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

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

James K. Thurston, ARDC No. 6202021 Patrick K. Cary, ARDC No. 6227274 Daniel E. Tranen, ARDC No. 6244878 WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP 120 North La Salle Street Chicago, IL 60602 Telephone: (312) 704-0550 Facsimile: (312) 704-1522 Admitted Pro Hac Vice Mark G. Worischeck, No. 011147 J. Steven Sparks, No. 015561 SANDERS & PARKS, P.C. 3030 North Third Street, Suite 1300 Phoenix, AZ 85012-3099 Telephone: (602) 532-5795 Facsimile: (602) 230-5054 Attorneys for Defendant Carolina Casualty Insurance Company UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Alanco Technologies, Inc., an Arizona corporation; Technology Systems International, Inc., f/k/a TSI Acquisition Corporation, an Arizona corporation; Robert R. Kauffman and Elizabeth Kauffman, husband and wife; Greg E. Oester and Linda Oester, husband and wife, Plaintiffs, v. Carolina Casualty Insurance Company, a Florida corporation, Defendant. I. INTRODUCTION Plaintiffs are asking this Court to disregard the formalities of the Federal Rules of Case No.: CV-04-0789-PHX-DGC DEFENDANT'S REPLY IN SUPPORT OF ITS MOTION TO STRIKE PORTIONS OF PLAINTIFFS' STATEMENT OF FACTS AND ACCOMPANYING EXHIBITS IN SUPPORT OF PLAINTIFFS' RESPONSE TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

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Evidence and the Federal Rules of Civil Procedure because, according to Plaintiffs,
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Carolina can show no "harm" stemming from Plaintiffs' failure to follow these rules. These rules exist for a reason and the failure of Plaintiffs to abide by them is per se prejudicial, as Defendant has conformed its own conduct to these rules. For instance, it is elementary that an attorney cannot supply advocacy in an affidavit, and then dress it up as a "fact that is not in dispute" in support of a motion for summary judgment. Obviously, if Carolina wished to take the same tack as Plaintiffs, it could supply a contrary affidavit from its own counsel. But, of course, that is not how litigation is supposed to be conducted. Instead, litigation is supposed to be conducted honorably and above board. II. ARGUMENT A. Portions of Plaintiffs' Attorneys Affidavits Must Be Stricken

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No one is disputing the ability of Mr. Daggett to testify about the amount of his fees in the underlying action, the Nevada action and the bankruptcy matter. The issue is not whether Mr. Daggett can testify about his own fees, but whether he can offer opinion testimony as to whether one piece of litigation was "necessary" or somehow linked to another litigation matter. It is only the portion of his affidavit that attempts to draw the legal conclusion that the Nevada litigation and the Bankruptcy litigation were somehow linked to or necessary for the defense of the underlying litigation, and therefore, somehow covered under the Carolina policy, that Carolina seeks to have stricken. Moreover, no one doubts that Mr. Daggett has opinions on these legal issues and that these opinions could have been derived from the experience working on these cases. However, again, the attorney is an advocate in this case, not an expert. What he is testifying to is not fact, but legal conclusion ­ and disputed legal conclusion at that. Accordingly, it does not matter whether he has "personal knowledge" about the "subjects" of the testimony. Finally, Carolina has not impugned or attacked the credibility of Mr. Daggett. This is not a credibility issue. It is an issue about an advocate attempting to provide legal conclusions and opinions as "evidence" in support of a motion for summary judgment.
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

