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

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Sid Leach (#019519) Monica A. Limón-Wynn (#019174) Snell & Wilmer L.L.P. One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International Incorporated and MasterCard International, L.L.C. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lexcel Solutions, Inc., Plaintiff, vs. MasterCard International, Inc. and MasterCard International, L.L.C., Defendants. The Court should deny plaintiff's request for the extraordinary remedy of a preliminary injunction because Plaintiff Lexcel Solutions, Inc. ("Lexcel") cannot satisfy the prerequisite to preliminary injunctive relief: Lexcel cannot demonstrate that it will suffer immediate and irreparable harm. Lexcel also cannot establish that there is no adequate remedy at law, cannot establish that it is likely to succeed on the merits, and cannot establish that the balance of hardships tip sharply in its favor. Moreover, the allegations on which Lexcel's Motion for Injunctive Relief is based is information that Lexcel has had since at least the close of discovery more than one year ago. That Lexcel sat on its hands for the last year before seeking injunctive relief belies its mere allegations of irreparable harm. The Court should dismiss this Motion for what it is: a ruse designed to open discovery. It should be dismissed on the merits. Case No. CV-03-1454-PHX-JAT MASTERCARD'S BRIEF IN OPPOSITION TO LEXCEL'S MOTION FOR PRELIMINARY INJUNCTION

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147

Filed 08/29/2005

Page 1 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

I.

INTRODUCTION Lexcel brought this action against defendants MasterCard International, Inc. and

MasterCard International, L.L.C. (collectively "MasterCard') more than two years ago in July 2003. Summary judgment motions filed last year on October 1, 2004 remain pending before the Court with rulings expected within the next 30 days. If any issues or claims survive summary judgment, the parties should participate in a final pretrial conference and proceed to trial within 30 to 120 days thereafter. (See Transcript of Rule 16 Scheduling Conference, Exhibit A hereto at 13:6-14:10.) Not only does Lexcel's request for injunctive relief come very late, it is based on hearsay and conclusory allegations supported by unidentified documents allegedly produced in another case (which Lexcel's counsel admits he has never seen)1. Lexcel's Motion should be denied. II. THIS MOTION IS AN ATTEMPT TO CIRCUMVENT THIS COURT'S DISCOVERY ORDERS BY USING THIS MOTION FOR PRELIMINARY INJUNCTION AS AN EXCUSE TO OBTAIN ADDITIONAL DISCOVERY FROM MASTERCARD Lexcel's untimely motion for a preliminary injunction after this case has been pending for over two years, and at a point when the case is very near to trial, might appear inexplicable to someone unfamiliar with Lexcel's past legal maneuvering. Lexcel's motive for bringing this motion, however, becomes clear once the Court appreciates that the Motion is yet another attempt by Lexcel to circumvent this Court's discovery orders. The Court's attention is directed to footnote 1 in Lexcel's Memorandum. Referring to the co-pending patent case between the parties assigned to Judge Wake, Lexcel says: It has come to the attention of counsel, in the present matter, that MasterCard has produced documents in this co-pending
1

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

See MasterCard's Motion to Strike the Declaration of Flora "Pete" Kubitz ­ a declaration that Lexcel filed in support of its Motion for Preliminary Injunctive Relief.

