Free Response in Opposition to Motion - District Court of Arizona - Arizona

1 Terry E. Fenzl (#002485) C. Mark Kittredge (#013907) 2 PERKINS COIE BROWN & BAIN P.A. 3 2901 North Central Avenue Post Office Box 400 4 Phoenix, Arizona 85001-0400 (602) 351-8000 5 [email protected] 6 [email protected] 7 Attorneys for Defendants 8 9 10 11 12 Richard G. Krauth, an individual, and R.M. Wade & Co., an Oregon corporation, 13 Plaintiffs, 14 15 vs. No. CV 04-0544 PHX PGR UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

16 Phelps Dodge Corporation, a New York 17 corporation, et al., 18 Defendants.

RESPONSE IN OPPOSITION TO PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT THAT THE SETTLEMENT AGREEMENT IS NOT ENFORCEABLE

19 Phelps Dodge Corporation, a New York 20 corporation, et al., 21 22 23 Counterclaim Plaintiffs, vs.

Richard G. Krauth, an individual, and R.M. 24 Wade & Co., an Oregon corporation, 25 26 27 28
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Counterclaim Defendants.

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Table of Contents Page Table of Authorities............................................................................................................. ii Introduction ......................................................................................................................... 1 Factual Background............................................................................................................. 2 Argument ............................................................................................................................. 3 I. CLEAR ISSUES OF MATERIAL FACT WITH RESPECT TO THE JANUARY AND APRIL VERBAL AGREEMENTS REQUIRE DENIAL OF PLAINTIFFS' MOTION. .................................................................................. 4 ARIZONA RULE OF CIVIL PROCEDURE 80(D) IS NOT APPLICABLE.......................................................................................................... 6 A. B. Arizona Rule of Civil Procedure 80(d) is a State Procedural Rule that Does Not Apply in Federal Court. ......................................................... 6 Arizona Rule of Civil Procedure 80(d) Could Not Apply to the October Written Agreement, in any Event, because its Terms are Not in Dispute. ..................................................................................................... 7

II.

III.

ARIZONA'S STATUTE OF FRAUDS DOES NOT PREVENT ENFORCEMENT OF THE SETTLEMENT AGREEMENT. ................................ 9 A. B. The Arizona Statute of Frauds Does Not Apply to Contracts that Can be Performed Within One Year..................................................................... 9 The Settlement Agreement between the Parties can be Performed within One Year and Therefore is not Governed by Arizona's Statute of Frauds...................................................................................................... 10

IV.

THE PARTIES SATISFIED RULE 80(D) AND THE ARIZONA STATUTE OF FRAUDS BY THEIR EXCHANGE OF EMAIL LETTERS IN OCTOBER 2005. .............................................................................................. 13

Conclusion ......................................................................................................................... 15

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Table of Authorities Page Cases Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970) ............................................................. 4 Aero Bolt & Screw Co. of Calif., Inc. v. Iaia, 180 Cal. App. 728 (Cal. Ct. App. 1960) ....................................................................................................... 12 Anderson v. Liberty Lobby Inc., 477 U.S. 242 (1986) ........................................................ 4 Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)............................................................ 3 Condon v. Ariz. Hous. Corp., 63 Ariz. 125, 160 P.2d 342 (1945) .................................... 10 Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) .................................................................. 6 Gateway, Inc. v. Hillgren, 82 F. Supp. 546 (S.D. Cal. 1949) ........................................... 12 Gold v. Killeen, 44 Ariz. 29, 37, 33 P.2d 595 (1934).................................................. 11, 12 Hays v. Fischer, 161 Ariz. 159, 777 P.2d 222 (App. 1989)................................ 7, 8, 13, 14 Hays: Canyon Contracting Co. v. Tohono O' Odham Housing Authority, 172 Ariz. 389, 837 P.2d 750 (App. 1992) ........................................................................ 8 Healey v. Coury, 162 Ariz. 349, 783 P.2d 795 (App. 1989) ......................................... 9, 12 In re Larry's Apartment, L.L.C., 249 F.3d 832 (9th Cir. 2001) .......................................... 6 Lamle v. Mattel, Inc., 394 F.3d 1355 (Fed. Cir. 2005)...................................................... 14 Lyons Enterprises, Inc. v. Custer, 168 Ariz. 439, 814 P.2d 780 (App. 1991) .................... 8 Muchesko v. Muchesko, 191 Ariz. 265, 955 P.2d 21 (App. 1997)...................................... 8 Pourreza v. Teel Appraisals & Advisory, Inc., 616 S.E. 2d 108 (Ga. Ct. App. 2005) ........................................................................................................ 13 Retail Clerks Union Joint Pension Trust v. Freedom Food Ctr., Inc., 938 F.2d 136 (9th Cir. 1991) ............................................................................................ 6 Schick Servs., Inc. v. Jones, 173 F.2d 969 (9th Cir. 1949)................................................ 12 Solaia Tech., LLC v. Arvinmeritor, No. 02 C 4704, 2006 WL 695699 (N.D. Ill. Mar. 16, 2006)................................................................................................. 11

