Free Statement - District Court of Arizona - Arizona

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Christopher R. Kaup State Bar No. 014820
Third Floor Camelback Esplanade II 2525 East Camelback Road PHOENIX, ARIZONA 85016B4237 TELEPHONE: (602) 255-6000 FACSIMILE: (602) 255-0103

Counsel for Biltmore Associates, Trustee of the Visitalk Creditors' Trust

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

BILTMORE ASSOCIATES, as Trustee for the Visitalk Creditors' Trust, Plaintiff,

Case No. 02-2405-PHX-HRH

PLAINTIFF'S SEPARATE CONTROVERTING STATEMENT vs. OF FACTS IN SUPPORT OF RESPONSE TO DEFENDANT PETER THIMMESCH and CYNTHIA SNELL & WILMER'S MOTION THIMMESCH, husband and wife; MICHAEL FOR SUMMARY JUDGMENT
O'DONNELL and MARSHA O'DONNELL, husband and wife; et al., Defendants.

[ORAL ARGUMENT REQUESTED]
(Assigned to the Honorable H. Russel Holland)

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Biltmore Associates, LLC ("Biltmore" or the "Plaintiff"), the Plaintiff in the above
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action, pursuant to the provisions of the Rule 56, Federal Rules of Civil Procedure, hereby submits its Separate Controverting Statement of Facts ("CSOF") in Support of its Response to the Motion for Summary Judgment filed by Defendant Snell & Wilmer, L.L.P. ("S&W"). ///
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RESPONSES TO S&W'S STATEMENT OF FACTS 1. The statement that Visitalk.com, Inc. ("Visitalk") "was formed in 1998 by

Peter Thimmesch and Michael O'Donnell" is unsupported by S&W's citation to the record in ¶1 of its Statement of Facts (the "SOF"). Plaintiff does not dispute that Visitalk

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was formed on September 3, 1998. (Attached hereto as Exhibit "1" is a true and correct copy of Visitalk's Articles of Incorporation, dated September 3, 1998.) Plaintiff disputes any implication that only Mr. Thimmesch and Mr. O'Donnell "formed" Visitalk because Mr. Thimmesch has testified that Mark Cardwell was one of the three "founders" of Visitalk. (Transcript of Deposition of Peter Thimmesch ("Thimmesch Depo."), attached hereto as Exhibit "2", at 72:21- 73:18; 76:22 ­ 77:13). Also, Visitalk's Unanimous

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Consent of Board of Directors In Lieu of Organizational Meeting, original stock transfer ledger, stock certificate stubs and an audit report by Ernst & Young, L.L.P., demonstrate that Mr. Cardwell, Mr. Thimmesch and Mr. O'Donnell were issued shares of stock in Visitalk on the same day, September 4, 1998. (Unanimous Consent of Board of Directors In Lieu of Organizational Meeting, dated September 4, 1998, attached hereto as Exhibit "3"; Stock Transfer Ledger and three stock certificate stubs, attached hereto as Exhibit "4" and Ernst & Young audit report, dated November 23, 1999, at p. F-5 (Statement of

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Changes in Shareholders Equity), attached hereto as Exhibit "5"). 2. Plaintiff disputes that Visitalk provides the "same products and services

today. Although the services and products currently provided by Visitalk are quite similar from an end-user perspective as they were in 2000, the technology infrastructure currently underlying Visitalk's products and services is completely different then in early 2001 and was specifically redesigned, written and implemented to be massively

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economically scaleable. (Declaration of Michael Williams (the "Williams Declaration"), at ¶24, attached hereto as Exhibit "6"). 3. Plaintiff disputes that Visitalk was "[l]ike hundreds of aspiring ".com"

entities that were dependant on investor funding in their early stages" because that
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statement is unsupported by S&W's citation to the record, the referenced testimony of Allan Kaplan. Plaintiff also disputes the implied assertion in ¶3 of the SOF that

Visitalk's financial problems were caused by any bursting of a ".com bubble." Rather, Visitalk was insolvent prior to April of 2000 and the company's financial problems were caused by other factors such as almost no income from business operations, grossly excessive and wasteful spending, incompetent management by Messrs. Thimmesch and

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O'Donnell, breach of fiduciary duties by certain officers and lawyers at S&W, lack of financial and operational controls and the failure to address and obtain the release of claims against the company. (Affidavit of Robert Corry (the "Corry Affidavit"),

Visitalk's former Chief Financial Officer, at ¶¶3, 9 ­ 13, 15 ­ 17, and 19 ­ 26, attached hereto as Exhibit "7"; Transcript of the Deposition of Robert Corry (the "Corry Depo" ), attached hereto as Exhibit "8", at 23:14 ­ 28:16; 29:10 ­ 30:12; 32:3 ­ 24; 36:3 ­ 37:4; 40:5 ­ 15; 43:18 ­ 45 ­ 6; 54:17 ­ 56:23; 57:24 ­ 58:3; 63:9 ­ 64:1; 65:11 ­ 66:6; 69:20 ­

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71:4; 72:20 ­ 73:8; 74:19 ­ 77:5; 84:22 ­ 85:3; 104:21 ­ 106 ­ 22; Transcript of the Deposition of Allan Kaplan (the "Kaplan Depo"), attached hereto as Exhibit "9", at 67:19 ­ 68:21; 130, 12 ­ 16; 132:21 ­ 133:11; 137:4 ­ 17; Transcript of the Deposition of Debra Kuhns (the "Kuhns Depo"), Visitalk's former Vice President of Marketing, attached hereto as Exhibit "10", at 12:23 ­ 13:5; 15:2 ­ 7; 45:23 ­ 46:16; 65:24 ­ 66:13; 67:8 ­ 17; 68:23 ­ 69:12; 72:6 ­ 73: 82:20 ­ 83:6; 121:16 ­ 122:9; Transcript of the

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Deposition of Ray Gaston (the "Gaston Depo"), Visitalk's former Controller, attached hereto as Exhibit "11" at 51:14 ­ 24; 66:18 ­ 67:4; 71:7 ­ 11; 72:9 ­ 73:4; 82:20 - 84:15 ­ 25; 85:18 ­ 25; 86:23 ­ 87:24; 225:22 ­ 226:5; 226:14 ­ 21; 266:22 ­ 267:1; 269:11 ­ 22; 270:22 - 272:20; 460:23 ­ 461:8; 464:14 ­ 465:11; 469:23 ­ 470:8; 477:21 ­ 478:10;

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484:23 ­ 485:7; 505:17 ­ 507:10. Plaintiff does not dispute that Visitalk filed for bankruptcy in November, 2000 giving rise to Case No. 00-13035-PHX-RTB (the "Bankruptcy Case"). 4. The statement in ¶4 of S&W's SOF is not supported by a citation to the

record. Plaintiff disputes that a trustee was "never appointed in the Visitalk bankruptcy" because Biltmore was appointed by the Bankruptcy Court to serve as the Trustee of the

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Visitalk Creditors' Trust (the "Trust") by an Order entered on October 19, 2004 (the "Appointment Order"). (Appointment Order, attached hereto as Exhibit "12"). Plaintiff does not dispute that a trustee was not appointed in the Bankruptcy Case prior to confirmation of Visitalk's Second Amended Chapter 11 Plan (the "Plan") ; 5. Although the statement in ¶5 of S&W's SOF is not supported by a citation

to the record, Plaintiff does not dispute that statement; 6. Plaintiff disputes the assertion in ¶6 of S&W's SOF that it is a "purported"

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assignee of Visitalk's claims. Such an assertion is not supported by S&W's citation to the record as all such claims were actually assigned to the Visitalk Creditors' Trust (the "Trust"), pursuant to a final nonappealable Order (attached to S&W's SOF as Exhibit E") confirming Visitalk's Second Amended Chapter 11 Plan (the "Confirmation Order") entered by the Bankruptcy Court on August 27, 2004 which provided for the creation of the Trust at Article XII of the Plan, the final nonappealable Appointment Order, entered