Case 2:03-cv-01454-JAT

Document 147 - 2 Filed 08/29/2005

Page 2 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

action that are relevant to not only the present action, but the present motion for preliminary injunction. Counsel has sought permission from MasterCard to view those documents but was denied access. Consequently, a motion to gain access to these documents will be filed. Once access is granted, Lexcel will immediately supplement its briefing with the Court. (See Lexcel's Memorandum for Preliminary Injunction ("Lexcel's Motion"), at 6 n.1.) (Emphasis added and citation omitted). These unidentified documents were cited to MasterCard's counsel as the reason for bringing the preliminary injunction motion. (See Lexcel's Motion at Exhibit 7, an E-Mail message from Michael Sutton to Sid Leach ("Although we do not know the specifics, we understand that documents exist and that have been produced in the patent litigation that would support our motion."). When asked to "be more specific about the documents that allegedly exist," Lexcel's counsel refused to do so and instead filed this motion for preliminary injunction. In essence, this Motion is a disguised attempt to file an untimely motion to compel. This Court's scheduling orders provided that no discovery motions would be entertained after the close of discovery. Discovery closed one year ago. This preliminary injunction motion is little more than Lexcel's excuse for seeking to compel additional discovery. This is not the first time that Lexcel's counsel has attempted to use the patent case to circumvent this Court's discovery orders. Previously, Lexcel tried to plead all of the claims pending in this case and assert them in the patent case by amending its pleadings after this Court refused to give Lexcel yet another extension of the deadline for completing discovery. In a telephone hearing on November 4, 2004, Judge Wake in the patent case found that Lexcel's conduct was unjustified: [The Court:] I'm just at a loss as to see what the legitimate good faith basis was for pleading in this case all of the claims that were pending in the other case and that were far along and

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 3 Filed 08/29/2005

Page 3 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

close to being ready for trial. And then the explanation, Mr. Boyd, you have given, either I'm not capable of understanding it or it doesn't rise to the level of anything other than an attempt to circumvent the discovery orders before Judge Teilborg. * * * * * There may well have been bad faith. I'm not making a judgment about that. But while -- actually, I am making a judgment about that, Mr. Boyd, as to the lack of justification for [Lexcel's] attempting to replead in this case the entire case that is pending before Judge Teilborg. (See Transcript of Hearing dated November 4, 2004, attached hereto as Exhibit B at 11:22-13:3.) This motion for a preliminary injunction is a disingenuous scheme to circumvent the Court's discovery orders and to obtain additional discovery from MasterCard more than a year after the deadline for completion of discovery has passed. III. LEXCEL IS NOT ENTITLED TO INJUNCTIVE RELIEF A. Lexcel Cannot Satisfy the Standard for Preliminary Injunctive Relief

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

A plaintiff is not entitled to injunctive relief unless the plaintiff can show "(1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases)." Los Angeles Memorial Coliseum Comm'n v. NFL, 634 F.2d 1197, 1200-01 (9th Cir. 1980) (denying injunctive relief because "the basis of injunctive relief in the federal courts is irreparable harm and inadequacy of legal remedies"; a burden plaintiff was unable to prove). In the Ninth Circuit, the moving party has not met is burden unless it demonstrates either (1) a combination of probable success on the merits and the possibility of irreparable injury; or (2) that serious questions are raised and the balance of hardships tips sharply in its favor. Like the plaintiff in Los Angeles Memorial Coliseum, however, Lexcel is not entitled to

Case 2:03-cv-01454-JAT

Document 147 - 4 Filed 08/29/2005

Page 4 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

injunctive relief because it cannot establish either irreparable injury nor that the balance of hardships tip in its favor. Moreover, a year-long delay in seeking injunctive relief is inconsistent with Lexcel's insistence that it faces irreparable harm. Valeo Intellectual Property, Inc. v. Data Depth Corp., 368 F. Supp. 2d 1121, 1128 (W.D. Wash. 2005) (denying injunctive relief and concluding that plaintiff's three-month delay in seeking injunctive relief inconsistent with claim for irreparable harm). Finally, because Lexcel has already elected the remedy of monetary damages for its breach of contract claim, it is too late now to seek specific performance. B. Count 8 of Lexcel's Second Amended Complaint