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Sun Studs, Inc. v. Applied Theory Assoc., Inc., 772 F.2d 1557 (Fed. Cir. 1985) ........................................................................................................ 11, 12 Telephia, Inc. v. Cuppy, 411 F. Supp. 2d 1178 (N.D. Cal. 2006) ....................................... 5 Valdiviezo v. Phelps Dodge Hidalgo Smelter, Inc., 995 F. Supp. 1060 (D. Ariz. 1997).............................................................................................................. 4, 5 Waugh v. Lennard, 211 P.2d 806 (1949) .......................................................................... 12 W. Chance #2, Inc. v. KFC Corp., 957 F.2d 1538 (9th Cir. 1992) ....................... 10, 11, 13 Statutes Ariz. Rev. Stat. § 44-101 ................................................................................................... 13 Ariz. Rev. Stat. § 44-101(5) .......................................................................................... 9, 12 Ariz. Rev. Stat. § 44-7007(A) ........................................................................................... 15 Ariz. Rev. Stat. Ann. § 12-109(A) ...................................................................................... 6 Or. Rev. Stat. § 41.580(1).................................................................................................. 12 Rules Arizona Rule of Civil Procedure 80(d) ...................................................................... passim Fed. R. Civ. P. 56(c) ............................................................................................................ 3 Restatement (Second) of Contracts § 17 (1979).................................................................. 4 Other 19 WRIGHT, MILLER & COOPER, Federal Practice and Procedure § 4520 (2d ed. 1996)..................................................................................................................... 6

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Introduction Plaintiffs' motion for summary judgment is based on the arguments that the settlement agreement fails to satisfy Arizona State Rule of Civil Procedure 80(d) and fails to satisfy the Arizona statute of frauds. Plaintiffs ignore key facts and the relevant law: First, Plaintiffs' papers ignore the email letter they sent on October 12, 2005, in which they agreed to every last term of the fully documented settlement agreement: "[Plaintiffs] agree[] with you, so please make the change and email it to me. I can then have my clients . . . sign the agreement." [Pls.' Resp. to SOF ¶ 5, Defs.' SOF ¶ 5, Ex. 4]1 Instead, Plaintiffs misdirect the Court's attention to an earlier email letter dated October 9, 2005, which they contend is inadequate to support a conclusion that the parties had reached an agreement. Of course, Plaintiffs cannot simply ignore their own letters that contradict the position they are urging on the Court. Second, Plaintiffs rely on Ariz. R. Civ. P. 80(d), ignoring the fact that it is a state rule of civil procedure, which under the Erie doctrine cannot apply in this Court. Indeed, Plaintiffs make no effort to demonstrate how this state rule of civil procedure could apply here. Under the proper analysis, as outlined below, that state rule of civil procedure simply does not apply in federal court. Third, Plaintiffs ignore unambiguous Arizona case law that consistently contradicts their position on the statute of frauds. Instead, they rely on case law applying statutes of frauds from other states. As discussed more fully below, however, the statutes of frauds in those cases are significantly different than Arizona's and, hence, such cases provide no guidance here. Of course, the relevant case law demonstrates that the

settlement agreement here is binding and enforceable.

Plaintiffs' Response to Defendants' Statement of Facts ("Plaintiffs' Response to SOF") and Statement of Facts in Support of Plaintiffs' Response in Opposition to Defendants' Motion for Summary Judgment Enforcing Settlement Agreement ("Plaintiffs' Opposition SOF") were filed as a single document at Docket No. 66.
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Finally, even if Ariz. R. Civ. P. 80(d) and Arizona's statute of frauds were applied, they are fully satisfied by the above referenced October 12, 2005 email letter that Plaintiffs try to ignore. Factual Background On August 16, 2004, this Court granted Plaintiffs' motion to stay this litigation pending a re-examination of the patents-in-suit by the United States Patent and Trademark Office ("Patent Office"). On January 11, 2005 Plaintiffs made a verbal offer to settle this case on the following terms: (i) a specified payment from Defendants; (ii) for a paid-up license to Phelps Dodge; (iii) regardless of what happens in the Patent Office; and (iv) terms be confidential. [Defs.' SOF ¶ 1, Ex. 1, Kittredge Decl. ¶ 2 (together at Docket No. 39, Pls.' Opp'n SOF ¶ 2 (Docket No. 66), Heuser Decl. ¶¶ 4, 5 and 6, Ex. B. (Docket No. 67), Tedesco Decl. Ex. B 3:14-19 (Docket No. 68)] Defendants accepted that offer on