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on October 19, 2004, and a final nonappealable Order Clarifying Article XII of the Confirmed Plan (the "Clarification Order"), entered by the Bankruptcy Court on December 15, 2004. (Appointment Order, Exhibit "12" & Clarification Order, attached hereto as Exhibit "13"). The Plan explicitly provides as follows:

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Effective on the Effective Date, the Creditor's Trustee will be the representative of the Estate as that term is used in Bankruptcy Code §1123(b)(3)(B) and will have the rights and powers provided for in a Bankruptcy Code in addition to any rights and powers granted herein to pursue the Causes of Action. In his or her capacity as the representative of the Estate, the Creditor's Trustee will be the successor in interest to the Debtor with respect to the Causes of Action. ***
(k) Transfer of Trust Property to the Creditor's Trust. Except as otherwise provided in the Plan, title to the Trust Property, including the Causes of Action and the $50,000 from the Causes of Action Proceeds, will pass to the Creditor Trust on the Effective Date free and clear of all claims and equity interest in accordance with Bankruptcy Code §1141.

(Williams Declaration, Exhibit "6," at ¶¶6 & 13, Exhibit "6" & Plan, Exhibit "A" to the Williams Declaration, at p. 36, lns. 15 ­ 20; p. 39, lns 3 - 10; Declaration of Vernon Schweigert, Managing Member of the Plaintiff (the "Schweigert Declaration"), at ¶4, attached hereto as Exhibit "14" ). The Plaintiff also disputes any implication in ¶6 of the

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SOF that persons who purchased preferred stock from Visitalk (the "Investor Creditors") through its Series A Offering of Preferred Stock (the "Series A Offering"), its Series B Offering of Preferred Stock (the "Series B Offering"), and its Series C Offering of Preferred Stock (the "Series C Offering") did not hold claims against Visitalk and the Bankruptcy Estate. Mr. Kaplan, one of Visitalk's directors and a Series A and B

investor, testified he believes that he and other Investor Creditors held claims against
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Visitalk. (Kaplan Depo, Exhibit 9, at 29:7 ­ 13 ­ 30 ­ 7; 67:19 ­ 68:21; 132:25 ­ 133:11). Steve DelBianco, a Series C investor, also testified that Visitalk's failure to

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make disclosures regarding the claims held by Series A and B investors, the claimed issuance of certain founders warrants to Mr. Thimmesch and Mr. O'Donnell after the closing of Series A Offering and other securities law problems was material to him. (Transcript of Deposition of Steve DelBianco, attached hereto as Exhibit "15", at 23:15 ­

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25:6; 51:5- 52:10).

Visitalk's former controller, Mr. Gaston, also testified that he (Gaston Depo,

understood that the Investor Creditors held claims against Visitalk.

Exhibit 11, 225:22 ­ 226:5; 465:6 - 10) In fact, the Plan, the Disclosure Statement filed in support of the Plan, the Clarification Order and agreements executed by the Investor Creditors and the Reorganized Debtor after confirmation of the Plan recognize the fact that each of the Investor Creditors held actual claims against Visitalk and its Bankruptcy

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Estate. (Williams Declaration, Exhibit "6," at ¶¶8 ­ 12, 15 ­ 21; Declaration of Renee Jenkins, attached hereto as Exhibit "16," at ¶¶5, 8, 9, 11 ­ 17; Schweigert Declaration, Exhibit "14," at ¶¶7, 11, 16). 7. Plaintiff disputes that the Plan "purported to select a `creditors trust' "

because that assertion is not supported by the record. The Trust was created by operation of the Confirmation Order to which all causes of action owned by the Bankruptcy Estate were actually transferred on the "Effective Date" of the confirmation of the Plan,

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pursuant to the terms of the Plan. (Plan, Exhibit "A" to the Williams Declaration, at Article XII, pp. 34 ­ 42). 8. 9. 10. Plaintiff does not dispute the statement in ¶8 of S&W's SOF; Plaintiff does not dispute the statement in ¶9 of S&W's SOF; Plaintiff agrees that Biltmore is the Trustee of the Trust. Biltmore disputes

that it and the Trust are "wholly unrelated to Visitalk" because the Trust was created by
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operation of the Plan and the Order confirming the Plan and Biltmore was appointed as the Trustee of the Trust, pursuant to order of the Bankruptcy Court. Declaration, Exhibit 14, at ¶¶3 ­ 7). 11. Plaintiff does not dispute that it, in its separate individual capacity, had no (Schweigert

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attorney-client relationship with S&W during its representation of Visitalk and that it is the Trustee of the Trust which was assigned all of the causes of action owned by the Visitalk bankrutptcy estate. (Schweigert Declartion, Exhibit 14, at ¶¶3 ­ 7). 12. 13. 14. Plaintiff does not dispute the statement in ¶12 of S&W's SOF. Plaintiff does not dispute the statement in ¶13 of S&W's SOF. Plaintiff does not dispute that Bryan Cave prepared a document titled

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"Action by Unanimous Consent of the Board of Directors in Lieu of Special Meeting which is dated "as of" September 12, 1998. Plaintiff disputes the implied assertion in that ¶14 of S&W's SOF that Visitalk actually authorized the issuance of 7,650,000 warrants to purchase Visitalk common stock on September 12, 1998. Documents

prepared by S&W in July and October 1999 and in March of 2000 contradict that implied assertion. Letter from Michael Donahey to Steven Best1, dated July 28, 1999, at pp. 1 ­ 2, attached hereto as Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, attached

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Mr. Donahey wrote in the third full paragraph of this letter that he understood Messrs Thimmesch and O'Donnell authorized the Founders' Warrants "in early November, 1998" and the "issuance of the Foounder's (sic) Warrants . . . actually occurred in early November [1998]." 2 S&W observed in this paragraph of this memo that "[t]here is no known documentary evidence to support Michael's and Peter's assertions that, on September 12, 1998, acting in their respective capacities as the sole directors of Visitalk, they resolved to issue the Founder's warrants to themselves. . . . The Action by Unanimous
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hereto as Exhibit "18"; S&W Office Memorandum, "current as of 2:00 p.m. on October 22, 1999," at p. 3 [Bates No. VT007167] ¶(C)(1)2, attached hereto as Exhibit "19";

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Memorandum3 from Mr. Donahey to Mr. Best, dated March 6, 2000, attached hereto as Exhibit "20", at p. 2. Even Mr. O'Donnell agreed the statement in Mr. Donahey's letter that the Founders' Warrants were not issued until early November, 1998, was accurate. He also conceded that he did not disagree with "the fact from a paperwork standpoint"

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that the Founders' Warrants "were issued in early November." Mr. Hirschberg, one of Visitalk's directors, testified that the statement that the Founders Warrants were authorized in early November, 1998, was consistent with his understanding of the facts. Mr. Gaston testified that he understood the Founders Warrants did not exist and had not been issued to Messrs. Thimmesch and O'Donnell at the time the Series A Offering documents were circulated to investors. (Transcript of Deposition of Michael O'Donnell

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(the "O'Donnell Depo"), attached hereto as Exhibit 21, at 151:12 ­ 152:21; Transcript of Deposition of Jeffrey Hirschberg, (the "Hirschberg Depo" ) attached hereto as Exhibit 22, at 52:3 ­ 17; Gaston Depo, Exhibit "11", at 234:6 ­ 18). S&W also concluded that each of the Series A investors held potential claims against Visitalk because Thimmesch and O'Donnell authorized and issued the Founders Warrants after the sale of the Series A stock. (Letter from Michael Donahey to Steven Best, dated July 28, 1999, at pp. 1 ­ 3, Exhibit "17").