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

This motion for preliminary injunction is based upon a breach of contract claim that Lexcel alleged as Count 8 of its Second Amended Complaint. Attachment F to Addendum 5 of the license agreement between Lexcel and MasterCard provided certain minimal terms for the sublicense agreements that MasterCard used with its members. The minimum terms included the following: 1.6 TERMINATION. The License shall automatically terminate upon any expiration or termination of maintenance pertaining to Licensed Software between Licensee and Client. Upon termination of the Maintenance Agreement, Client may enter into a separate agreement directly with Licensor, provided Licensee continues to provide data processing or related services to Client." The only provision at issue is the statement that "Client may enter into a separate agreement directly with Licensor, provided Licensee continues to provide data processing or related services to Client." (Attachment F to Addendum 5 of License Agreement). In its Motion for Preliminary Injunction, Lexcel makes an issue of the "HASP devices" used by MasterCard to control unauthorized use of the software as required by Lexcel. The HASP devices that MasterCard provided to its members were purchased by

Case 2:03-cv-01454-JAT

Document 147 - 5 Filed 08/29/2005

Page 5 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

MasterCard from Lexcel, at MasterCard's expense, and for hardware owned by MasterCard. Under the provisions of the sublicense agreement, the sublicense that MasterCard provided to its members would "automatically terminate" when MasterCard terminated maintenance pertaining to the software. Thus, when MasterCard stopped paying Lexcel's maintenance fees and terminated maintenance pertaining to the software, the member was no longer authorized to use the Lexcel software that had been provided to the member by MasterCard. The member no longer had the right to possess the HASP device, and MasterCard required its members to return the HASP devices back to MasterCard to protect the software from unauthorized use as it is required to do under the contract. (See Section IV.A, supra, for an illustration of the notification MasterCard provided to its members.) IV. THE INJUNCTION SOUGHT BY LEXCEL AMOUNTS TO A REQUEST FOR SPECIFIC PERFORMANCE OF THE CONTRACT Lexcel's motion for injunctive relief is based upon a contract. The only legal basis for the relief sought by Lexcel in this motion would be under a theory of specific performance. New York law governs the contract. Under New York law, the remedy of specific performance is an equitable remedy subject to the discretion of the Court. Sokoloff v. Harriman Estates Development Corp., 96 N.Y.2d 409, 415 (2001). A plaintiff seeking specific performance must make an initial showing that (1) there is a valid contract; (2) plaintiff has substantially performed under the contract and is willing and able to perform its remaining obligations; (3) defendant is able to perform its obligations; and (4) plaintiff has no adequate remedy at law. RJE Corp. v. Northville Industries Corp., 198 F. Supp.2d 249, 270 (E.D.N.Y. 2002), aff'd, 329 F.3d 310 (2d Cir. 2003). Once that showing is made, "[a] party seeking [specific performance] must show equitable factors in its favor . . . and must also demonstrate that its risk of injury, if the injunction is denied, is one that after balancing the equities entitles

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 6 Filed 08/29/2005

Page 6 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

it to relief." Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales Corp., 992 F.2d 430, 433 (2d Cir. 1993). Courts generally also require a plaintiff to make a higher showing to receive the remedy of specific performance, as opposed to the remedy of an award of money damages for a breach. See e.g., Keystone Land & Development Co. v. Xerox Corp., 353 F.3d 1070, 1076 n.6 (9th Cir. 2003) (applying Washington law). A. Specific Performance Can Only Be Granted For The Very Specific Thing Called For By The Contract

Even if injunctive relief could be granted (which it cannot here), the requested relief exceeds what can be granted even if specific performance were appropriate. "[S]pecific performance can only be granted as to `the very (specific) thing called by the contract.'" Beazer Homes Corp. v. VMIF/Anden Southbridge Venture, 235 F. Supp.2d 485, 493 (E.D. Va. 2002). In this case, the contract provision at issue states only that "[u]pon termination of the Maintenance Agreement, Client may enter into a separate agreement directly with Licensor, provided Licensee continues to provide data processing or related services to Client." This provision does not require nor impose any obligation upon MasterCard to provide, at its own expense, HASP devices to members who are no longer sublicensees, nor is there any obligation to disclose the contact information of the members. At most, the Court could only order MasterCard to inform a member that the member "may enter into a separate agreement directly with [Lexcel]." But as Lexcel has known since at least the close of discovery one year ago, MasterCard has already done so. For example, in MasterCard's Global Operations Bulletin No. 7 dated July 1, 2004 (covering users of the Credit & GCMS Simulators) and in Global Deposit Access Operations Bulletin No. 7 dated July 21, 2004 (covering users of the Debit Simulators), MasterCard stated the following:

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 7 Filed 08/29/2005

Page 7 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Lexcel Solutions, inc. provided the previous MasterCard authorization and clearing simulators. Members interested in continuing to use the Lexcel simulator products can contact Lexcel. Contact information is available via their web site: Web site: www.lexcel.com. (See Global Operations Bulletin No. 7 dated July 1, 2004, attached hereto as Exhibit C at p. 31; see also Global Deposit Access Operations Bulletin No. 7 dated July 21, 2004, attached hereto as Exhibit D at p. 75 (same).) As further illustration, and as Lexcel is well aware, MasterCard notified its members that members would need to return HASP security devises used by the Lexcel developed simulator sublicensed by MasterCard. In its Operations Global Bulletin dated December 1, 2003, MasterCard notified members as follows: Members can continue to use the existing simulator until 29 April 2005. After this date, MasterCard will retire and no longer will support the existing simulator products and the sublicenses granted to members will terminate. As members transition to the new simulator, MasterCard will require them to return to MasterCard the current installation disks and the "HASP" security device. See Operations Global Bulletin dated December 1, 2003 attached hereto as Exhibit E at p. 66; Global Deposit Access Operations Bulletin No. 1, dated January 21, 2004 (covering Debit Simulators) attached hereto as Exhibit F at p. 26 (notifying members they have until May 28, 2005 to continue to use the existing [Lexcel] simulator and that transition to the new [Integri] simulator will require "return of the `HASP' security device used by the existing simulator."). Thus, MasterCard already has fully complied with any contractual obligations owed to Lexcel. If Lexcel desires to enter into an agreement with a member to supply software to a MasterCard member bank, then Lexcel should provide such member with Lexcel's own

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 8 Filed 08/29/2005

Page 8 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

HASP device. No equitable basis exists for this Court, however, to order MasterCard to undertake an obligation that it never contracted to assume: purchase HASP devices at MasterCard's expense and supply the HASP devices to third-parties who contract separately with Lexcel to license software from Lexcel. B. Lexcel Elected to Treat Count 8 as a Breach of Contract and Sought Damages For Breach of Contract

Additionally, under New York law, an election of remedies doctrine applies to Lexcel's contention that MasterCard omitted a provision from the sublicense agreements. The Second Circuit Court of Appeals has explained the New York election of remedies doctrine as follows: When confronted with an anticipatory repudiation, the nonrepudiating party has two mutually exclusive options. He may (a) elect to treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relation between the parties, or (b) he may continue to treat the contract as valid and await the designated time for performance before bringing suit. The non-repudiating party must, however, make an affirmative election. He `cannot at the same time treat the contract as broken and subsisting,' for `[o]ne course of action excludes the other.' Indeed, `[t]he law simply does not ... permit a party to exercise two alternative or inconsistent remedies.' Once a party has elected a remedy for a particular breach, his choice is binding with respect to that breach and cannot be changed. Lucente v. IBM Corp., 310 F.3d 243, 258-59 (2d Cir. 2002) (Citations omitted) (Emphasis added.). Until bringing this Motion, Lexcel has always treated the claim alleged in Count 8 concerning the sublicense contracts as a breach of contract claim seeking monetary damages. Lexcel never requested specific performance of the sublicense contracts.

