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

Case 1:04-cv-00617-LTB-BNB

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-B-00617-LTB-BNB POLYROCK TECHNOLOGIES, LLC, a Colorado limited liability company, Plaintiff, vs. GENERAL STEEL DOMESTIC SALES, LLC, a Colorado limited liability company, d/b/a General Steel Corporation; GENSTONE ENTERPRISES, LLC, a Colorado limited liability company, d/b/a GenStone; JEFF KNIGHT; KEVIN KISSIRE; and CHUCK DEMAREST, Defendants. DEFENDANTS' REPLY IN SUPPORT OF THEIR MOTION TO STRIKE Defendants Genstone Enterprises, LLC ("Genstone"), General Steel Domestic Sales, LLC ("General Steel"), and Jeff Knight ("Knight") (collectively "Defendants" for purposes of this Motion) respectfully submit their response to the Plaintiff's Opposition to Defendants' Motion to Strike. I. FACTS RELATING TO ONGOING LITIGATION BETWEEN COLORADO ATTORNEY GENERAL AND GENERAL STEEL Plaintiff Polyrock seeks to bring into this case issues regarding the litigation between the Colorado Attorney General and General Steel in Colorado District Court. This litigation is still ongoing, with phase II scheduled to begin in the next 30 days. A summary of the initial phase of this litigation can be found in the Findings, Conclusions and Order of Judgment of the District Court, dated December 7, 2004 (attached hereto as Exhibit A), and the Dismissal of Appeal of the Colorado Court of Appeals, dated June 16, 2005 (attached hereto as Exhibit B). Notably, the

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Court of Appeals found that the findings of the trial court at the conclusion of phase I did not result in a final judgment. See Ex. B, p. 9. The findings of the trial court considered by the Court of Appeals included the injunction. Id., p. 1. Also notable is that this action involved the practices employed by General Steel in the sale of its steel buildings directly to consumers. Genstone and their artificial siding products are not at issue. The injunction ordered as a result of phase I enjoins General Steel and Knight from engaging in the deceptive sales practices described in the District Court's Order (such as "for immediate sale only" and other "highpressure" sales tactics). See Ex. A, p. 39. There is no injunction relating to print advertising or representations as to actual products used in the steel buildings General Steel provided to consumers. Phase II of this ongoing litigation is likely to involve complex issues, both legally and factually, and have discovery consuming the remainder of the calendar year, none of it related to the alleged facts or claims brought by Plaintiff Polyrock (See Order of the District Court, dated August 16, 2005, attached hereto as Exhibit C). These Exhibits A, B and C make clear that the only similarities between the Attorney General's lawsuit and the current dispute are the presence of a Colorado Consumer Protection Act claim and the Defendants General Steel and Jeff Knight. II. DEFENDANTS HAVE SUFFICIENTLY SHOWN THAT THESE PARAGRAPHS DO NOT RELATE TO ANY ISSUE TO BE DECIDED IN THIS CASE Defendants have challenged paragraphs 5 and 53 of Plaintiff's Second Amended Complaint pursuant to Fed. R. Civ. P. 12(f) as irrelevant and immaterial. "Immaterial matter is that which has no essential or important relationship to the claim for relief of the defenses being

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pleaded,..." Rawson v. Sears Roebuck & Co., 585 F.Supp. 1393, 1397 (D. Colo. 1984) (quoting Wright & Miller, Federal Practice and Procedure: Civil § 1382 at 822 (1969)). It is clear from reading the arguments made in Plaintiff's Opposition to Defendants' Motion to Strike ("Opposition") that the only reason the contents of paragraph 5 and 53 exist is to demonstrate propensity. First, there is no connection between the knowledge of Defendants alleged acts towards Plaintiff and the presence of an injunction imposed on certain Defendants for a past violation of the Colorado Consumer Protection Act ("CCPA"). Plaintiff argues that somehow knowledge of a past violation of the CCPA automatically imputes knowledge and willfulness for any future violation. This argument stands logic on its head, however, because the factual allegations as plead in the complaint relate to acts when Defendants General Steel and Genstone, "began marketing their own products..." which took place in 2002 and occurred more than 20 months before the injunction was ordered in the previous litigation. 2nd Am. Compl. ¶5. Without the benefits of a time machine in 2002, Defendants General Steel and Knight would have no knowledge of any future injunction in 2004, and thus could not have this "knowledge" imputed upon them for any potentially deceptive business practice, even if the allegations presented by Plaintiff were true. Secondly, Plaintiff Polyrock does not have standing as a third party non-consumer to enforce any injunctive relief, and it is questionable that they have standing to bring a CCPA claim at all, since they have previously argued that their company was not financially viable (and therefore not in a position to have actual consumers or claim any damages) until only recently this past year. See Plaintiff's Opposition to Motion to Dismiss filed June 23, 2005, ¶¶ 6, 7. Thirdly, Plaintiff points out that this is being offered to "disprove any assertion by movants that the deceptive trade practices alleged in this case were the result of