As such, the cases cited by Alanco are inapposite. For example, EEOC v. Peabody Coal Co., 214 F.R.D. 549 (D.Ariz. 2002), which involved an attorney who provided a foundation for a document and who testified to facts, is inapplicable to the circumstances of this case. The proffered testimony by Mr. Daggett does not concern documents or observed procedures. Instead, the testimony concerns the conclusions of Mr. Daggett that fees expended in certain other litigation matters were "necessary" to defend the claims in the underlying litigation. Carolina absolutely disagrees with this contention, and has refused to stipulate to Plaintiffs' damages in this case because these alleged "damages" include defense fees for this other litigation. Since Plaintiffs offer no response to Carolina's motion to strike those portions of the Daggett affidavit constituting improper legal conclusion, and not statement of "fact," those portions of the affidavits ­ Paragraphs 2, 3 and 4 ­ should be stricken by this Court. See Casey v. Lewis, 773 F.Supp. 1365 (D.Ariz. 1991) ("[u]ltimate or conclusory facts and conclusions of law ... cannot be utilized on a motion for summary judgment"). In Casey, the court specifically identified as "conclusory" a paragraph in an affidavit which discussed whether it was "necessary" to do something. Id. at 1372. C. Paragraphs 4, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20 and 21 of Plaintiffs' Response SOF Must Be Stricken 1. Paragraph 10, 11 and 12 Must Be Stricken, As The Referenced Exhibits Are Inadmissible, Leaving the Averments in the Response SOF Unsupported.

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Paragraphs 10-12 all concern activities of the Alanco board and exhibits which: (i) were never identified in Alanco's Initial Disclosures; (ii) never disclosed to Carolina pursuant to Carolina's discovery requests; and (iii) never produced in discovery by Alanco to Carolina. The first time Carolina received these documents was with Alanco's Statement of Facts in Support of its Motion for Summary Judgment. Plaintiffs attempt to justify Paragraphs 10-12 and the referenced exhibits by arguing that their failure to produce these documents in discovery was not "harmful" to

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Carolina. As a result, Plaintiffs contend that they should be permitted to use these exhibits, despite Plaintiffs' failure to comply with discovery. Plaintiffs, however, cite only one of the applicable rules and ignore the rest. Relying on F.R.Civ.P. 37(c), Plaintiffs assert that the failure to disclose must be "harmful." However, this portion of Rule 37 only relates to failures to disclose

information under Rule 26(a)(1) ­ initial disclosure statements. While it is true that Plaintiffs failed to identify these documents as required under Rule 26(a)(1), they also failed to provide them in response to Carolina's written discovery requests. The failure of a party to respond to written discovery is governed by Rule 37(d), which does not require that the failure to disclose be harmful.1 Since Plaintiffs failed to provide these exhibits in response to written discovery seeking these documents, this Court is certainly permitted to bar the use of those documents pursuant to Rule 37(d), regardless of whether it finds that Carolina was "harmed" by such misconduct by Plaintiffs. Nevertheless, even applying the Rule 37(c) "harmfulness" requirement, the harm to Carolina was explained in Carolina's Motion to Strike. In particular, Plaintiffs are relying upon the exhibits to expand their claimed damages in the underlying litigation to include costs incurred in connection with other litigation matters. Had Carolina known that Plaintiffs would be taking this position, Carolina would have conducted further investigation, including the depositions of Plaintiffs in order to show that these other litigations were not covered.2 Plaintiffs' decision to withhold these exhibits, and then spring them upon Carolina after the close of discovery and in support of their Motion for

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According to Rule 37(a)(3), an evasive or incomplete disclosure, answer or response is to be treated as a failure to disclose, answer or respond. The notion that Carolina does not "dispute" these exhibits is unfathomable. Carolina is seeking to have them stricken. Carolina was denied the opportunity to investigate the truth of the contentions contained in these exhibits, and it clearly disputes the conclusion, which Plaintiffs attempt to derive from these exhibits, that defense fees from separate litigation is covered under the Carolina policy.
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Summary Judgment, is the very epitome of prejudice. Such prejudice is plainly harmful to Carolina. Plaintiffs offer no response to this argument in their Response. Moreover, even if Exhibit B had been produced, it does not even contain the signatures of the shareholders of TSIN. There is no evidence that the original of Exhibit B was signed. Exhibit B on its face does not show the assent of the majority of directors, and therefore, on its face, it does not support the facts alleged in Paragraphs 10-12 of the Response Statement of Facts. 2. Paragraphs 4, 6, 7, 8, 9, 13, 14, 16, 17, 18 and 20 Must Be Stricken, Inasmuch As They Are Legal Conclusions Which Lack Foundation and Are Unsupported By Evidence

