Free Response to Motion - District Court of Arizona - Arizona

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Christopher R. Kaup, Esq. State Bar No. 014820
THIRD FLOOR CAMELBACK ESPLANADE II 2525 EAST CAMELBACK ROAD PHOENIX, ARIZONA 85016-4237 TELEPHONE: (602) 255-6000 FACSIMILE: (602) 255-0103

Counsel for Biltmore Associates, Trustee Of the Visitalk.com creditors' trust THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA BILTMORE ASSOCIATES, as Trustee for the Visitalk Creditors' Trust, Plaintiff, vs. PETER THIMMESCH, et al., Defendants. I. INTRODUCTION Defendant Snell & Wilmer, LLP's ("Snell") motion in limine to exclude Boyd Lemon's expert testimony is a meandering slight of hand intended to sweep Mr. Lemon's opinions into a morass of mischaracterization so far from Mr. Lemon's focus that Mr. Lemon would be disqualified from testifying. In response, plaintiff submits this CASE NO. CV 02 2405 PHX HRH

PLAINTIFF'S RESPONSE TO DEFENDANT SNELL & WILMER, LLP'S MOTION IN LIMINE TO EXCLUDE TESTIMONY OF BOYD S. LEMON OR FOR DAUBERT HEARING

20 memorandum to clarify the four issues Snell raises and focus the Court on the evidence 21 and how Mr. Lemon's opinion is essential for a jury to understand Snell's errors in its 22 representation of Visitalk. 23 24 25 26 1Filed 07/19/2007 First, Snell claims that Mr. Lemon opined on securities law, and from that premise it argues that Mr. Lemon is not competent to offer expert testimony on that subject. To the contrary, Mr. Lemon does not offer opinions on securities law, and he made that clear

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in his report and in his deposition. Moreover, there is no need for Mr. Lemon to testify about Visitalk's violation of the federal securities laws; Snell did so repeatedly while counsel of record, so a jury will ultimately decide that question. Instead, Mr. Lemon criticizes the way in which Snell dealt with the fact that Visitalk violated the securities laws. The thrust of Mr. Lemon's opinion focuses on what lawyers should do when they discover their client has violated the law, and how Snell fell short of that standard of care in this case. Second, regarding Mr. Lemon's "Viability Opinions," Snell contends that Mr. Lemon knows of no authority supporting the proposition that Snell should have advised Visitalk to seek outside, independent technical analysis of the viability of its product. Further, it argues that Mr. Lemon ignored testimony showing such an investigation was actually conducted. This argument again mischaracterizes Mr. Lemon's testimony and the testimony of others. Third, Mr. Lemon points to a conflict of interest based on Snell's dual representation of Visitalk on one side and Visitalk's founders, the very people at the heart of the unlawful warrants problem that gives rise to this litigation, on the other. Snell cites no law or facts on which this Court can conclude that Mr. Lemon is incompetent to render such an opinion, and it cites no law to support the proposition that the noted conflict, in and of itself, must cause damages. This argument, too, is specious. Finally, Snell's aiding and abetting argument is a summary judgment argument, not a Daubert admissibility argument. It is inappropriate in a motion in limine and circular in the context of Snell's motion in limine and its motion for summary judgment. For these reasons, plaintiff urges this Court to deny Snell's motion to exclude Mr. Lemon's testimony.

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II.

ARGUMENT In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786

(1993), the United States Supreme Court established that federal judges must serve as gatekeepers of evidence. The Court held that under Rule 702 of the Federal Rules of Evidence, "the trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable." Id. at 589, 113 S.Ct. 2786. As part of this assessment, the Court evaluates an expert's qualifications, the relevance of the opinion, and its reliability. Id.at 509 U.S. 592. Six years later, the Court explained that its "gatekeeper" holding in Daubert is not limited to scientific expert testimony but rather extends to all expert testimony. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 119 S.Ct. 1167 (1999). Kumho Tire is especially important for this motion because in that case the Supreme Court distilled the Daubert standard into clear and discrete terms. Under Kumho, this Court must determine whether Mr. Lemon's testimony is both reliable and relevant, reflecting the kind of "intellectual rigor that characterizes the practice of an expert in the relevant field." Id. at 152. A. Mr. Lemon is Qualified to Proffer Standard of Care Opinions.