January 12, 2005, forming a binding settlement agreement. [Id.] On or before April 5, 2005, Plaintiffs and Defendants agreed to modify the settlement agreement to also cover emitters used by Phelps Dodge with respect to a newly identified patent owned by Plaintiffs. During that conversation, the parties agreed that: (i) Defendants would identify the subject emitters; (ii) Plaintiffs would review that information with respect to the new patent; and (iii) all emitters that do not infringe the new patent would be expressly identified in and covered by the agreement. Plaintiffs confirmed this agreement in writing by stating in an April 5, 2005 email letter to Defendants that the Parties have now "put the case to bed." [Heuser Decl. Ex. H (Docket No. 67), Tedesco Decl. Ex. B 3:20-27 (Docket No. 68)] Finally, the Parties reached full agreement on a written settlement agreement in October of 2005. The Parties have expressly agreed on the following facts regarding the written agreement in October 2005: The Parties agreed to all terms of the settlement agreement not later than October 2005. [Pls.' Resp. to SOF, ¶ 2];
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Defendants transmitted to Plaintiffs the final version of the written settlement agreement by email letter on October 9, 2005. [Id. ¶ 4] Plaintiffs agreed to the last remaining detail of the settlement agreement (a change to Exhibit C) by email letter dated October 12, 2005, expressly stating: "[Plaintiffs] agree[] with you, so please make the change and email it to me. I can then have my clients . . . sign the agreement." [Id. ¶ 5, Defs.' SOF ¶ 5, Ex. 4]

By October 12, 2005, therefore, the parties had agreed in writing to every covenant, exhibit and detail of the written settlement agreement.2 While each of the above agreements are binding, enforceable contracts, Defendants' pending motion for summary judgment is solely based on the written agreement reached in October 2005 because it can be judged on objective, undisputed evidence. The subject motion filed by Plaintiffs, however, asks the Court to determine, as a matter of law, that the Parties never reached a binding agreement: not in January 2005; not in April 2005; and not in October 2005. While Defendants' motion can be granted based on objective written evidence, Plaintiffs' motion addresses verbal

agreements, which necessarily raise issues of material fact. Hence, Plaintiffs' motion must be denied. Argument Summary judgment is appropriate only if the Court finds (i) that there is no genuine dispute as to any material fact, and (ii) the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The party moving for summary judgment is charged with demonstrating the absence of any genuine issue of material fact and that it is clearly entitled to prevail as a matter of law on the basis of undisputed material facts. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). To survive summary judgment,

Hereafter, the January and April 2005 verbal agreements will be referred to as the "January and April verbal agreements" and the October 2005 written agreement will be referred to as the "October written agreement."
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the non-moving party need only present evidence of a genuine issue of material fact. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). In ruling on a motion for summary judgment, the Court views all evidence, and the inferences to be drawn therefrom, in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 147 (1970). Plaintiffs argue that the settlement agreement fails to satisfy Arizona state Rule of Civil Procedure 80(d) and the Arizona statute of frauds. As fully explained below, however: (i) there are clear issues of material fact with respect to the January and April verbal agreements, which preclude granting Plaintiffs' motion for summary judgment; (ii) the Erie doctrine prohibits application of Arizona Rule 80(d) to proceedings before this Court; (iii) Arizona's statute of frauds does not invalidate the settlement agreement here; and (iv) even if Arizona Rule 80(d) and Arizona's statute of frauds did apply, they are fully satisfied by the settlement agreement in this case. More importantly, however, the objective evidence demonstrates that a binding written agreement was reached in October, 2005 and, thus, not only should Plaintiffs' motion be denied but Defendants' Motion for Summary Judgment Enforcing Settlement Agreement should be granted. I. CLEAR ISSUES OF MATERIAL FACT WITH RESPECT TO THE JANUARY AND APRIL VERBAL AGREEMENTS REQUIRE DENIAL OF PLAINTIFFS' MOTION. Defendants have presented competent, admissible evidence demonstrating that: (i) on January 11, 2005 Plaintiffs offered to settle this case; (ii) Plaintiffs' offer included definite terms, and consideration; and (iii) Defendants accepted that offer on January 12, 2005. [Defs.' SOF ¶ 1, Ex. 1, Kittredge Decl. ¶ 2 (together at Docket No. 39), Pls.' Opp'n SOF ¶ 2 (Docket No. 66), Heuser Decl. ¶¶ 4, 5 and 6, Ex. B (docket No. 67), Tedesco Decl. Ex. B 3:14-19 (Docket No. 68)] Nothing more is needed to form a binding contract settling this dispute. Restatement (Second) of Contracts § 17 (1979) ("[T]he formation of a contract requires a bargain in which there is a manifestation of