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Because Lexcel has already elected to seek damages instead of specific performance, it is

Case 2:03-cv-01454-JAT

Document 147 - 9 Filed 08/29/2005

Page 9 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

bound by that choice and cannot change its election at this late date to now seek specific performance. C. Lexcel Failed to Plead in the Complaint or to Otherwise Provide Notice That it Was Seeking Specific Performance

Lexcel's Second Amended Complaint failed to seek specific performance of the contractual provisions at issue in Count 8. The only injunctive relief sought was to (1) prevent misappropriation of trade secrets; (2) protect the Licensed Software; (3) prevent copyright infringement; and (4) prevent patent infringement. (See Second Amended Complaint at ¶¶ 73-76.) Lexcel provided no notice of its intent to seek specific performance as a remedy under Count 8. If Lexcel had provided notice of its intent to seek the remedy of specific performance, MasterCard could have asserted affirmative defenses under New York law that apply only to specific performance claim. In particular, under New York law, even if all of the four requirements for specific performance are present, an application for specific performance may be defeated by virtue of the defendant's own mistake, even though such a mistake would not be a defense to a breach of contract action for damages. A party may, under some circumstances, defeat an application for specific performance by virtue of its own mistake, `even though the mistake is the defendant's own act or omission for which plaintiff is not in the least responsible.' RJE Corp. v. Northville Industries Corp., 198 F. Supp.2d 249, 270 (E.D.N.Y. 2002), aff'd, 329 F.3d 310 (2d Cir. 2003), quoting DaSilva v. Musso, 53 N.Y.2d 543, 548 (1981). While such a mistake might not avail the defendant in an action for damages at law, it will not foreclose inquiry by the court of equity into the justice of bestowing a windfall on one party because the other party misconstrued the technical provisions of the contract. Before decreeing specific performance in such a case, the court will measure the relative hardships and prejudices as well as nice legal rights.

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 10 Filed 08/29/2005

Page 10 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Gordon v. Mazur, 284 A.D. 289, 131 N.Y.S.2d 261, 265 (1st Dept. 1954); accord, RJE Corp. v. Northville Industries Corp., 198 F. Supp.2d 249, 270 (E.D.N.Y. 2002), aff'd, 329 F.3d 310 (2d Cir. 2003). In the RJE Corp. case, the district court found that the plaintiff had shown all four preliminary requirements for specific performance, but nevertheless denied specific performance based on defendant's own mistake. In this case, MasterCard representatives submitted the form they proposed to use for the sublicense agreements to Lexcel for approval before MasterCard ever used it. (See Exhibits 10, 11, 12 & 13;2 and Deposition of Flora Kubitz, at 91:1-4.3) Lexcel approved the sublicense agreement form that was used by MasterCard before MasterCard ever used it. (See Dix Decl. ¶ 22;4 and Deposition of Flora Kubitz, at 93:11-94:24.) Any subsequent omission of a required term from the sublicense agreements used by MasterCard was a good faith mistake. This would be a defense to specific performance under New York law. But MasterCard did not plead good faith mistake as an affirmative defense because Lexcel failed to plead any request for specific performance of this provision, and instead elected to treat it as a breach and seek damages. MasterCard should be granted leave to amend its answer to assert affirmative defenses directed to Count 8. Lexcel had notice of the facts giving rise to such affirmative defenses even before the Court granted Lexcel leave to amend the complaint to assert Count 8. For example, at the scheduling conference on November 10, 2003, MasterCard's counsel said: I would suggest to Your Honor that our response to the motion to amend may be another motion for summary judgment . . . The exhibits cited here were filed with the Court on October 1, 2004 in support of MasterCard's motion for summary judgment. 3 The deposition of Flora Kubitz was filed as Exhibit 9 in support of MasterCard's motion for summary judgment on October 1, 2004. 4 The Declaration of Simon Dix was filed with the Court on October 1, 2004, in support of MasterCard's motion for summary judgment.
2