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Consent [relating to the Founders' Warrants identified in ¶14 of the SOF] is ineffective even today." [Emphasis supplied.] In this Memorandum, Mr. Donahey tells Mr. Best the key fact he had failed to disclose to the Series A investors in the letter and Release of Claims, Mr. Kaplan and the other directors: the Founders Warrants had been issued in early November, 1999.
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15.

Plaintiff does not dispute the statement in ¶15 of S&W's SOF.

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16.

Plaintiff does not dispute the first sentence in ¶16 of S&W's SOF. Plaintiff

disputes the implied assertion in ¶16 that Visitalk's Board of Directors made an effective and informed decision at the November 24, 1999 Board Meeting regarding the potential alternative solutions to problems with the Founders Warrants. S&W failed to inform the

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entire Board regarding the actual chronology and truth regarding the claimed issuance of the Founders' Warrants and provided the Board with false information about actions Messrs. Thimmesch and O'Donnell would take if the Board refused to recognize the validity of the Founders' Warrants. (Compare Letter from Donahey to Best, dated July 28, 1999, at pp. 1 ­ 2, Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, Exhibit "18"; and S&W Office Memorandum, at p. 3 [Bates No. VT007167] ¶(C)(1), Exhibit

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"19" with S&W Memorandum to the Visitalk Board of Directors, dated November 2, 1999, attached hereto as Exhibit "23"; Kaplan Depo at 68:14 ­ 21; 82:15 ­ 84:2; 85:3 ­ 20; 90:10 ­ 22; 103:21 ­ 105:22; 111:3 ­ 112:14; 112:14 ­ 114:85; 132:2 ­ 133:11;

Mr. Kaplan testified that he believes no one from S&W disclosed to him or the Board of Directors during a board meeting or in any writing that the Unanimous Consent relating to the claimed authorization of the Founders Warrants was ineffective. For example, Mr. Kaplan acknowledged that the matters in the July 28, 1999 letter were not in the November 2 Memorandum to the Board. He also believes S&W should have included that information in the Memorandum in order to fully and adequately inform the Board about the problems with the Founders Warrants. He also believes S&W should have disclosed to the Board the "information under the words `Characterizing the Issuance of the Warrants' on the third page" of S&W's internal October 22, 1999 Office Memorandum (Exhibit 19 hereto).
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Thimmesch Depo., at 185:4 ­ 236; 206:2 ­ 207:177; O'Donnell Depo, Exhibit "21", at 156:1 ­ 157:88; 167:2 ­ 168:6). 17. Plaintiff disputes the statements in ¶17 of the SOF. First, the statement in

¶17 that there was a "thorough" discussion of the Founders' Warrant "resolution" is
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unsupported by the citations to the deposition of Mr. Best and the deposition of Mr. Thimmesch. Contrary to S&W's assertion, Mr. Best did not testify the discussion of that issue was "thorough." He did not even recall who attended the meeting. (Best Depo January 21, 2005, Exhibit "24", at 33:3 ­ 34:23). Mr. Thimmesch also did not testify about a "thorough" discussion of the matter. Second, Plaintiff disputes that no S&W attorney participated in the explanation to the Board of the "background on the Founder's

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Warrants" or attended the Executive Session during the Board of Directors meeting on November 24, 1999. The Minutes from that meeting state that S&W lawyers Mr.

Mallery and Mr. Donahey attended the meeting and the "background on the Founder's Warrants was explained to the Board" prior to the start of the Executive Session. Third, the Minutes do not reflect that Messrs Donahey and Mallery left the meeting during the Executive Session. (Minutes of Board Meeting, dated November 24, 1999, attached hereto as Exhibit "25", at pp. 1 & 4 ­ 5). Fourth, Mr. Donahey revised a draft of those

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Mr. Thimmesch testified he never saw the letter from Mr. Donahey dated July 28, 1999.

According to Mr. Thimmesch, the statement in the Memorandum from S&W to the Board of Directors that he would leave the company or sue Visitalk if the Board refused to issue stock to him under the terms of the claimed Founders Warrants "ridiculous" and "never in my mind". Mr. O'Donnell testified he agreed with and understood that the "paperwork" to cause the issuance of the Fouonders' Warrants did not happen until early November, 1998, but did not think or understand that S&W had concluded the warrants did not exist in early September.
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Minutes and sent it to Amanda Turley, Mr. O'Donnell's executive assistant. The original version of these minutes read as follows: "The background on the Finder's Warrants was explained to the Board. The point was made that it was a technical error that caused the founder's not to follow proper notification. The Board went into executive session where the options were reviewed." (E-mail from Mr. Donahey to Ms. Turley and attached redlined draft of the November 24, 1999 Minutes [Bates No.s SWDS0400 ­ 0408], at Bates No. SWDS0406.) Significantly, Mr. Donahey deleted the words describing the explanation given to the

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Board ("a technical error") prior to the Executive Session from the final version of the Minutes. (E-mail from Mr. Donahey to Ms. Turley and attached redlined draft of the November 24, 1999 Minutes [Bates No.s SWDS0400 ­ 0408], at Bates No. SWDS0406, attached hereto as Exhibit "43"). Finally, the original version of these Minutes is wholly consistent with the testimony of Mr. Kaplan, identified above in ¶16, that the truth regarding the Founders' Warrants was not disclosed by S&W to the directors during any

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Board Meeting. 18. Plaintiff does not dispute that Visitalk sent out the document which was

marked as Exhibit "8" to Mr. Best's deposition to Visitalk's Series A investors. Biltmore disputes the balance of this paragraph for the reasons set forth below. The assertion in ¶18 that S&W did not propose that solution is not supported by any reference to the record in this case. In addition, the characterization of the content of that letter in ¶18 of

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the SOF is unsupported by S&W's citation to the record. Plaintiff disputes the implied assertion that S&W was not involved with "this solution" and this "notice" resolved the problems with the Founders' Warrants. In fact, the letter and release sent to the Series A
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investors was prepared by S&W and contained false and misleading information regarding the claimed authorization and issuance of the Founders' Warrants. Mr. Kaplan relied on the lawyers at S&W to prepare this letter and release. (Draft Release of Claims and letter to Series A investors, produced by S&W from its files, at Bates Nos.

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SWDS0568 ­ 0572, attached hereto as Exhibit "26"; Copy of Letter and Release of Claims to Susan Cole (a Series A investor) (the "Cole Letter & Release Document"), dated November 29, 1999, attached hereto as Exhibit "27"; Kaplan Depo, Exhibit "9," at 93:1 ­ 16; 94:7 ­ 95:17; 95:25 ­ 97:15; 97:19 ­ 98:21; O'Donnell Depo, 181:9 - 129; Gaston Depo, Exhibit "11," at 290:15 ­ 291:12; 477:21 ­ 478:10. S&W and Visitalk failed to disclose to the Series A investors that the Founders' Warrants had actually been

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authorized and issued to Messrs. Thimmesch and O'Donnell after the closing of the Series A Offering and the other material facts known to them regarding the problems with the Founders' Warrants. (Compare the Cole Letter & Release Document, Exhibit "27", to the Letter from Donahey to Best, dated July 28, 1999, at pp. 1 ­ 2, Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, Exhibit "18"; and S&W Office Memorandum, at p. 3 [Bates No. VT007167] ¶(C)(1), Exhibit "19"). Finally, the portion of the November 24 Minutes quoted in the third sentence of ¶18 does not state Mr. Griffiths made this

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proposal nor does it suggest that S&W did not propose such a solution. 19. record. The first sentence in ¶19 of the SOF is not supported by the citation to the

Mr. Best did not testify that S&W did not "in any way" assist Messrs.