mutual assent to the exchange and a consideration."); see also, Valdiviezo v. Phelps
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Dodge Hidalgo Smelter, Inc., 995 F. Supp. 1060, 1064 (D. Ariz. 1997) (citing Section 17 and holding that Arizona law requires manifestation of mutual assent). Defendants have

also presented competent, admissible evidence demonstrating that the Parties subsequently agreed to modify that settlement agreement in April, 2005. [Heuser Decl. Ex. H (Docket No. 67), Tedesco Decl. Ex. B 3:20-27 (Docket No. 68)] Plaintiffs have presented a differing perspective on these verbal agreements, denying the nature of the subject conversations and that the verbal agreements were ever reached. For example, Plaintiffs disagree as to the contents of conversations that

Defendants allege constitute oral agreements as follows: Defendants claim their counsel unconditionally accepted Plaintiffs' January 11 offer of settlement while Plaintiffs contend that they did not make an offer for settlement and that in the January 11-12, 2005 communications, the parties merely "determined the basic value of a license to the patents-in-suit." [Compare Defs.' SOF with Defs.' MSJ 2:14-15] Plaintiffs claim that their counsel stated that "if the PTO does not reject all of the claims of the patents-in-suit, the settlement negotiations would change directions" on April 5, 2005 while Defendants maintain that no such statement was made by Plaintiffs' counsel on this date. [Compare Heuser Decl. ¶ 12 with Tedesco Decl. Ex. B 3:1-4] Further, Plaintiffs' early

statements about this conversation contradict statements now made in support of their Motion. [Kittredge Decl. Ex. C (Pls Interrogatory Responses) 4:10-15 ("Mr. Heuser may have also indicated that, on the other hand, if the PTO does not reject all of the claims, then that would totally change things to Wade's benefit.")] [emphasis added] The question of whether the parties entered into binding oral agreements during the conversations presents issues of material fact, which require denial of Plaintiffs' Motion. Telephia, Inc. v. Cuppy, 411 F. Supp. 2d 1178, 1188 (N.D. Cal. 2006) (denying summary judgment where there were disputed issues of material fact about the terms of
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an oral agreement). To prevail, therefore, Plaintiffs' must convince the Court that these verbal agreements cannot be binding contracts pursuant to Arizona State Rule of Civil Procedure 80(d) and Arizona's statute of frauds, which they cannot do. II. ARIZONA RULE OF CIVIL PROCEDURE 80(D) IS NOT APPLICABLE. A. Arizona Rule of Civil Procedure 80(d) is a State Procedural Rule that Does Not Apply in Federal Court.

Under the Erie doctrine, federal courts examining state law issues must apply state substantive law and federal procedural rules and law. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); 19 WRIGHT, MILLER & COOPER, Federal Practice and Procedure § 4520 (2d ed. 1996) ("The Erie case and the Supreme Court decisions following it apply in federal question cases as well."). It is beyond dispute that Arizona Rule of Civil Procedure 80(d) is a rule of procedure. Because Rule 80(d) is procedural in nature, under the Erie doctrine, this Court should not apply the rule in deciding the enforceability of the settlement agreement. See Retail Clerks Union Joint Pension Trust v. Freedom Food Ctr., Inc., 938 F.2d 136, 137 (9th Cir. 1991) (applying the Erie doctrine and refusing to apply state rule of civil procedure that required specific elements for stipulated judgments); In re Larry's Apartment, L.L.C., 249 F.3d 832, 837-38 (9th Cir. 2001) (applying Erie doctrine and refusing to apply an Arizona law governing attorney conduct with respect to an attorney's conduct in federal court). The procedural nature of Arizona Rule 80(d) is conclusively demonstrated by the fact that it was created under the Arizona Supreme Court's rule making authority, which is limited to procedural rules. Ariz. Rev. Stat. Ann. § 12-109(A) (The "court, by rules promulgated . . . shall regulate pleading, practice and procedure in judicial proceedings."). Even if it wanted to do so, the Arizona Supreme Court simply could not use its rule making authority to create substantive law: "The rules shall not abridge, enlarge or modify substantive rights of a litigant." Id. There is no way to read a rule created under such limited authority as establishing substantive law [emphasis added].
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Thus, Plaintiffs cannot use Arizona Rule 80(d) to avoid the January and April verbal agreements or the October written agreement. B. Arizona Rule of Civil Procedure 80(d) Could Not Apply to the October Written Agreement, in any Event, because its Terms are Not in Dispute.