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Case 2:03-cv-01454-JAT

Document 147 - 11 Filed 08/29/2005

Page 11 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

we believe these claims are appropriate for such an unusual disposition, but we think they are because . . . for example, they say we've breached the contract by failing to put provisions in a sublicense agreement, but they approved the sublicense agreement before it ever went out. (See Exhibit A attached hereto at 12:13-21.) (Emphasis added.) Lexcel specifically acknowledged awareness of these facts, and in November 2003, served a document request seeking documents that reflected Lexcel's approval of the sublicense agreement used by MasterCard as follows: All documents which relate to MasterCard's counsel's assertion to the Court on November 10, 2003 that Lexcel approved the sublicenses of MasterCard of Lexcel's products. (See Request No. 30, Lexcel's first set of Requests for Production of Documents and Things.) Also, at a very early point in discovery, MasterCard produced documents to Lexcel evidencing Lexcel's approval of the sublicense agreements used by MasterCard. (See Exhibits 10, 11, 12 and 13; Deposition of Flora Kubitz, at 91:1-4, 93:11-94:24; and Dix Decl. at ¶ 22.) Lexcel had further notice of the facts supporting such a defense, because Lexcel's principal Flora "Pete" Kubitz was questioned about it in her deposition on July 13, 2003. Ms. Kubitz confirmed that Lexcel approved MasterCard's sublicense agreement when she stated, among other testimony, as follows: Q: So you were aware that MasterCard was relying on your approval before sending the sublicense agreement out, correct? Yes. And would you agree that it was reasonable for MasterCard to rely on you? Yes.

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

A: Q: A:

(Deposition of Flora Kubitz, at 93:11-94:24.) "[W]here the opposing party is provided with notice of and a full opportunity to respond to an affirmative defense, a technical failure to plead the defense does not result

Case 2:03-cv-01454-JAT

Document 147 - 12 Filed 08/29/2005

Page 12 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

in waiver." Keach v. U.S. Trust Co., 235 F. Supp.2d 886, 889 (C.D. Ill. 2002) (Emphasis added); accord, Bull's Corner Restaurant, Inc. v. Director of Fed. Emergency Mgmt. Agency, 759 F.2d 500, 502 (5th Cir. 1985) ("[W]here [an affirmative defense] is raised in the trial court in a manner that does not result in unfair surprise, ... technical failure to comply precisely with Rule 8(c) is not fatal."); Jones & Jones v. Pineda & Pineda, 22 F.3d 391, 401 (1st Cir. 1994) (plaintiff understood that subject of defense would be at issue); Vaughn v. King, 167 F.3d 347, 352 (7th Cir. 1999); Shapiro v. Haenn, 222 F. Supp.2d 29, 42-43 (D. Me. 2002). Failure to plead an affirmative defense in an answer is not fatal "where a plaintiff receives notice of an affirmative defense by means other than the pleadings." Agri-Mark, Inc. v. Niro, Inc., 214 F. Supp.2d 33, 43 (D. Mass. 2002). In view of the fact that Lexcel failed to plead any request for specific performance in its Complaint in connection with Count 8, MasterCard should be allowed to assert affirmative defenses to Count 8. The record indisputably demonstrates that Lexcel repeatedly has been provided with notice of MasterCard's defenses to Count 8 throughout the case. Furthermore, because of the late stage of this case, even if the Court is inclined to allow Lexcel to seek injunctive relief in the form of specific performance, it should combine any hearing on Lexcel's application for a preliminary injunction with the trial on the merits. Fed.R.Civ.P. 65(a)(2) ("the court may order the trial of the action on the merits to be advanced and consolidated with the hearing of the application [for a preliminary injunction].") D. Lexcel Cannot Show That it is Able to Perform

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

One prerequisite for specific performance is a showing that Lexcel is able to perform under the contract. RJE Corp. v. Northville Industries Corp., 198 F. Supp.2d 249, 270 (E.D.N.Y. 2002), aff'd, 329 F.3d 310 (2d Cir. 2003); City of Las Cruces v El