Thimmesch and O'Donnell in creating, developing or presenting a misleading picture

Mr. O'Donnell testified that he believes S&W prepared the Release of Claims document.

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about the Founders Warrants.

Instead, he merely testified that "to the best of his

knowledge" S&W did not provide such assistance to them. S&W aided and abetted Mr. Thimmesch and Mr. O'Donnell with, in the words of S&W partner Richard Mallery, the "restatement of corporate history." (S&W Billing Statement for "Securities," dated

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January 21, 2000, Bates Nos. 1478 ­ 1490, attached hereto as Exhibit "44", at p. 6, billing entry of Mr. Mallery for December 10, 1999). Plaintiff disputes the entirety of ¶19 on the following grounds: (A) First, S&W failed to inform the entire Board regarding the actual

chronology and truth regarding the claimed authorization and issuance of the Founders' Warrants and provided the Board with false information about actions Messrs.

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Thimmesch and O'Donnell would take if the Board refused to recognize the validity of the Founders' Warrants. (Compare Letter from Donahey to Best, dated July 28, 1999, at pp. 1 ­ 2, Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, Exhibit "18"; and S&W Office Memorandum, at p. 3 [Bates No. VT007167] ¶(C)(1), Exhibit "19" with S&W Memorandum to the Visitalk Board of Directors, dated November 2, 1999, attached hereto as Exhibit "23"; Kaplan Depo at 68:14 ­ 21; 82:15 ­ 84:2; 85:3 ­ 20; 90:10 ­ 22; 103:21 ­ 105:22; 111:3 ­ 112:110; 112:14 ­ 114:811; 132:2 ­ 133:11; Thimmesch Depo.,

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Mr. Kaplan testified that he believes no one from S&W disclosed to him or the Board of Directors during a board meeting or in any writing that the Unanimous Consent relating to the claimed authorization of the Founders Warrants was ineffective. For example, Mr. Kaplan acknowledged that the matters in the Juy 28, 1999 letter were not in the November 2 Memorandum to the Board. He also believes S&W should have included that information in the Memorandum in order to fully and adequately inform the Board about the problems with the Founders Warrants. He also believes S&W should have disclosed to the Board the "information under the words `Characterizing the Issuance of the Warrants' on the third page" of S&W's internal October 22, 1999 Office Memorandum (Exhibit 19 hereto).

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at 185:4 ­ 2312; 206:2 ­ 207:1713; O'Donnell Depo, Exhibit "21", at 156:1 ­ 157:814; 167:2 ­ 168:6). (B) Second, Mr. Donahey deleted language from a draft of the Minutes from

the November 24, 1999 Board Meeting which would have disclosed to a reader that the
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explanation of the problems given to the Board ("a technical error") was false because it contradicted the information contained in his letter dated July 28, 1999 and S&W's earlier internal Office Memoranda. (E-mail from Mr. Donahey to Ms. Turley and

attached redlined draft of the November 24, 1999 Minutes [Bates No.s SWDS0400 ­ 0408], at Bates No. SWDS0406.) (C) Third, the letter and release sent to the Series A investors was prepared by

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S&W and contained false and misleading information regarding the claimed authorization and issuance of the Founders' Warrants. Mr. Kaplan relied on the lawyers at S&W to prepare this letter and release. (Draft Release of Claims and letter to Series A investors, produced by S&W from its files, at Bates Nos. SWDS0568 ­ 0572, attached hereto as Exhibit "26"; Copy of Letter and Release of Claims to Susan Cole (a Series A investor) (the "Cole Letter & Release Document"), dated November 29, 1999, attached hereto as Exhibit "27"; Kaplan Depo, Exhibit "9," at 93:1 ­ 16; 94:7 ­ 95:17; 95:25 ­

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97:15; 97:19 ­ 98:21; O'Donnell Depo, 181:9 - 1215; Gaston Depo, Exhibit "11," at

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Mr. Thimmesch testified he never saw the letter from Mr. Donahey dated July 28, 1999.

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According to Mr. Thimmesch, the statement in the Memorandum from S&W to the Board of Directors that he would leave the company or sue Visitalk if the Board refused to issue stock to him under the terms of the claimed Founders Warrants "ridiculous" and "never in my mind".

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Mr. O'Donnell testified he agreed with and understood that the "paperwork" to cause the issuance of the Fouonders' Warrants did not happen until early November, 1998, but did not think or understand that S&W had concluded the warrants did not exist in early September. 15 Mr. O'Donnell testified that he believes S&W prepared the Release of Claims document.

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290:15 ­ 291:12; 477:21 ­ 478:10. S&W and Visitalk failed to disclose to the Series A investors that the Founders' Warrants had actually been authorized and issued to Messrs. Thimmesch and O'Donnell after the closing of the Series A Offering and the other material facts known to them regarding the problems with the Founders' Warrants.

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(Compare the Cole Letter & Release Document, Exhibit "27", to the Letter from Donahey to Best, dated July 28, 1999, at pp. 1 ­ 2, Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, Exhibit "18"; and S&W Office Memorandum, at p. 3 [Bates No. VT007167] ¶(C)(1), Exhibit "19"); (D) Fourth, S&W failed to provide necessary information and advice regarding

the claims of past investors and securities law problems about which they had knowledge
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for inclusion in documents offering the sale of securities. Mr. Gaston prepared securities offering documents after the date S&W began representing Visitalk. He relied on S&W to provide him with advice and information regarding the existence of claims held by earlier investors and past securities law problems in order to permit him to make proper disclosure of such matters to potential investors. S&W failed to disclose such matters to Mr. Gaston and include the disclosure of such matters in those securities offering documents, including an "Updated Series C Confidential Information Statement". Those

20 21 22 23 24 25 26

issues were, in Mr. Gaston's view, serious and material to the investors. (178:1 ­ 21; 180:3 ­ 9; 186:20 ­ 188:3; 487:23 ­ 489:25; 495:1 ­ 496:4; 498:23 ­ 500:20; 504:19 ­ 505:8); (E) Fifth, as a director, Mr. Kaplan understood S&W assisted with the

preparation of the Updated Series C Confidential Information Statement and relied upon S&W to disclose all material information in that securities offering document in order to

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permit investors to make an informed decision about the matters set forth therein. He believes that S&W failed to adequately represent Visitalk by failing to include disclosure regarding the securities law problems identified by Mr. Donahey in a letter dated July 15, 1999, and the problems regarding the Founders' Warrants set forth in Mr. Donahey's July

5 6 7 8 9 10 11

28, 1999 letter in Updated Series C Confidential Information Statement. (Kaplan Depo, Exhibit "9", at 127:4 - 128:19. (F) Sixth, as a director of Visitalk, Mr. Kaplan would have wanted to know

Messrs. Thimmesch and O'Donnell authorized the Founders' Warrants after the date the Company sold the Series A preferred stock. Mr. Kaplan has no knowledge of S&W

having disclosed to him and the other directors that Messrs. Thimmesch and O'Donnell
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had breached their fiduciary duties by causing Visitalk to breach the Series A Stock Purchase Agreement through the claimed issuance of the Founders' Warrants. He also believes that, as a director, he should have known about that matter. In order to make an informed decision, as a director, about the Founders' Warrants, Mr. Kaplan would have wanted to know that there was no known documentary evidence to support the claims of Mr. Thimmesch and Mr. O'Donnell to the Founders' Warrants. However, S&W failed to disclose that fact to the Visitalk Board. Mr. Kaplan, as a director, also would have wanted to

20 21 22 23 24 25 26 know that that the Action by Unanimous Consent relating to the claimed authorization of the Founders' Warrants was ineffective as of October 22, 1999, the date of S&W's second internal Office Memorandum on the issue. S&W failed to disclose those facts to him and the other directors at a Board Meeting or in writing. Mr. Kaplan believes that S&W failed to adequately represent Visitalk because it failed to disclose those items. (Kaplan Depo, Exhibit "9", 83:20

­ 84:2; 103:21 ­ 105:22; 110:2 ­ 23; 111:3 ­ 112: 13.
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(G)

Seventh, Mr. Kaplan, as a former Visitalk director, believes that S&W

failed to adequately perform their duties if they did not call Joe Richardson or other lawyers at Bryan cave to verify the story of Messrs' Thimmesch and O'Donnell regarding the claimed issuance of the Founders' Warrants. (Kaplan Depo, at 72:17 ­

5 6 7 8 9 10 11

73:14).