Because Plaintiffs and Defendants agree that the terms of the settlement agreement are clearly set out in the October 2005 email letters [Pls.' Resp. to SOF ¶ 2], Arizona Rule 80(d) would not apply even if this case were pending in an Arizona state court. See Hays v. Fischer, 161 Ariz. 159, 777 P.2d 222 (App. 1989), where the court considered a motion to enforce a settlement agreement in a personal injury matter. Id. at 160-62, 777 P.2d at 223-25. Counsel in that case agreed on an oral settlement agreement, later documented by correspondence between counsel. Id. Hays tried to avoid the agreement and argued that her attorney was not authorized to settle the case and that under Arizona Rule 80(d) there was no valid settlement agreement. Id. at 166, 777 P.2d at 229. The court disagreed and held that Arizona Rule 80(d) did not apply because the only question was whether Hays was "bound by the settlement agreement." Id. (stating that Rule 80(d) applies where the existence of a settlement agreement or its terms are in dispute, but not where the only question before the court is whether a party is bound by a settlement agreement). Here Plaintiffs have expressly acknowledged that all terms of the settlement agreement were established in October 2005. [Pls.' Resp. to SOF ¶ 2 ("the parties did agree to all material terms by October 2005"); see also Pls.' MSJ 3 ("the parties were still

negotiating . . . the agreement in the first few weeks of October 2005 until they reached a final draft of an agreement") (emphasis added)] Plaintiffs only contention is that they are not bound by the settlement agreement (because it was not formally executed) and

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therefore, under Hays, Arizona Rule 80(d) would not apply even in an Arizona state court.3 Plaintiffs argue that they can dodge Hays and that they cannot be bound by the written October agreement because of ambiguous verbal communications made in April or May, 2005. [See Pls.' MSJ 6-7] Specifically, Plaintiffs counsel verbally told Defendants' counsel "that `if the PTO issued a favorable Office Action before the written settlement agreement was signed, then he thought his clients' position would be that all bets would be off.'" [Id.] That ambiguous and equivocal statement, at best, merely communicates what plaintiffs' counsel "thought" his clients' position might be. Plaintiffs have not presented any evidence, nor have they even alleged, that they followed up with either a verbal or a written communication that actually stated an express intent not to be bound until the written agreement was signed. In the absence of such an express statement, the unambiguous written communications made in October 2005 simply cannot be contradicted by such ambiguous verbal statements made six months earlier. See Muchesko v. Muchesko, 191 Ariz. 265, 268, 955 P.2d 21, 24 (App. 1997) ("[i]n deciding whether . . . mutual assent exists, [the Court] look[s] at objective evidence, not `the hidden intent of the parties'") (citations omitted).
3

Plaintiffs rely on two cases to distinguish Hays: Canyon Contracting Co. v. Tohono O' Odham Housing Authority, 172 Ariz. 389, 391, 837 P.2d 750, 752 (App. 1992); and Lyons Enterprises, Inc. v. Custer, 168 Ariz. 439, 814 P.2d 780 (App. 1991). [Mot. 6-10] Neither case, however, supports their position. In Canyon, the parties disputed whether the agreement was contingent on HUD approval, but they had also twice "stipulat[ed]" to continue the case on the inactive calendar "based upon the grounds that HUD had not approved the parties' `tentative agreement' . . . ." Canyon, 172 Ariz. at 390, 837 P.2d at 751. That record made it impossible for the court to find, as a matter of law, that a final agreement existed. Id. at 392, 837 P.2d at 753. Likewise, in Lyons the parties disputed whether the settlement agreement included a term regarding financing arrangements. Lyons 168 Ariz. at 440, 814 P.2d at 781. Hence, the court could not determine, as a matter of law, whether a final agreement existed. In sharp contrast, here the Plaintiffs admit that the Parties had agreed to all terms and conditions of the settlement agreement as reflected in the October 2005 email letters. [Pls.' Resp. to SOF