Case 2:03-cv-01454-JAT

Document 147 - 13 Filed 08/29/2005

Page 13 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

Paso Electric Co., 904 F. Supp. 1238, 1246 (D.N.M. 1995) ("ready, able and willing to perform"). MasterCard's systems that must be simulated by a member during testing have changed significantly since Lexcel's last software release developed for and provided to MasterCard. MasterCard is unaware of any evidence that would tend to indicate that. Lexcel's simulation software has been updated. Furthermore, absent unauthorized access by Lexcel to MasterCard or some other inappropriate means, Lexcel's software is necessarily out-of-date and no longer accurately simulates the MasterCard production systems. In other words, even if a member were to enter into a separate agreement with Lexcel, the test results from Lexcel's simulator software cannot be used for certification of a member's compliance with MasterCard's current production system requirements. E. Lexcel Has an Adequate Remedy At Law

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

In order to obtain the specific performance requested in its Motion for Preliminary Injunction, Lexcel must prove that it has no adequate remedy at law ­ something it cannot do. RJE Corp. v. Northville Industries Corp., 198 F. Supp.2d 249, 270 (E.D.N.Y. 2002), aff'd, 329 F.3d 310 (2d Cir. 2003). Injunctive relief is improper where the remedy at law to recover damages is an adequate remedy. Flynt Distributing Co., Inc. v. Leon Harvey, 734 F.2d 1389, 1396 (9th Cir. 1984) (concluding that money damages provide an adequate remedy of the alleged breach of a written distribution agreement). The expert witness reports that Lexcel has submitted belie any contention that Lexcel has no adequate remedy at law. Lexcel's expert witnesses have taken the position that in fact Lexcel's alleged damages can be calculated with reasonable certainty. (See e.g. Exhibit D attached hereto containing portions of (1) Expert Report of David Swiney calculating lost revenue for 1999 through 2003 and calculating lost profits through 2008; and (2) Expert Report of Stout Risius Ross, Inc. calculating economic damages "from the alleged actions by MasterCard.") Lexcel's experts have already established that Lexcel has an adequate

Case 2:03-cv-01454-JAT

Document 147 - 14 Filed 08/29/2005

Page 14 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

remedy at law through its request for contract damages. Lexcel is not entitled to injunctive relief. V. CONCLUSION For the reasons set forth above, the Court should deny Lexcel's motion for a preliminary injunction. RESPECTFULLY SUBMITTED this 29th day of August 2005. SNELL & WILMER, LLP

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

By s/ Monica A. Limón-Wynn Sid Leach Monica A. Limón-Wynn One Arizona Center 400 E. Van Buren Phoenix, Arizona 85004 Attorneys for Defendants MasterCard International Incorporated and MasterCard International, L.L.C.

Case 2:03-cv-01454-JAT

Document 147 - 15 Filed 08/29/2005

Page 15 of 16

1 2 3 4 5 6 7 8 9 10
LAW OFFICES One Arizona Center, 400 E. Van Buren Phoenix, Arizona 85004-2202 (602) 382-6000

CERTIFICATE OF SERVICE A copy of the foregoing MASTERCARD'S BRIEF IN OPPOSITION TO LEXCEL'S MOTION FOR PRELIMINARY INJUNCTION was served upon counsel of record on this 30th day of August 2005 in the manner indicated below: Donald J. Lenkszus P.C. Donald J. Lenkszus P.O. Box 3064 7301 E. Sundance Trail, C203 Carefree, Arizona 85377-3064 Michael O. Sutton, Esq. Locke Liddell & Sapp L.L.P. 600 Travis St., Suite 3400 Houston, Texas 77002 Attorneys for Plaintiff Via First Class Mail

Via First Class Mail

Snell & Wilmer L.L.P.

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
1719123.2

By s/ Christine M. Hackett________________

Case 2:03-cv-01454-JAT

Document 147 - 16 Filed 08/29/2005

Page 16 of 16