Mr. Lemon's qualifications are listed in his résumé attached as Exhibit A and will not be repeated here in their entirety, but identifying a few highlights is important. He is the co-founder and member of the executive committee of the Lawyers Professional Responsibility Bar Association, a member of the American Bar Association Center for Professional Responsibility, former lecturer on legal malpractice and ethics at the University of California at Riverside, widely published on legal malpractice issues, a lawyer who graduated second in his class at the University of Southern California School of Law, and who, during his 41 years of practice, served in various leadership roles at law firms from co-chairman of the litigation department to managing partner. Further, he has

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testified in Arizona courts repeatedly in legal malpractice cases (MRT Construction, Inc. v. Bryan Cave, Maricopa County Superior Court, Case No. BC240082, Kent v. Evans, Maricopa County Superior Court, Case No. CV 99-21942; Tenorio v. Leasco, United States Bankruptcy Court, District of Arizona, Case No. BK 21422JJM). He is an expert in the standard of care issues that govern the malpractice claims in this case. 1. Mr. Lemon is offered as a Standard of Care Expert, not a Securities Expert.

Snell's obvious strategy in its motion in limine is to either broaden or change the scope of the relevant field of Mr. Lemon's expertise from a standard of care expert to a securities law expert. Mr. Lemon's opinion is about the standard of care to which a lawyer should adhere when his or her client has violated the law. On page 2 of his expert report, Mr. Lemon explains under the heading, "Opinions," as follows: The requisite standard of care for attorneys in Arizona and throughout the United States is to possess and exercise that degree of skill, care and knowledge commonly possessed and exercised by attorneys in similar circumstances. In my considered opinion, Snell & Wilmer, LLP in representing Visitalk fell below the requisite standard of care in several respects set forth below. Ex. B, pp. 2-4. Mr. Lemon then lists sixteen examples where Snell violated that standard of care, each of which involves (1) Snell's failure to advise the Visitalk board how to rectify the company's violation of the securities laws; or (2) Snell's facilitation in the company's unlawful activity; or (3) Snell's blurring of its loyalties by providing legal representation to Messrs. Thimmesch and O'Donnell in their individual capacities while at the same time those men were the beneficiaries of the unlawful founders warrants that imperiled the legality of the company's sale of securities. As Snell pointed out in its motion, Mr. Lemon readily admits that he is not a securities law expert, but that does not disqualify him under the relevant evidentiary standards. Indeed, nowhere in its motion does Snell contest Mr. Lemon's expertise regarding the appropriate standard of care. Not once. Instead, Snell tries to reform Mr. Lemon into an expert in a subject for which he

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never claims expertise and was not retained, and then asks this Court to disqualify Mr. Lemon because he is not the expert Snell claims he is trying to be. This Court must reject Snell's efforts. Rule 702 of the Federal Rules of Evidence contemplates a broad conception of expert qualifications." Thomas v. Newton Int'l Enters., 42 F.3d 1266, 1269 (9th Cir. 1994); see also Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998, 1015 (9th Cir. 2004) (Rule 702 is "intended to embrace more than a narrow definition of qualified expert")(quotations and citations omitted). In Hangarter, defendants argued an expert was unqualified because he lacked experience regarding claims adjustment standards within the insurance industry. The court found that given the expert's significant

experience within the insurance industry, the expert had the "minimal foundation of knowledge, skill, and experience required in order to give `expert' testimony on the practices and norms of insurance companies." Hangarter, 373 F.3d at 1016 (quoting Thomas, 42 F.3d at 1269); see also Wechsler v. Hunt Health Systems, Ltd., 381 F.Supp. 2d 135 (S.D.N.Y. 2003) (rejecting motion to exclude accountant and noting that "certainly an expert with extensive experience reviewing records of health care providers would qualify to testify in this matter, but Rule 702 does not require such specificity among the backgrounds of proposed expert witnesses"). Moreover, it is important to note that Mr. Lemon's testimony is non-scientific, and under the Ninth Circuit's holding in Thomas, different criteria apply for experts who testify on scientific principles versus experts who testify as to industry practice: "Special concerns arise when evaluating the proffer of scientific testimony that do not arise when evaluating the type of expert testimony offered here . . . . Kuvakas's conclusions were based on his 29 years of extensive experience on the waterfront." Id. at 1270, n.3.

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2.

Snell's Arguments go to Weight, not Admissibility.