Mr. Richardson never spoke to a lawyer at S&W regarding that matter.

(Deposition of Joe Richardson, Visitalk's original corporate attorney at Bryan Cave, attached hereto as Exhibit "28", at 141:19 ­ 143:7). (H) Eighth, according to Mr. Gaston, he does not recall S&W ever advising

him, as Visitalk's Controller, regarding his fiduciary duties to creditors when Visitalk becam insolvent. To the best of Mr. Gaston's knowledge, S&W did not advise any of

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Visitalk's other officers about their fiduciary duties to creditors upon Visitalk's insolvency. (Gaston Depo, Exhibit "11", at 90:14 ­ 91:25.) (I) Ninth, Messrs. Thimmesch and O'Donnell only made de minimus capital

contributions into Visitalk and were spending other people's (the investors') money by causing Visitalk to spend money. Mr. Thimmesch breached his fiduciary duties through excessive and improper expenditure of corporate funds. No one at S&W recommended to him the need for policies and procedures to prevent breaches of fiduciary duties by

20 21 22 23 24 25 26

excessive expenditures. Mr. Gaston has a law degree and practiced corporate law and, as a result, understands what a fiduciary duty is. Based on his time and experience working as an officer of Visitalk, Mr. Gaston believes: (i) Peter Thimmesch and Mike O'Donnell breached their fiduciary duties at Visitalk; (ii) Mr. Donahey and Mr. Mallery breached their fiduciary duties to Visitalk; (iii) Mr. Donahey assisted Messrs Thimmesch and O'Donnell in breaching their fiduciary duties to Visitalk; and (iv) Mr. Mallery assisted

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Messrs Thimmesch and O'Donnell in breaching their fiduciary duties to Visitalk. (Gaston Depo, Exhibit "11", at 50:15 ­ 51:13; 72:25 ­ 73:4; 73:25 ­ 74:12; 128:17 ­ 23; 505:17 ­ 507:10. 20. Plaintiff disputes the statements contained in Paragraph 20. The original

5 6 7 8 9 10 11

corporate records of Visitalk, prepared by Bryan Cave, and an audit report of Ernst & Young contradict those statements. In addition, Mr. Thimmesch has testified that Mark Cardwell was one of the three "founders" of Visitalk. (Visitalk By-Laws, dated

September 4, 1998, Exhibit "3"; Stock Transfer Ledger and three stock certificate stubs, Exhibit "4" Ernst & Young audit report, dated November 23, 1999, at p. F-5 (Statement of Changes in Shareholders Equity), Exhibit "5"; Thimmesch Depo, Exhibit "2", at

12 13 14 15 16 17 18 19

72:21- 73:18; 76:22 ­ 77:13). The Unanimous Consent of the Board of Directors relating to the claimed issuance of the Founders' Warrants which are signed by Mr. Thimmesch and Mr. O'Donnell with an "as of" date of September 12, 1998, states that the resolution was adopted "without as meeting." (Unanimous Consent of the Board of Directors, attached hereto as Exhibit "29", at p. 1). Mr. O'Donnell does not disagree with "the fact from a paperwork standpoint" the Founders' Warrants were issued in early November. (O'Donnell Depo, Exhibit "21", at p. 151:12 ­ 152:21). Mr. Richardson never saw any

20 21 22 23 24 25 26

documents or even notes prepared by the Thimmesches or the O'Donnells regarding a meeting at which the authorization of the Founders' Warrants is claimed to have occurred. (Richardson Depo, Exhibit "28", at 166:3 ­ 15). Mr. Richardson did not meet either Mr. Thimmesch or Mr. O'Donnell until sometime in October and did not start representing Visitalk until after the Series A sales had been offered and sold. (Richardson Depo, Exhibit "28", at 73:3 ­ 6; 76:7 ­ 11); Mr. Richardson or another

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Bryan Cave employee drafted the Unanimous Consent regarding the claimed authorization of the Founders' Warrants. (Richardson Depo, Exhibit "28", at 59: 7 ­

17). The retention letter between Visitalk and Bryan Cave is dated October 30, 1998. (Bryan Cave retention letter from Margaret Mahoney to Peter Thimmesch, Bates Nos.

5 6 7 8 9 10 11

VT021888, attached hereto as Exhibit "28"). As a result, the Action By Unanimous Consent was not effective even as of October 22, 1999, when S&W analyzed the issue in its Office Memorandum of that date. (S&W Office Memorandum, Bates Nos. 7165 ­ 7168, at p. 3, ¶(C)(1)). Mr. Schweigert and his staff have reviewed all of Visitalk's files and have not located any documents to support the story of the Thimmesches and O'Donnells that an actual meeting relating to the Founders' Warrants occurred on

12 13 14 15 16 17 18 19

September 12, 1998 or any other date that month. "14", at ¶31). 21.

(Schweigert Declaration, Exhibit

Plaintiff disputes that the Founders' Warrants "mess" was ever "resolved"

with the assistance of S&W. Biltmore adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶¶16 - 18 of this CSOF which also support Plaintiff's dispute of the assertions in ¶21 of the SOF. 22. Plaintiff disputes that all of Visitalk's Board members made an informed

20 21 22 23 24 25 26

and effective decision regarding the solution to the Founders' Warrants problems. Biltmore adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶18 which also support Plaintiff's dispute of the assertions in ¶22 of the SOF. The statement that the Board received legal advice from Mr. Best on the Founders' Warrants issues directly contradicts Mr. Best's own testimony in which he said he relied "heavily . . . probably exclusively" on S&W to address the issues regarding the Founders'

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Warrants.

(Best Depo (9/9/05), Exhibit "30", at 27:19 ­ 28:13).

In addition, Mr.

Schweigert has found no bills or other documents from Mr. Griffiths or the Gibson, Dunn & Crutcher to support the assertion that the Visitalk Board relied most upon Mr. Griffiths. (Schweigert Declaration, Exhibit "14", at ¶32).

5 6 7 8 9 10 11

23.

Plaintiff disputes the entirety of the statement in ¶23 of the SOF, including

the implied assertion that S&W was not involved with or important in facilitating the referenced attempted "solution" to the Founders' Warrants problems. First, Mr.

Schweigert has found no bills or other documents from or prepared by Mr. Griffiths or the Gibson, Dunn & Crutcher to support the assertion that the Visitalk Board relied most upon Mr. Griffiths. (Schweigert Declaration, Exhibit "14", at ¶32). Second, the letter

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and release sent to the Series A investors was prepared by S&W, not Mr. Griffiths, and contained false and misleading information regarding the claimed authorization and issuance of the Founders' Warrants. Mr. Kaplan relied on the lawyers at S&W to

prepare this letter and release. (Draft Release of Claims and letter to Series A investors, produced by S&W from its files, at Bates Nos. SWDS0568 ­ 0572, attached hereto as Exhibit "26"; Copy of Letter and Release of Claims to Susan Cole (a Series A investor) (the "Cole Letter & Release Document"), dated November 29, 1999, attached hereto as

20 21 22 23 24 25 26
16

Exhibit "27"; Kaplan Depo, Exhibit "9," at 93:1 ­ 16; 94:7 ­ 95:17; 95:25 ­ 97:15; 97:19 ­ 98:21; O'Donnell Depo, 181:9 - 1216; Gaston Depo, Exhibit "11," at 290:15 ­ 291:12; 477:21 ­ 478:10. Third, the Minutes from the November 24, 1999 Meeting state that Mr. Griffiths explained "further the process of the waivers." The Minutes do not reflect Mr.