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mistake or inadvertence..." See Opposition at p. 3. Unnecessary allegations in an attempt to avoid or respond to potential defenses raised by the answering party are properly stricken under Rule 12(f). McNeil Construction Co. v. Livingston State Bank, 265 F.2d 308, 312 (9th Cir. 1959). Defendants have not made any assertion or raised any such defense, and therefore Plaintiff cannot fallback on a contingency to justify these allegations. Plaintiff asserts that the evidence of the decision against General Steel and Knight would be admissible at trial, but this is not true. Both cases cited in support of Plaintiff's position are final decisions, which involved other instances of the same or similar acts. In order for the judgment to be relevant, it would have to have some bearing on this trial. A judgment between a federal agency and a private corporation cannot be used as evidence in a subsequent litigation between that corporation and a third party where the earlier judgment was not an adjudication of any of the issues in the current dispute. Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2nd Cir. 1976). Although the previous action was brought by a state agency, the result is no different. In addition, the awareness of any defendant of a violation of a federal statute is not admissible in a subsequent litigation brought by a third party where the issues are not aligned. N.W. Electric Power Cooperative v. General Electric Co., 30 F.R.D. 557, 558 (W.D. Mo. 1961). Here, Plaintiff has brought a claim under the CCPA as a third party non-consumer, alleging that Defendants used their trade secrets and marketing materials to promote their own enterprises. These types of acts, even if true, are not aligned with the facts plead in the prior case, where the CCPA claim was brought for deceptive sales practices with consumers. For these two cases to be related their would have to be some element of deception against manufacturers such as Plaintiff in the AG's case, or Plaintiff would have to be a consumer affected by the alleged use of

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Plaintiff's marketing materials, or there would have to be some other similar issue between the two cases. The fact that Plaintiff has brought a CCPA claim is the only similarity, and is not enough to make the previous judgment relevant here. Even given the most favorable inferences, the evidence of a prior injunction for the same claim for relief could not be said to have any important or essential relationship to the claim now being brought. Plaintiff Polyrock is not one of the affected consumers in the ongoing state court litigation, nor do they have any chance of being injured should Defendants violate the terms of their injunction. Plaintiffs do not have standing to request relief from or enforce the standing injunction against General Steel and Knight. The mere evidence of a prior injunction would not be admissible to show that Defendants acted in conformity with their previous actions, particularly where the alleged actions took place before the injunction was entered, and therefore has no bearing on the issue of willfulness. Although Plaintiff states in its Opposition that the entirety of paragraph 5 was not stated in Defendants' Motion, this is of no consequence. The Court has power to strike "from any pleading any insufficient defense or redundant, immaterial, impertinent, or scandalous matter." Rawson, 585 F.Supp. at 1397 Therefore, it is well within the Court's discretion to strike portions of the two challenged paragraphs and allow other portions to remain. III. PREJUDICE IS NOT MEASURED SOLELY FROM HARDSHIP IN RESPONDING TO ALLEGATIONS Plaintiff is incorrect in assuming that the only instance that a court may measure prejudice is during the answer to the irrelevant or impertinent pleading. Because the scope of discovery under the federal rules is so broad, and that "discovery is not limited to issues raised by the pleadings," it is important to eliminate any undue hardship caused by non-issues that are 5

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present in the pleadings. Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1520 (10th Cir. 1995). If the previous lawsuit is made an issue, it is likely to be extremely prejudicial to Defendants. First, because it can only be used to show propensity, an element that the Federal Rules of Evidence instruct has very little value, except to confuse and improperly influence the trier of fact. Second, undue hardship will continue for Defendants throughout discovery if Plaintiff is allowed to delve into these matters, where the previous lawsuit's discovery consumed several months and involved several hundred past and present consumers of General Steel. Third, the fact that this is an ongoing litigation makes it even more difficult to respond to requests related to this case, as much of the information is still being produced in preparation for phase II of the Attorney Generals prosecution. III. CONCLUSION Because of the irrelevant and immaterial nature of Paragraphs 5 and 53, and the undue burden created by these paragraphs demonstrated by the Defendants, these paragraphs should be stricken in their entirety. Alternatively, if the Court does not find that these two paragraphs should be stricken in their entirety, Defendants request that the Court strike only the portions of the paragraphs found to be irrelevant and immaterial.

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Dated September 27, 2005. /s/Kurt Lewis________ Kurt S. Lewis Lewis Scheid LLC 2300 Fifteenth Street, Suite 320 Denver, CO 80202 (303) 534-5040 ATTORNEYS FOR DEFENDANTS GENERAL STEEL DOMESTIC SALES, LLC GENSTONE ENTERPRISES, LLC & JEFF KNIGHT

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CERTIFICATE OF SERVICE I hereby certify that on this 27th day of September, 2005, I electronically filed the foregoing DEFENDANTS' REPLY IN SUPPORT OF THEIR MOTION TO STRIKE with the Clerk of court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: John A. DeSisto E-mail: [email protected] Susan M. Hargleroad E-mail: [email protected] /s/Kurt Lewis______________ Kurt S. Lewis Lewis Scheid LLC 2300 Fifteenth Street, Suite 320 Denver, CO 80202 (303) 534-5040

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