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Although Plaintiffs now try to use the above-described ambiguous statement to allege that they always disputed the existence of an agreement, their writings at the time stated that there was an agreement: "now that we have put the case to bed . . . would it be appropriate for [Plaintiffs] to contact Phelps [Dodge] with the thought of doing business in the future?" [Heuser Decl. Ex. H] (emphasis added) Indeed, their motion papers indicate that they purposely sent this message to make Defendants believe there was a deal: "Newbegin told Heuser that Wade wished to sell product to Phelps Dodge and asked Heuser to be more positive with Kittredge about the progress of negotiations. As a result of this conversation, Heuser sent an email to Kittredge asking, to be encouraging, if it would be appropriate for Wade to contact Phelps about doing business in the future `now that we have been able to put the case to bed." [Pls.' Opp'n SOF ¶ 9 (internal cites omitted)] In the face of this evidence, Plaintiffs simply cannot now be permitted to pretend that they openly disputed the existence of an agreement. III. ARIZONA'S STATUTE OF FRAUDS DOES NOT PREVENT ENFORCEMENT OF THE SETTLEMENT AGREEMENT. A. The Arizona Statute of Frauds Does Not Apply to Contracts that Can be Performed Within One Year.

The Arizona statute of frauds requires an agreement to be in writing and signed by the party to be charged, or an authorized representative, if the parties' performances under the agreement are "not to be performed within one year from the making thereof." Ariz. Rev. Stat. § 44-101(5). Arizona courts have repeatedly and consistently held that this provision requires an agreement to be in writing and signed by the parties only in circumstances where it would be impossible for the contract to be performed within one year. Healey v. Coury, 162 Ariz. 349, 353, 783 P.2d 795, 799 (App. 1989) ("Arizona courts follow the general rule interpreting that provision to mean `impossible to be

¶ 2] This case clearly is more like Hays, where the terms of the final agreement were undisputed.
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performed within one year.'"); W. Chance #2, Inc. v. KFC Corp., 957 F.2d 1538, 1541 (9th Cir. 1992) (stating that the "mere possibility that performance can be completed within one year--even if not contemplated by the parties--is usually sufficient to remove the agreement from the statute of frauds"). If there is any possibility--however remote or theoretical--that an agreement can be performed within one year, the statute of frauds does not apply. Id. B. The Settlement Agreement between the Parties can be Performed within One Year and Therefore is not Governed by Arizona's Statute of Frauds.

The January and April verbal agreements and the October written agreement do not fall within Arizona's statute of frauds because each of them could have been completed within one year. Plaintiffs argue that the provisions of the October written agreement granting Defendants a license to, and a covenant not to sue Defendants for infringement of, the patents during their remaining terms cannot be performed within one year. [Mot. 10-11] Not so. While Plaintiffs' argument addresses only the October written agreement, the following analysis applies equally well to the January and April verbal agreements. First, Plaintiffs' grant of a license occurred when the Plaintiffs and the Defendants agreed to the terms of the October written agreement. The license does not contemplate or require any further performance by either Plaintiffs or Defendants in order for the license to be operative. Because no performance was required after the parties agreed to terms of the October written agreement, the Arizona Statute of Frauds does not apply. Second, each of the patents covered by the October written agreement can and may be invalidated within one year. Invalidation of the patents within one year would complete the parties' obligations under the terms of the Settlement Agreement. In such situations where the obligations under an agreement may come to an end within one year of making the agreement, it is well recognized that the statute does not apply. Condon v. Ariz. Hous. Corp., 63 Ariz. 125, 131-32, 160 P.2d 342, 345 (1945) ("Possibility of performance within the year is sufficient.")
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within one year because "[i]f Krauth were to die within one year, his wife . . . would have the right to sue Phelps Dodge . . ." is disingenuous and fails to address the real issue. [Mot. 12] Krauth's life or death is irrelevant. The terms at issue (the license and covenant not to sue) are based on the life of the patents. Those obligations can be completed within one year because the patents may effectively "die" by being ruled [have] be[en] invalidated" as a result of the PTO's re-examination. [Pls.' SOF ¶ 2] invalid. Indeed, Plaintiffs acknowledged that "the claims of the patents-in-suit could

