes it practically impossible for Erchonia to claim it will be prejudiced should the proposed amendment be allowed. AMD thus requests that the Court immediately enter its first Amended Complaint, without the imposition of any condition, specifically including the condition that AMD pay anything to Erchonia. Respectfully submitted,

Dated: November 4, 2005

By:

s/ Robert R. Brunelli Robert R. Brunelli [email protected] Benjamin B. Lieb [email protected] SHERIDAN ROSS P.C. 1560 Broadway, Suite 1200 Denver, CO 80202-5141 Telephone: 303-863-9700 Facsimile: 303-863-0223 E-mail: [email protected] ATTORNEYS FOR A MAJOR DIFFERENCE, INC., ROBERT E. MORONEY, ROBERT E. MORONEY, L.L.C., MIKI SMITH, KMS MARKETING, INC., GEORGE GONZALEZ, LORENA GUZMAN AND STARGATE INTERNATIONAL, INC.

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CERTIFICATE OF SERVICE

I hereby certify that on this November 4, 2005 I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Richard L. Gabriel, Esq. [email protected] Holme Roberts & Owen, LLP 1700 Lincoln Street, Suite 4100 Denver, Colorado 80203 John R. Mann, Esq. [email protected] Charles R. Ledbetter, Esq. [email protected] Valerie A. Garcia, Esq. [email protected] Kennedy Christopher Childs & Fogg, P.C. 1050 17th Street, Suite 2500 Denver, Colorado 80265

and I hereby certify that I have mailed or served the document or paper to the following non-CM/ECF participants in the manner (mail, hand-delivery, etc.) indicated by the non-participant's name: Ira M. Schwartz, Esq. [email protected] DeConcini McDonald Yetwin & Lacy, P.C. 7310 N. 16th Street, Suite 330 Phoenix, Arizona 85020 Via U.S. First Class Mail

s/ Lori R. Brown Lori R. Brown Assistant to Robert R. Brunelli SHERIDAN ROSS P.C. 1560 Broadway, Suite 1200 Denver, CO 80202-5141 Telephone: 303-863-9700 Facsimile: 303-863-0223 E-mail: [email protected] [email protected]
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