Snell is free to argue to the jury that Mr. Lemon lacks particular experience assessing the securities laws within his broader experience with attorney standards of care. It is for a jury, however, to decide whether to accord Mr. Lemon's testimony weight; that is not a court function under Daubert. See, e.g., Weschler, 381 F.Supp. 2d at 143 ("Whether Prague is more or less qualified than other witnesses in other cases, or than an ideal expert in this case, does little to justify excluding his testimony in this case. Again, defendants' arguments better relate to the weight, rather than the admissibility, of Prague's testimony"); see also U.S. v. Little, 753 F.2d 1420, 1445 (9th Cir. 1984) ("Appellants' argument that Hutton lacked `specific experience' in partnership taxation goes to the weight of his testimony, not to its admissibility"). Here, the jury's determination of weight is critical, because to the extent Mr. Lemon's opinions rely on securities laws, those laws, and Visitalk's violation of them, were laid bare by Snell itself. Snell authored two letters identifying exactly the Visitalk's violation of the securities laws, and Mr. Lemon relied on those. Ex.C. As explained below, Mr. Lemon's reliance on those letters for an understanding of securities law is appropriate. 3. Mr. Lemon need not be a Securities Law Expert.

Snell contends that Mr. Lemon is not a securities law expert, and in this response, plaintiff agrees. However, plaintiff is not required to provide such an expert. Mr. Lemon is perfectly within his rights to rely on his training and experience and on his understanding of the securities laws from other sources as they relate to his standard of care opinion. The Ninth Circuit made this point clear in Hangarter, where the Court held that an expert experienced in a particular industry may incorporate an understanding of the relevant law in his opinions. See Hangarter, 373 F.3d at 1017 ("Although Caliri's testimony that Defendants departed from insurance industry norms relied in part on his

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understanding of the requirements of state law . . . a witness may refer to the law in expressing an opinion without that reference rendering the testimony inadmissible. . . . Caliri's references to California statutory provisions . . . were ancillary to the ultimate issue of bad faith"). Likewise, Mr. Lemon does not need to be a securities law expert to opine about what lawyers should do when their client violates the law. In these

circumstances, an expert is free to assume the violation of law based on information from others, including Snell through its own clear advice to its client, Visitalk. See Ex. C. Moreover, Mr. Lemon is not testifying, because he can't, to the state of securities law. Such opinions would be an improper usurpation of the Court's role in instructing the jury. See U.S. v. Zipkin, 729 F.2d 384, 387 (6th Cir. 1984) (holding that expert testimony by bankruptcy judge on bankruptcy law was improper because "It was not proper for a witness to testify as to a legal conclusion; it is the sole function of the trial judge to instruct the jury on the law"). So, in this case, if Mr. Lemon attempted to testify the way Snell constructs in its brief, surely Snell's counsel would object and most likely, that objection would be sustained. Mr. Lemon is a standard of care expert in the legal malpractice arena. That was his assignment in this case and that will be the scope of his testimony. In short, Mr. Lemon will tell the jury what Snell should have done in the face of Visitalk's securities law violations, violations Snell concedes. B. The Viability Opinions are Admissible.

Mr. Lemon stated that Snell should have advised Visitalk to seek an independent technical opinion about the viability of the product Ex. B, p. 4. Snell contends that because Mr. Lemon could not identify a case to support his opinion, and because two Visitalk directors believed the product was viable (notwithstanding Visitalk's catastrophic collapse), Mr. Lemon's opinion must be stricken. Snell provides this Court

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with no legal basis for the relief it seeks and further, it once again mischaracterizes the record and the issues. Mr. Lemon's opinion is based on his interpretation of the standard of care under Rule of Professional Responsibility. As he explains in his Declaration attached as