Mr. O'Donnell testified that he believes S&W prepared the Release of Claims document.

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Griffiths made any statements to the Board regarding the background and chronology relating to the claimed existence of the Founders' Warrants. (Minutes of November 24, 1999 Board Meeting, Exhibit "25", at p. 4 - 5). Finally, the assertion that Mr. Kaplan

"actually crafted" the solution adopted by the Board at that meeting is contradicted by his
5 6 7 8 9 10 11

testimony that he does not even remember the conversation and does not know what alternatives were presented at that time and Mr. Hirschberg made the motion to approve that course of action. (Kaplan Depo, Exhibit "9", at 122:1 ­ 18; Minutes of November 24, 1999 Board Meeting, Exhibit "25", at p. 5). 24. Plaintiff does not dispute that Bryan Cave drafted the Action by Unanimous Plaintiff

Consent relating to the claimed authorization of the Founders' Warrants.
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disputes all other statements in ¶24 of the SOF, including the implied assertion that the Founders' Warrants were authorized in early September before Mr. Cardwell was a principal in Visitalk. Biltmore adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶1 and 14 which also support Plaintiff's dispute of the assertions in ¶24 of the SOF. 25. Plaintiff disputes the statements ¶25. S&W failed to adequately represent

Visitalk in a manner consistent with the standard of care of lawyers, breached their
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fiduciary duties and assisted Messrs. Thimmesch and O'Donnell with breaching their fiduciary duties. (Expert witness report of Boyd Lemon, attached hereto as Exhibit "31"; supplemental & rebuttal report of Boyd Lemon, attached hereto as Exhibit "32"). Biltmore adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶16 and 19 which also support Plaintiff's dispute of the assertions in ¶25 of the SOF.

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26.

Plaintiff disputes the statements in ¶26 of the SOF.

Biltmore adopts and

incorporates herein by this reference all of the citations to the record set forth above in ¶1 which also support Plaintiff's dispute of the assertions in ¶26 of the SOF. 27. Plaintiff disputes the statements in ¶26 of the SOF. The assertion that the

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Board was given an "accurate and complete understanding" of the Founders Warrants is flatly contradicted by the testimony of Alan Kaplan and Peter Thimmesch and a comparison of the Memorandum to the Board of Directors, dated November 2, 1999, with the letter from Mr. Donahey, dated July 28, 1999, and the two internal S&W office memoranda on the subject. (Compare Letter from Donahey to Best, dated July 28, 1999, at pp. 1 ­ 2, Exhibit "17"; S&W Office Memorandum, at p. 1, n. 1, Exhibit "18"; and

12 13 14 15 16 17 18 19 20
17

S&W Office Memorandum, at p. 3 [Bates No. VT007167] ¶(C)(1), Exhibit "19" with S&W Memorandum to the Visitalk Board of Directors, dated November 2, 1999, attached hereto as Exhibit "23"; Kaplan Depo at 68:14 ­ 21; 82:15 ­ 84:2; 85:3 ­ 20; 90:10 ­ 22; 103:21 ­ 105:22; 111:3 ­ 112:117; 112:14 ­ 114:818; 132:2 ­ 133:11; Thimmesch Depo., at 185:4 ­ 2319; 206:2 ­ 207:1720; O'Donnell Depo, Exhibit "21", at

21 22 23 24 25 26

Mr. Kaplan testified that he believes no one from S&W disclosed to him or the Board of Directors during a board meeting or in any writing that the Unanimous Consent relating to the claimed authorization of the Founders Warrants was ineffective.

18

For example, Mr. Kaplan acknowledged that the matters in the Juy 28, 1999 letter were not in the November 2 Memorandum to the Board. He also believes S&W should have included that information in the Memorandum in order to fully and adequately inform the Board about the problems with the Founders Warrants. He also believes S&W should have disclosed to the Board the "information under the words `Characterizing the Issuance of the Warrants' on the third page" of S&W's internal October 22, 1999 Office Memorandum (Exhibit 19 hereto). 19 Mr. Thimmesch testified he never saw the letter from Mr. Donahey dated July 28, 1999.
20

According to Mr. Thimmesch, the statement in the Memorandum from S&W to the Board of Directors that he would leave the company or sue Visitalk if the Board refused to issue stock to him under the terms of the claimed Founders Warrants "ridiculous" and "never in my mind".

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156:1 ­ 157:821; 167:2 ­ 168:6). Biltmore also adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶19(F) which also support Plaintiff's dispute of the assertions in ¶27 of the SOF. 28. Plaintiff disputes the statements in ¶28 of the SOF. The first sentence in

5 6 7 8 9 10 11

¶28 of the SOF is wholly unsupported by any citation to the record in the case. Mr. Cardwell did not testify to a lack of support for Plaintiff's "Founders' Warrants chronology" or that the Founders Warrants were authorized and issued before the Series A Offering. He also did not testify in the referenced portion of his deposition that he Biltmore

"was not a shareholder, director or employee before September 15, 1998."

adopts and incorporates herein by this reference all of the citations to the record set forth
12 13 14 15 16 17 18 19

above in ¶1 which also support Plaintiff's dispute of the assertions in ¶26 of the SOF. 29. Plaintiff disputes the statements in ¶29 of the SOF. Mr. Kaplan did not

testify, at the referenced portion of his deposition, that the "solution" to the Founders' Warrants adopted by the Board was in the best interest of Visitalk. Moreover, it is clear from his other testimony that the Board's decision was not fully informed or based on truthful and complete disclosures regarding the matter. Biltmore adopts and incorporates herein by this reference all of the citations to the record set forth above in ¶27 which also

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21

support Plaintiff's dispute of the assertions in ¶29 of the SOF. 30. Plaintiff does not dispute that Mr. Cardwell was terminated with cause and

threatened legal action. Biltmore also does not dispute that Mr. Cardwell and Visitalk entered into a "Separation and Release Agreement" which provided Visitalk was to locate

Mr. O'Donnell testified he agreed with and understood that the "paperwork" to cause the issuance of the Fouonders' Warrants did not happen until early November, 1998, but did not think or understand that S&W had

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purchasers for Mr. Cardwell's stock with the sale proceeds to Plaintiff disputes the entirety of the last two sentences of ¶30 because they are wholly unsupported by the citation to the record in that paragraph (¶¶72 and 79 of the Second Amended Complaint). 31. Plaintiff disputes the entirety of ¶31 because it is wholly unsupported by

5 6 7 8 9 10 11

any citation to the record. Moreover, evidence in the record demonstrates that Visitalk suffered serious harm as a result of the Cardwell stock sale transaction and S&W aided and abetted this transaction. Mr. Cardwell was still a director after he was terminated as an employee. The agreement with Mr. Cardwell resulted in the transfer of a corporate opportunity to sell Visitalk stock, depriving Visitalk of over $1,000,000 and, as a result, deepened its insolvency. According to Mr. Gaston, who was personally involved

12 13 14 15 16 17 18 19

handling the funds received by Visitalk from the sale of Mr. Cardwell's stock, S&W was at the center of the sale of Mr. Cardwell's stock through this transaction. An internal Office Memorandum from S&W lawyer Shirley Nagy to Mr. Donahey demonstrates this transaction exposed Visital to civil and criminal liability. (Kaplan Depo, at Exhibit "9", at 160:6 ­ 161:3; 164:12; Gaston Depo, Exhibit "11", at 257:19 ­ 261:22; Office Memorandum, dated February 28, 2000, attached hereto as Exhibit "33", at pp. 1 ­ 2 ). 32. Plaintiff disputes that the claims of Mr. Cardwell were so serious as to