Plaintiffs' assertion that the October written agreement could not be performed

Plaintiffs argument that the patents could not be invalidated within one year of making the agreement because patent reexaminations and trials (including appeals) take more than a year is equally unavailing. [Mot. 12] Indeed, this case is illustrative. Here, the Patent Office reexamination results were issued in late October, 2005, mere days after the October written agreement and far less than a year after the January verbal agreement. [Pls.' SOF ¶13] That Patent Office action could easily have been a rejection of all claims and, of course, Plaintiffs might have accepted the result, resulting in invalid Patents. Likewise, no matter how long it takes to get a patent case through trial, summary judgment of invalidity can be sought and granted at any time, and patent owners often choose not to appeal such results. Arizona law is clear: these theoretical possibilities of invalidity within one year--no matter how remote--are sufficient to remove the settlement agreement from the statute of frauds. W. Chance, 957 F.2d at 1541. Arizona case law is uniformly contrary to plaintiffs' position. Hence, they rely on Solaia Tech., LLC v. Arvinmeritor, No. 02 C 4704, 2006 WL 695699 (N.D. Ill. Mar. 16, 2006) and Sun Studs, Inc. v. Applied Theory Assocs., Inc., 772 F.2d 1557 (Fed. Cir. 1985). But neither case involved application of the Arizona statute of frauds. In Solaia, the Northern District of Illinois evaluated the Illinois statue of frauds, holding that it applied to a covenant not to sue. Solaia, 2006 WL 695699 at *11-12. However, unlike the Illinois statute, Arizona's statute of frauds is strictly and consistently limited when it is even remotely possible for performance to be completed within one year. See Gold v.
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Killeen, 44 Ariz. 29, 37, 33 P.2d 595, 598 (1934) (Arizona statute of frauds did not apply because promisor's death "was an event that could or might happen within a year.") [emphasis added]; Healy, 162 Ariz. at 353, 783 P.2d at 799 (holding that Arizona statute of frauds did not apply to oral contract to pay employee percentage of operating revenue and profits from the sale of a business because business could have been sold within one year even though it was not); Waugh v. Lennard, 211 P.2d 806, 813-14 (1949) (finding that Arizona statute of frauds did not apply to oral promise because the promisor might have died within a year of making the promise). which applies only to "`an agreement that by its terms is not to be performed within a recognized the importance of this distinction noting that "the agreement cannot, by its 1563. The Arizona statute of frauds contains no such limitation. Ariz. Rev. Stat. § 44101(5) ("No action shall be brought . . . [u]pon an agreement which is not to be performed within one year from the making thereof."). Hence, Sun Studs provides no guidance as to how Arizona's statute of frauds should be applied and cannot be used to overrule clear Arizona authority. The other cases cited by Plaintiffs decided under California law are equally inapplicable. See Schick Servs., Inc. v. Jones, 173 F.2d 969 (9th Cir. 1949) (interpreting California statute of frauds); Gateway, Inc. v. Hillgren, 82 F. Supp. 546, 554 (S.D. Cal. 1949) (interpreting California statute of frauds); Aero Bolt & Screw Co. of Calif. v. Iaia, 180 Cal. App. 2d 728 (Cal. Ct. App. 1960) (interpreting California statute of frauds). Those cases are all based on California's statute of frauds, which like Oregon's statute applies to contracts that "by [their] terms" cannot be performed within one year. See, e.g., Aero Bolt & Screw Co. of Calif., Inc. v. Iaia, 180 Cal. App. 2d 728, 740 (Cal. Ct. App. 1960) ("An agreement that by its terms is not to be performed within a year from the making thereof," must be in writing and signed by the party to be charged or his
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Sun Studs is equally unavailing. That case involved Oregon's statute of frauds,

year from the making. '" Or. Rev. Stat. § 41.580(1). Indeed, Sun Studs expressly

own terms, be performed within one year." (emphasis added) Sun Studs, 772 F.2d at

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agent).

concerning the application of Arizona's statute of frauds in this case. IV. THE PARTIES SATISFIED RULE 80(D) AND THE ARIZONA STATUTE OF FRAUDS BY THEIR EXCHANGE OF EMAIL LETTERS IN OCTOBER 2005. Even if Arizona Rule 80(d) and the Arizona statute of frauds did apply, which they do not, the October 2005 written correspondence signed by counsel for both parties satisfies the requirements of both provisions. Arizona Rule 80(d) requires only that an agreement between parties or attorneys be in writing. Contrary to Plaintiffs arguments, Arizona Rule 80(d) does not require that an agreement between parties or counsel be in the form of a formal written document executed by all of the parties to be bound. Hays, 161 Ariz. at 166, 777 P.2d at 229 (holding that a settlement agreement was in writing because "the settlement agreement was memorialized in" correspondence between attorneys).4 Likewise, Arizona's statute

Arizona's statue is not so limited.