Paragraphs 4, 6, 7, 8, 9, 13, 14, 16, 17, 18 and 20 must all be stricken because they all constitute legal conclusions which lack foundation and are unsupported by evidence. As such, they are not "facts" supported by evidence. In Paragraph 4, Plaintiffs attempt to create an alleged "fact" ­ that defense counsel's rates in the underlying case "increase[d] ... in the ordinary course of ... business." The invoices themselves disprove Plaintiffs' alleged "fact," and Paragraph 4

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contains no foundation (and references no evidence to construct a foundation) for the
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allegation contained therein. Plaintiffs seem to argue that Mr. Daggett has personal knowledge of the larger "subjects" at issue (the underlying litigation for which coverage is sought), and thus he should be able to state anything in an affidavit and such should automatically qualify as "evidence" and "fact" appropriate for a statement of undisputed facts. According to the case law, this is incorrect. An expression of legal opinion is not a recitation of a "fact" to which an affiant is competent to testify. See Pfeil v. Rogers, 757 F.2d 850, 862 (7th Cir. 1985). In Inglett & Co. v. Everglades Fertilizer Co., 255 F.2d 342 (5th Cir. 1958), the Fifth Circuit explained the rational for refusing to consider the affidavit of counsel: We consider it a tribute to the high calling of advocacy to say that we think it an unnatural, if not virtually impossible,
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task for counsel, in his own case, to drop the garments of advocacy and take on the somber garb of an objective factstater. Further, affidavits which consist of legal conclusions which are unsupported by

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facts should be disregarded, according to the Ninth Circuit. See United States v. Dibble,
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

429 F.2d 598, 602 (9th Cir. 1970). Thus, for the Daggett Affidavit to qualify as evidence, the statements therein ­ since they are made by Plaintiff's counsel in this case ­ must be supported by facts. Since the Affidavit does not reference facts in the record with regard to Paragraphs 4, 6, 7, 8, 9, 13, 14, 16, 17, 18 and 20, they all must be stricken. Interestingly, Plaintiffs do not dispute that the case law requires that conclusory statements in affidavits by counsel representing parties in the case be supported by facts in the record. Dibble, 429 F.2d at 602 (9th Cir. 1970). Plaintiffs' only argument is that Mr. Daggett has "personal knowledge" concerning the facts "surrounding" this case. Surely, if Mr. Daggett's personal knowledge was based on facts currently existing in the record, he could have referenced those in his affidavit. Since he does not, the conclusory paragraphs in the affidavit must, according to the Ninth Circuit, be disregarded. Id. Like Paragraph 4, Paragraphs 6, 7, 8, 9, 13, 14, 16, 17, 18 and 20 are all legal

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conclusions.
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Paragraph 6 is not a recitation of a "fact," but rather a legal conclusion about counsel's characterization of the underlying litigation. The paragraph lacks foundation inasmuch as the Affidavit offered in support of this paragraph, signed by Plaintiffs' counsel in this case, is unsupported by facts and is thus a legal opinion. Id. Paragraph 7 also does not reference facts which support the averment. The referenced Exhibit B certainly does not indicate that the rescission remedy was waived. Plaintiffs furthermore do not dispute this in its response brief (p.8). Paragraph 8 is not a recitation of a "fact," but rather a legal conclusion about counsel's characterization of the underlying litigation. The paragraph lacks foundation in