20 21 22 23 24 25 26
concluded the warrants did not Document 384 343545.1/11400-001 -24Case 2:02-cv-02405-HRH exist in early September. Filed 07/24/2007

justify the transfer of over $1 million of corporate opportunities to sell Visitalk stock to him. Indeed, his lawyer, Janet Lord, offered to settle the dispute for $275,000, payable over three years. Correspondence reflects that S&W was involved in the drafting and negotiatin of the documentation for this agreement. (Letter from Janet Lord to Steve Best, attached hereto as Exhibit "34", Bates Nos. VT006910 ­ 6912, at p. 2;

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Memorandum from Michael Donahey to Janet Lord, dated February 23, 2000, Bates Nos. VT0057137 ­ 7140, attached hereto as Exhibit "35"). 33. Plaintiff disputes that S&W played a small role in the Cardwell stock sale

transaction and that it was in the best interest of Visitalk. S&W prepared the stock
5 6 7 8 9 10 11

purchase agreements, stock certificates and related documentation necessary to effectuate the Cardwell stock sales. (Letter from Mr. Donahey to Michael Bidwell, dated May 26, 2000, with enclosures, attached hereto as Exhibit "36"; Kaplan Depo, at Exhibit "9", at 160:6 ­ 161:3; 164:12; Gaston Depo, Exhibit "11", at 257:19 ­ 261:22). 34. Plaintiff disputes that the Cardwell stock sale transaction was a "terrific

idea" for the company, the terms were in the best interest of and fair to Visitalk and no
12 13 14 15 16 17 18 19

corporate opportunity was usurped. The agreement with Mr. Cardwell resulted in the transfer of a corporate opportunity to sell Visitalk stock, depriving Visitalk of over $1,000,000 and, as a result, deepened its insolvency. According to Mr. Gaston who was personally involved handling the funds received by Visitalk from the sale of Mr. Cardwell's stock, S&W was at the center of the sale of Mr. Cardwell's stock through this transaction. An internal Office Memorandum from S&W lawyer Shirley Nagy to Mr. Donahey demonstrates this transaction exposed Visitalk to civil and criminal liability.

20 21 22 23 24 25 26

(Kaplan Depo, at Exhibit "9", at 160:6 ­ 161:3; 164:12; Gaston Depo, Exhibit "11", at 257:19 ­ 261:22; Office Memorandum, dated February 28, 2000, attached hereto as Exhibit "33", at pp. 1 ­ 2 ). 35. Plaintiff disputes the statements contained in ¶35 of the SOF. The first two

sentences are not supported by the referenced citations to the record. Mr. Kaplan testified he played a "support" not a "major" role in negotiating the settlement. He also did not

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testify that he "relied mostly" on Steve Best. Plaintiff disputes that the Cardwell stock sale transaction was in the best interest of and fair to Visitalk and no corporate opportunity was usurped. The agreement with Mr. Cardwell resulted in the transfer of a corporate opportunity to sell Visitalk stock, depriving Visitalk of over $1,000,000 and, as

5 6 7 8 9 10 11

a result, deepened its insolvency. According to Mr. Gaston who was personally involved handling the funds received by Visitalk from the sale of Mr. Cardwell's stock, S&W was at the center of the sale of Mr. Cardwell's stock through this transaction. An internal Office Memorandum from S&W lawyer Shirley Nagy to Mr. Donahey demonstrates this transaction exposed Visitalk to civil and criminal liability. (Kaplan Depo, at Exhibit "9", at 160:6 ­ 161:3; 164:12; Gaston Depo, Exhibit "11", at 257:19 ­ 261:22; Office

12 13 14 15 16 17 18 19

Memorandum, dated February 28, 2000, attached hereto as Exhibit "33", at pp. 1 ­ 2 ). 36. Plaintiff disputes the statements contained in ¶36 of the SOF. The

statement in the first sentence is not supported by the referenced citation to the record. Mr. Cardwell actually testified his threatened age discrimination action against Visitalk was "not a frivolous claim". He did not testify it was a "serious" claim. Plaintiff

disputes that the benefits from the Cardwell stock sale transaction referenced in ¶36 of the SOF were outweighed by the costs and risks. The agreement with Mr. Cardwell

20 21 22 23 24 25 26

resulted in the transfer of a corporate opportunity to sell Visitalk stock, depriving Visitalk of over $1,000,000 and, as a result, deepened its insolvency. According to Mr. Gaston who was personally involved handling the funds received by Visitalk from the sale of Mr. Cardwell's stock, S&W was at the center of the sale of Mr. Cardwell's stock through this transaction. An internal Office Memorandum from S&W lawyer Shirley Nagy to Mr. Donahey demonstrates this transaction exposed Visitalk to civil and criminal liability.

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(Kaplan Depo, at Exhibit "9", at 160:6 ­ 161:3; 164:12; Gaston Depo, Exhibit "11", at 257:19 ­ 261:22; Office Memorandum, dated February 28, 2000, attached hereto as Exhibit "33", at pp. 1 ­ 2 ). 37. Plaintiff does not dispute the statements in ¶37 of the SOF. Plaintiff disputes that S&W gave an "admonition" to Visitalk to require the

5 6 7 8 9 10 11

38.

Thimmesches to sign a security agreement and collateralize the debt owed by them to Visitalk. (E-mail to from Todd Weiss, Exhibit "P" to the S&W SOF). 39. S&W disputes the implied assertion in ¶39 that S&W's representation of

the Thimmesches and O'Donnells on their personal estate planning matters began in 2000, after the Founders' Warrants issue allegedly was resolved. David Weiss provided

12 13 14 15 16 17 18 19

the estate planning legal services only to the Thimmesches and O'Donnells. He did not provide legal representation to Visitalk. However, Mr. Donahey had a conference wit hMr. Weiss regarding the letter and release agreement relating to the Founders' Warrants on November 29, 1999. He also billed for a conference and research regarding the Founders' Warrants on January 13, 2000. (S&W Billing Statements, Exhibit "37", at pp. Bates Nos. 1498 ­ 1499 (next to initials MMD) and Bates No. 1409 (next to initials DEW); Deposition of Charles Pulaski, attached hereto as Exhibit "38", at 11:15 ­ 12:6)

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There was no written waiver of conflict of interest relating to the joint representation of Visitalk and the Thimmesches and the O'Donnells, personally. (Best Depo, 1/21/05,

Exhibit "24", at 180:13 ­ 19; Best Depo, 9/9/05, Exhibit "30", at 77:5 ­ 19; Expert witness report of Boyd Lemon, attached hereto as Exhibit "31"; Supplemental & Rebuttal Report of Boyd Lemon, attached hereto as Exhibit "32")

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40.