Exhibit D, Mr. Lemon's opinion has three bases: (1) his interpretation of ABA Model Rule 2.1, (2) his experience in 41 years of law practice and (3) his 41 years experience observing what other lawyers have done under similar circumstances. Model Rule 2.1 requires an attorney to exercise independent judgment and render candid advice to his client. Candid advice certainly would include advice needed to prevent a client from violating the law. Such advice is a fundamental element of candid advice to the client. In Visitalk's case, the evidence would lead a reasonable business person or lawyer to have concern as to whether Visitalk had a viable product. If they did not have a viable product, i.e., one that results in income to Visitalk within the reasonably foreseeable future, that is a fact that a reasonable investor would want to know, and, therefore, a fact that securities laws require be disclosed to investors. In other words, it appeared that Visitalk could be violating securities laws by not disclosing the lack of viability of their product or even the lack of an independent study of that issue. If an independent study were conducted, and it concluded the product was viable, that probably would protect Visitalk and its principals from a claim by investors that the product was not viable and that fact was not disclosed. If the study concluded that the product was not viable, Visitalk must be advised to cease selling securities unless that fact is disclosed. The cases that require a lawyer to advise a client of conduct which potentially violates the law are legion. Many of these cases are cited in Mallen and Smith, Legal Malpractice §23.5 (2005 Edition). For example, in Sierra Fria Corp. v. Evans, 127 F.3d 175 (1st Cir. 1997) the Court held: "The attorney must advise the client of any significant

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legal risks involved in a contemplated transaction, and must do so in terms sufficiently plain to permit the client to assess both the risks and their potential impact on his situation." The fact that the courts have not considered whether or not lawyers under the specific circumstances faced by Snell in this particular case were required to advise their client to obtain an independent technical opinion is irrelevant. If that were the test of malpractice there could never be any case in which a lawyer was ever held to have practiced below the standard of care, because no previous appellate decision so held under the specific circumstances faced by that lawyer. There would also never be a need for expert testimony. Whether the standard of care was breached would be determined as a matter of law in every case. In fact, every case involving a standard of care issue involves different facts and circumstances. Virtually never can a case be cited holding that the attorney's conduct was within or below the standard of care under the specific circumstances involved in the case at hand. In accordance with these principles, in Mr. Lemon's experience, he and other lawyers, whether they are securities lawyers or not, commonly advise their client of conduct of the client which may violate a law and what steps the client can take to avoid violation of that law. This is common practice of all lawyers in every field of law. Neither the fact that the lawyer specializes in securities law, nor the fact that the lawyer practices in Arizona absolves the lawyer from that responsibility. At Mr. Lemon's deposition, Snell's counsel limited its inquiry and asked only for a case supporting the opinion--not for all legal basis on which the opinion is grounded. See Snell's Motion at 12:21-24. It is misleading for Snell to suggest that Mr. Lemon's deposition testimony means there is no basis for the opinion. Snell further contends that Mr. Lemon's deposition is not reliable because a viability investigation has already been completed. In support of this contention, Snell

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offers only snippets of two depositions where witnesses say they believed the product was viable. Nowhere does Snell suggest that these witnesses have the background to offer the kind of technical product viability analysis that Mr. Lemon claims Snell should have urged Visitalk to seek. If their witnesses are called at trial, and its demonstration there that they lack background or ability, then Mr. Lemon's testimony is not impaired. Snell's argument is unfounded and the Court should disregard it. C. Snell Misconstrues the Conflict Problem.

Snell argues that Mr. Lemon cannot testify about the conflict created by Snell's representation of Visitalk in dealing, or not dealing, with a securities law violation based on the issuance of founders warrants to Messrs. Timmesch and O'Donnell, while at the same time, representing the two founders personally. The reason this opinion is

important is that it clearly shows that Snell made the mistake of putting its interest ahead of the company's. Snell elected to foster a legal relationship with the two founders of Visitalk personally, despite the fact that Snell knew that the founders' interests were directly contrary to Visitalk's, and its shareholders, in the context of the warrants. Snell turned a blind eye to the conflict it faced in representing the founders individually and the company, which it knew was adverse to the founders or, at best, had harmed its investors by unlawfully granting the founders' warrants. As a result, Snell failed to compel the company to adequately address its securities fraud and as a consequence, the investors were left holding the bag. Through these improper conflicting representations, Snell advanced its own interest in client development to the detriment of the corporation and its shareholders. Snell's argument against this part of Mr. Lemon's opinion comes in three parts. First it contends, without any legal support, that Mr. Lemon is not qualified to proffer the opinion because he is not an Arizona lawyer. The authorities on which Snell itself relies in its motion disagree with that conclusion.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 11 Filed 07/19/2007 The ability of the practitioner and the minimum knowledge required should not vary with geography. The rural practitioner should not be less careful, less able or less skillful than the urban attorney. Although a lower degree of care or less able practice may be prevalent in a particular local community, that should not dictate the standard of care. . . . * * *