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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

that the affidavit offered to support such allegations, signed by Plaintiffs' counsel in this case, is unsupported by facts and is thus a legal opinion. Id. Paragraph 9 is not a recitation of a "fact," but rather a legal conclusion about counsel's legal opinion as to whether fees incurred in matters not reported to Carolina were "necessary" for the matter that was reported ­ i.e. the underlying litigation. The paragraph lacks foundation in that the affidavit offered to support such allegations is unsupported by facts and is thus a legal opinion. Id. Paragraph 13 is not a recitation of a "fact," but rather a legal conclusion about counsel's characterization of the underlying litigation. The paragraph lacks foundation in that the affidavit offered to support such allegations, signed by Plaintiffs' counsel in this case, is unsupported by facts and is thus a legal opinion. Id. Paragraph 14 is not a recitation of a "fact," but rather a legal conclusion about counsel's legal opinion as to whether fees incurred in matters not noticed to Carolina were "necessary" for the matter that was noticed (the underlying litigation). The

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paragraph lacks foundation in that the affidavit offered to support such allegations, signed by Plaintiffs' counsel in this case, is unsupported by facts and is thus a legal opinion. Id. Paragraph 16 is not a recitation of a "fact," but rather a legal conclusion about counsel's legal opinion as to whether the Oman invoices were necessary for the underlying litigation. The paragraph lacks foundation in that the affidavit offered to support such allegations, signed by Plaintiffs' counsel in this case, is unsupported by facts and is thus a legal opinion. Id. Paragraph 17 is a legal conclusion which is not supported by the exhibit referenced. The Policy provides that for "Securities Claims," a retention of $200,000 applies. (Carolina's Motion, Ex. 3, Declaration Page.) Paragraph 17 therefore is merely legal argument, and such a statement does not become "fact" merely by referencing a document in the record. Paragraph 17 does not reference any facts indicating the retention is not $200,000. Accordingly, this paragraph should be stricken.
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

Paragraph 18 is a legal conclusion. Plaintiff alleges that "it is undisputed that the claims in the underlying litigation included both securities and non-securities claims." However, just by sticking "it is undisputed" in a statement of facts does not make it so. Carolina has only conceded that the Claim is a Securities Claim, warranting a $200,000 retention. Since Paragraph 18 does not reference any fact supporting the notion that this issue is "undisputed," it should be stricken. Paragraph 20 cites an affidavit signed by Plaintiff's counsel in this case. The attorney's statement, however, does not cite to facts in the record, and thus under Ninth Circuit case law, the paragraph must be stricken. III. CONCLUSION For each of the foregoing reasons, Defendant Carolina respectfully requests that this Court strike the aforementioned paragraphs in Plaintiffs' Statement of Facts in Support of Plaintiffs' Response to Carolina's Motion for Summary Judgment, as well as the aforementioned portions of the affidavit of Plaintiffs' counsel in this case, offered as a recitation of undisputed facts. DATED this 20th day of March, 2006. SANDERS & PARKS, P.C. By: s/J. Steven Sparks Mark G. Worischeck J. Steven Sparks 3030 N. Third Street, Suite 1300 Phoenix, AZ 85012-3099 and James K. Thurston Patrick K. Cary Daniel E. Tranen WILSON, ELSER, MOSKOWITZ, EDELMAN & DICKER LLP 120 North La Salle Street, Suite 2600 Chicago, IL 60602 Attorneys for Defendant Carolina Casualty Insurance Company
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LAW OFFICES SANDERS & PARKS, P.C. 1300 ABACUS TOWERS 3030 NORTH THIRD STREET PHOENIX, ARIZONA 85012-3099 TELEPHONE (602) 532-5600 FACSIMILE (602) 532-5700

I hereby certify that on March 20, 2006, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following EM/ECF Registrants: mdaggett @stinsonmoheck.com cbeams @stinsonmoheck.com Attorneys for Plaintiffs To be hand-delivered as a courtesy hard copy on March 20, 2006, to The Honorable David G. Campbell

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s/ J. Steven Sparks

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