Plaintiff disputes the statement in ¶40 that S&W was hired "on its merits"

and the "relationship was strictly a business relationship." According to Mr. Best, Mr. Mallery gave business advice on how to run a company, in addition to legal advice. Mr. Mallery was also a "father to children who did not have fathers or whose fathers were

5 6 7 8 9 10 11

distant and unresponsive to these children's needs, whether it be Peter Thimmesch, Mike O'Donnell, or even me." (Best Depo, 9/9/05, Exhibit "30", 20:1 ­ 21:21; Gaston Depo, Exhibit "11", 483:3 ­ 484:21). Mr. Mallery attended a meeting of Visitalk's shareholders in December of 1999, at which the issues regarding the Founders' Warrants were discussed. At the shareholders meeting, Mr. Mallery "hyped" the business and stock opportunities of Visitalk and discounted a securities law problem about which he had

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 And that there was a large transaction about to occur with MP3.com, and this company couldn't move forward until this Series A errors and corrections were -28- Filed 07/24/2007 Document 384 Page 28 of 38

knowledge. Mr. Mallery "captivated" several of the investors. the testimony of an investor witness, Mr. Mallery,

In fact, according to

stood up and told the entire group that Visitalk was doing fabulously. That we were going to be public in the next few months. That we had a principal of Goldman Sachs there present. And that we were all about to be millionaires. And that this anti-dilution issue didn't generally affect us individually because in the practice of buying stock on Wall Street, as small investors go anyway, that there isn't generally any research done regarding the number of shares outstanding and the dilution of various series of stocks to another. That when it's all said and done, we'll all own common stock, and that stock is going to go out at some price. And at that point, while Dick was still standing, Mike O'Donnell interjected that their initial discussions with Goldman Sachs had indicated that they were probably going to have an offering price of $13 or $15 per share. They related it verbally to eBay's initial public offering. In fact, then Peter Thimmesch chimed in and mentioned that eBay increased six-fold during its first month, and they came out at about $15 a share. Then the attorney from Snell & Wilmer joined in again, Dick, and indicated that -- indicated that that's how the stock market worked and this anti-dilution issue was insignificant.

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made so that Visitalk could go on and make its private offering to MP3.com for $15 million.

(Deposition of Richard Rothwell (the "Rothwell Depo"), attached hereto as Exhibit "39", 94:10 ­ 95:15). Mr. Rothwell and other investors had been concerned for weeks after

having received the Release of Claims document regarding the Founders Warrants. Mr. Mallery's statements reassured Mr. Rothwell and he was "thrilled and relieved and put at ease for quite some time" because a partner from S&W had made such specific statements about such matters. (Rothwell Depo, Exhibit "39", at 96:15 ­ 97:10).

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

41.

S&W wielded an unusual amount of power and control over Visitalk due to

the relationship between Mr. Mallery and Messrs Thimmesch and O'Donnell and the fact that S&W had knowledge about Visitalk's precarious financial condition and Visitalk could not continue to operate ­ it would have to shut down and liquidate ­ if S&W ceased providing legal services to Visitalk relating to the offerings of securities. The

bills of S&W were paid as a result of those securities offerings, but, Visitalk's corporate life was artificially prolonged and its insolvency was deepened. Based on the initial expert report of Renee Jenkins, Visitalk had millions of dollars of debt as of the date it filed for bankruptcy. (Expert reports of Renee Jenkins, attached as exhibits to her Declaration, attached as Exhibit "16"; Expert report of Steven Scherf, attached hereto as Exhibit "40", at p. 2; the Rebuttal Expert Report of Steven Scherf, attached hereto as Exhibit "41", at p. 4; the Expert Report of Boyd Lemon, Exhibit "31", at p. 3; Gaston Depo, Exhibit "11", at 139:11 ­ 141:25; 142:14 ­ 19; 143:7 ­ 19; 145:14 ­ 147:17;

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151:23 ­ 152:24; 163:5 ­ 164:1; 228:18 ­ 230:14; 239:11 ­ 240:20; 247:11 ­ 248:3;

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261:3 ­ 22; 273:1 ­ 24; 452:8 ­ 24; 481:10 ­ 482:5; 490:7 - 491:5; 491:18 ­ 492:3; 492:15 ­ 493:4; 497:21 ­ 498:15). PLAINTIFF'S ADDITIONAL MATERIAL FACTS Plaintiff respectfully submits the following Additional Material Facts (the "AMF")

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which establish the existence of disputed material facts: 1. Visitalk was incorporated in the State of Arizona on September 3, 1998, but

had become insolvent by November of 1998. Schweigert Declaration, Exhibit "14", at ¶10; 2. The initial shareholders of Visitalk, based on its corporate records, were

Peter Thimmesch ("Thimmesch"), Michael O'Donnell and Mark Cardwell. Thimmesch
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was the Chief Executive Officer and a Director of Visitalk and Mr. O'Donnell was its President and another member of the board of directors. Schweigert Declaration, Exhibit "14", at ¶22; 3. In September, 1998, Visitalk raised money through the sale and issuance of

"Series A Preferred Stock" to individual investors (the "Series A Offering"). Visitalk sold Series B preferred stock to investors in October and November, 1998 (the "Series B Offering") and sold Series C preferred stock to investors 1999 (the "Series C Offering").

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Schweigert Declaration, Exhibit "14", at ¶23; 4. In connection with the Series A Offering, no disclosure was made by

Thimmesch, O'Donnell and Visitalk regarding the alleged existence of warrants to purchase Visitalk's common stock at an exercise price of $0.1375 per share (the "Founders' Warrants") claimed to have been issued to Mr. O'Donnell and Thimmesch in September, 1998. Schweigert Declaration, Exhibit "14", at ¶24;

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5.

No disclosure was made by Thimmesch, O'Donnell and Visitalk to the

investors who purchased preferred stock through the Series B Offering regarding the exercise price of the Founders Warrants, the claims held by investors who had purchased stock in the Series A Offering, whether Visitalk's securities offerings were in compliance

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with "Regulation D" of the securities laws, whether those offerings were "integrated" and exempt from registration under the securities laws, and the fact that a significant number of persons who purchased stock in the Series A Offering were "non-accredited" investors. Schweigert Declaration, Exhibit "14", at ¶25; 6. No disclosure was made by Thimmesch, O'Donnell and Visitalk to persons

who purchased stock through Visitalk's Series C Offering and then by Thimmesch,
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O'Donnell and S&W in subsequent private offerings of securities by Visitalk regarding the claims held by investors who had purchased stock in the Series A Offering, the claims held by investors in the Series B Offering, lawyers at S&W had advised or concluded that Visitalk's securities offerings may not have been in compliance with "Regulation D" of the securities laws, those offerings may have been "integrated" and not exempt from registration under the securities laws, and a significant number of persons who purchased stock in the Series A Offering were "non-accredited" investors. Schweigert Declaration,

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Exhibit "14", at ¶26; 7. Visitalk was insolvent from November of 1998 through the date of its

bankruptcy on November 29, 2000. Schweigert Declaration, Exhibit "14", at ¶27; 8. S&W concluded that Messrs. Thimmesch and O'Donnell breached their

fiduciary duties to Visitalk and agreements with the Series "A" investors. Schweigert Declaration, Exhibit "14", at ¶28;

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9.

Vernon Schweigert, as the managing member of Biltmore, the Trustee of

the Trust, has determined that the conclusion of S&W that Mr. Thimmesch and Mr. O'Donnell breached their fiduciary duties to Visitalk was correct and further determined that persons who purchased stock from Visitalk in its Series A, B and C offerings held

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claims against the company as a consequence of those breaches of fiduciary duty. (Schweigert Declaration, Exhibit "14", at ¶29).
10.

Visitalk never had a commercially viable product or technology prior to its

bankruptcy according to the testimony of Mr. Gaston, James Fallon, the former head engineer at Visitalk, and Debra Kuhns, Visitalk's former Vice President of Marketing. (Gaston Depo, Exhibit "11", at 272:21 ­ 25; Transcript of Deposition of James Fallon

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(the "Fallon Declaration"), attached hereto as Exhibit "42" at 10:2 ­ 11:8; 20:5 ­ 22:22; 27:5 ­ 9; 32:10 ­ 33:8; 35:5 ­ 41:4; 44:9 ­ 15; 46:11 ­ 13; 47:12 ­ 19; 57:7 ­ 58:2; 61:2 ­ 14; Kuhns Depo, Exhibit "10", at 27:10 ­ 15; 34:18 ­ 35:8; 11. Visitalk spent over $2,000,000.00 in corporate funds for tenant

improvements, furniture, fixtures and equipment in a building that Visitalk first occupied in or about April 2000 just months before its bankruptcy. Thes