Thus, these cases provide no guidance

of frauds only requires a writing or memorandum that contains the material terms of the contract, signed by the party against whom enforcement is sought. Ariz. Rev. Stat. § 44101; W. Chance #2, Inc. V. KFC Corp., 957 F.2d 1538 (9th Cir. 1992) (interpreting Arizona statute of frauds). clearly constitutes a writing under Arizona Rule of Civil Procedure 80(d).5 [Defs.' SOF In this matter, the final exchange of email letters between the parties' counsel

Other courts interpreting similar state procedural rules have likewise held that no formal executed document is required to satisfy such rules and that the exchange of correspondence between attorneys can constitute a writing in accordance with the rule. See, e.g., Pourreza v. Teel Appraisals & Advisory, Inc., 616 S.E. 2d 108, 111 (Ga. Ct. App. 2005) (although formal agreement signed by parties is preferred, "letters or documents prepared by attorneys which memorialize the terms of the agreement reached will suffice"). Plaintiffs appear to concede that the written emails exchanged in October 2005 constitute a sufficient writing under Rule 80(d) by only arguing (at 7) that "[n]one of the oral `agreements' are binding under Rule 80(d)" while entirely failing to mention the emails. Again, those early oral conversations are irrelevant to plaintiffs' motion because
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¶¶ 2-5, Exs. 2-5] Specifically, on October 9, 2005, counsel for Defendants, sent an email letter to counsel for Plaintiffs, that included the "Final Settlement Agreement," with all of its terms. [Defs.' SOF ¶ 4, Ex. 3] That email letter stated that Defendants had accepted the final changes proposed by Plaintiffs and was prepared to execute the Agreement. Id. Plaintiffs' counsel responded by email letter on October 12, 2005, suggesting a minor ¶ 5, Ex. 4] That email letter stated that, with that change, Plaintiffs were "ready to sign." Id. Later on October 12, 2005, in agreeing to one final change suggested by Defendants, Plaintiffs' counsel wrote: "[My client] agrees . . . please make the change and email it to me. I can then have my clients . . . sign the agreement." Id. The next morning, Defendants emailed the revised exhibit to Plaintiffs. Id. That correspondence memorializes the terms of the settlement agreement "`in writing,'" which is sufficient to change to one exhibit of the agreement because a measurement was omitted. [Defs.' SOF

satisfy Rule 80(d) and Arizona's statute of frauds. Hays, 161 Ariz. at 166, 777 P.2d at 229. Plaintiffs try to avoid this conclusion by focusing attention solely on their counsel's October 9, 2005 email letter, which states that his clients "are ready to sign." [Pls.' MSJ 13] This ignores the October 12, 2005 email letter in which Plaintiffs

expressly agreed to the written agreement. Plaintiffs do not assert that the parties, subject matter and material terms of the settlement agreement as contained in email letters exchanged between the parties were not sufficiently documented in writing. Indeed, they admit that "[t]he parties had agreed to all terms of the Settlement Agreement." [Pls.' Resp. to SOF, ¶ 2] Plaintiffs' sole argument is that old-fashioned pen-and-ink signatures were not affixed to the document. However, email messages constitute valid signatures for the purposes of the statute of frauds. See Lamle v. Mattel, Inc., 394 F.3d 1355, 1362 (Fed. Cir. 2005) (holding that an

an enforceable settlement agreement was reached in the October 2005 written correspondence.
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email message meets the signature requirement of the statute of frauds); see also Ariz. Rev. Stat. § 44-7007(A) ("A record or signature in electronic form cannot be denied legal effect and enforceability solely because the record or signature is in electronic form."). Plaintiffs have not advanced any contrary authority. By electronically signing the relevant emails, Plaintiffs' counsel agreed to all terms of the October written agreement ¶¶ 3 and 4. Exs. 2 and 3]

as set out in the electronic written document exchanged between the parties. [Defs.' SOF

Conclusion For the foregoing reasons, Defendants respectfully request that the Plaintiffs' motion be denied. Dated: May 3, 2006. PERKINS COIE BROWN & BAIN P.A.

By s/ C. Mark Kittredge Terry E. Fenzl C. Mark Kittredge 2901 North Central Avenue Post Office Box 400 Phoenix, Arizona 85001-0400 Attorneys for Defendants and Counterclaim Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on May 3, 2006, I electronically transmitted the attached documents 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: Daniel R. Malinski [email protected] BURCH & CRACCHIOLO, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Attorneys for Plaintiffs and Counterclaim Defendants Peter E. Heuser [email protected] Kolisch Hartwell, P.C. 200 Pacific Building 520 S.W. Yamhill Street Portland, Oregon 97204 Attorneys for Plaintiffs and Counterclaim Defendants I hereby certify that on May 3, 2006, I served the attached document by hand delivery to: The Honorable Paul G. Rosenblatt United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 621 401 West Washington Street, SPC 56 Phoenix, AZ 85003-2156 s/ Janet Roe

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