Although local considerations are important, such considerations should not become a means of reducing the standard of care, a means of insulating local attorneys or, conversely, increasing the risk of liability. 2 R. Mallen & J. Smith, Legal Malpractice § 19.5 (2007 ed.). Mallen and Smith's conclusion makes good sense. There simply is no reason why a client conflict in

California would not be a conflict in Arizona. Snell has failed to offer any evidence in basis to suggest that Arizona has less stringent conflict rules than any other state. Second, Snell contends Mr. Lemon's opinion is unreliable because Visitalk's general counsel waived the conflict. Snell has failed to produce a single document evidencing such a waiver, nor has it argued that this conflict is even waivable. Finally, Snell claims no damages resulted from the conflict so the conflict is irrelevant. Not so. This conflict evidences the self-interest motive that a jury may find underlies all of Snell's shortcomings in this case. This conflict, therefore, may provide the impetus for all of plaintiff's damages, and therefore it is relevant to this matter and important for a jury to consider. D. Snell's Aiding and Abetting Argument is one for Summary Judgment.

Snell argues that Mr. Lemon's opinion about Snell's aiding and abetting Visitalk's violation of the securities laws must be excluded because there is no evidence that Snell aided and abetted any breach of fiduciary duty. Snell offers no criticism of the opinion other than its assertion that the alleged breach of fiduciary duty is not actionable based on the facts.

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Whether a cause of action is viable based on the factual record is a summary judgment issue, not a Daubert argument. Snell admits as much by incorporating its summary judgment argument regarding breach of fiduciary duty into this section of its motion in limine. Consequently, the Court should deal with this question in the context of summary judgment. III. CONCLUSION For the foregoing reasons, plaintiff respectfully urges this Court to deny Snell's motion to exclude the testimony of Boyd Lemon. Dated this 19th day of July, 2007. TIFFANY & BOSCO, P.A.

By:

/s/CRK #014820 Christopher R. Kaup Camelback Esplanade II, Third Floor 2525 E. Camelback Road Phoenix, AZ 85016-4237 Counsel for Biltmore Associates, Trustee Of the Visitalk.com creditors' trust

CERTIFICATE OF SERVICE I hereby certify that on July 19th, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Gary L. Birnbaum Charles S. Price Timothy J. Thomason Scot L. Claus MARISCAL WEEKS MCINTYRE & FRIEDLANDER PA 2901 North Central Avenue, Suite 200 Phoenix, AZ 85012-2705 Attorneys for Defendant Snell & Wilmer, LLP Joseph E. Mais PERKINS COIE BROWN & BAIN, P.A. 2901 N. Central Avenue
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P.O. Box 400 Phoenix, AZ 85001-0400 Attorneys for Defendant Michael and Marcia O'Donnell David Rosenbaum Maureen Beyers Warren John Stapleton OSBORN MALEDON 2929 N. Central Avenue, Suite 2100 Phoenix, AZ 85012-2794 Attorneys for Defendants Michael Cardwell and Margaret Mahoney David P. Brooks BROOKS & AFFILIATES, PLC 1930 N. Ardoleda, Suite 217 Mesa, AZ 85213 Attorneys for Defendants Robert and Carla Corry Donald F. Behn Brian N. Spector JENNINGS STROUSS & SALMON PLC 201 E. Washington, Suite 1100 Phoenix, AZ 85004 Attorneys for Defendant MP3.com, Inc. I herby certify that on July 19th, 2007, I caused the attached document to be served by Federal Express on: Honorable H. Russell Holland United States District Court 222 West 7th Avenue ­ No. 54 Anchorage, Alaska 99513 (Telephone: 907-677-6252) I hereby certify that on July 19th, 2007, I caused the attached document to be served by first class mail on the following, who are not registered participants of the CM/ECF System: Cynthia Thimmesch 5512 N. 6th Street Phoenix, Az 85012 Defendant Pro Se Peter Thimmesch 11329 Stonehouse Place Potomac Falls, Virginia 20165-5123 Defendant Pro Se Raymond F. Gaston Betty B. Gaston
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5313 E. Pinchot Avenue Phoenix, AZ 85018-8039 Defendants Pro Se Mark J. Giunta 845 North Third Avenue Phoenix, AZ 85003-1408 Defendant Pro Se By /s/Sara Lovato____________ Sara Lovato

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