Free Proposed Jury Instructions - District Court of Arizona - Arizona

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Ira M. Schwartz (I.D. No. 010448) Michael A. Cordier (I.D. No. 014378) DeCONCINI McDONALD YETWIN & LACY, P.C. 7310 N. 16th Street, Suite 330 Phoenix, Arizona 85020 Telephone (602) 282-0500 Facsimile (602) 282-0520
Attorneys for Plaintiff

IN THE UNITED STATES DISTRICT COURT IN AND FOR THE DISTRICT OF ARIZONA

DECONCINI MCDONALD YETWIN & LACY, P.C.

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16th Street, Suite 330 Phoenix, Arizona 85020

Erchonia Medical Inc., et al Plaintiff, v. Miki Smith, et al Defendants. ____________________________________

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Case No.: CIV 02-2036-PHX-MHM Consolidated with CIV 02-2048-PHX-MHM CIV 02-2353-PHX-MHM JOINT STATEMENT OF THE CASE

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Pursuant to the Court's minute entry order dated August 13, 2007, the parties submit the following Joint Statement of the Case.

JOINT STATEMENT OF THE CASE The Parties This case is brought by Erchonia Medical Inc., referred to in this lawsuit as "Erchonia" against Defendant Miki Smith. Erchonia is an Arizona company that is engaged in the development and production of therapeutic medical equipment. Erchonia's products are often sold to chiropractors and

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other alternative medical practitioners. Erchonia's primary products are a line of low level

Case 2:02-cv-02036-MHM

Document 373

Filed 08/17/2007

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laser products, known as the PL lasers.

Erchonia also manufactures and sells other

products for chiropractors such as an Adjustor and a Percussor. These are primarily used by Chiropractors for doing adjustments. Erchonia was formed on June 28, 2002 by the merger of two of its former companies, Majes-Tec Innovations Inc., referred to as "Majes-Tec" and Tuco Innovations, Inc., known as "Tuco." Steve Shanks is the President and one of the owners of Erchonia. Kevin Tucek is the other owner of Erchonia. At the time the two companies merged, Steve Shanks was the owner of Majes-Tec and Kevin Tucek was the owner of Tuco. Miki Smith was a friend of Steve Shanks prior to the time Steve formed Majes-Tec. Miki Smith began working for Majes-Tec in 1998, and he helped set up its business operations in Arizona. He was the first employee hired by Majes-Tec. Tuco was formed by Kevin Tucek, who is an inventor. He is the principal inventor of most of the products sold by Erchonia. Tuco was set up to manufacture the products he invented, including the lasers. Majes-Tec was formed around the same time to market and sell the products manufactured by Tuco. Background to the Lawsuit Miki Smith was employed as the Vice-President of Majes-Tec. In this position, he was actively involved in the marketing and selling of Tuco's products through Majes-Tec. Majes-Tec and later Erchonia frequently marketed their products by holding seminars around the country where it demonstrated its products, taught doctors how to use these products and also sold them. Miki Smith was actively involved in putting these seminars

DECONCINI MCDONALD YETWIN & LACY, P.C.

9 10 11
North 16th Street, Suite 330 Phoenix, Arizona 85020
7310

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on. He frequently arranged for equipment to be shipped from Erchonia's offices to the seminar sites and would then be responsible for returning the equipment to Erchonia at the conclusion of the seminars. In addition, as part of his job, Miki Smith paid bills for Majes-Tec, and he also had access to the checkbook for Majes-Tec. In 2001, Majes-Tec confronted Miki Smith claiming that he had taken money improperly from the company's checking account and paid to himself. On September 20, 2001, Miki Smith signed a promissory note in the amount of $50,000. Smith claims the note was signed under coercion and undue influence. The note was due on September 20, 2002. Miki Smith has not paid this note. Prior to 2002, Majes-Tec had a distributor for some of its products known as Robert E. Moroney, LLC, sometimes referred to as REM. In early 2002, Erchonia terminated its business relationship with REM. In the spring of 2002, REM was in the process of developing its own laser product which was designed to compete with Erchonia's products. While Miki Smith was still employed by Erchonia, he began having conversations with Robert Moroney, the owner of REM. In early July 2002, Robert Moroney provided Miki Smith with one of REM's lasers. While still working for Erchonia, Miki Smith attended a seminar in New Orleans for Erchonia. He took the REM laser to this show and showed it to some of the doctors who attended this show. Also, around the same time, REM had separate discussions with Jeanne Winner about purchasing one of their lasers. In connection with REM's efforts to sell Jeanne Winner a laser, Miki Smith had a

DECONCINI MCDONALD YETWIN & LACY, P.C.

9 10 11
North 16th Street, Suite 330 Phoenix, Arizona 85020
7310

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conversation with Jeanne Winner about providing her with a loaner laser. All of this occurred while Miki Smith was an employee of Erchonia's. Contentions of the Parties Erchonia's Contentions Erchonia has asserted 3 claims against Miki Smith. First, Erchonia contends that Miki Smith took money from the Company's checkbook and improperly paid it to himself. When Erchonia confronted Miki Smith about this, he agreed to repay the money by signing a promissory note for $50,000 on September 20, 2001. Miki Smith has not repaid this money, and Erchonia believes this failure to pay on the promissory note is a breach of contract. Second, Erchonia contends that Miki Smith was responsible for the equipment he checked out from the company and he sent to various seminars and never returned. Erchonia further contends this equipment was used either for his personal benefit or for the benefit of others, not Erchonia. Therefore, Miki Smith is responsible to Erchonia for the value of this equipment. This is Erchonia's claim for conversion. Erchonia also contends that, to the extent Miki Smith took funds from Erchonia, which he failed to repay, that are not covered by the Promissory Note. Miki Smith is also responsible to repay these funds to Erchonia. Third, Miki Smitih was as an employee and officer of Erchonia, or its predecessor Majes-Tec. As such, Miki Smith was obligated to be a loyal employee of Erchonia's while he worked for them. Erchonia contends that it was a breach of Miki Smith's obligations to the company to promote or sell REM's competing products while he was still an employee

DECONCINI MCDONALD YETWIN & LACY, P.C.

9 10 11
North 16th Street, Suite 330 Phoenix, Arizona 85020
7310

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of Erchonia. By helping REM sell its competing lasers while working for Erchonia, he improperly harmed Erchonia's business. These actions were a breach of his fiduciary duties to Erchonia as an officer and employee. Miki Smith's Contentions 1 In response to Erchonia's claims, Smith position is: First, Smith never paid himself monies not authorized by Erchonia and its principals, including Steve Shanks. Erchonia's principals wrote checks to themselves and for their purposes from the company account. When Smith told Shanks that he needed monies for certain expenses, Shanks authorized him to write amounts to himself to be repaid later or otherwise be allowed as future compensation. The Shanks family coerced Smith into signing the September 20, 2001 promissory note. Smith was called to a meeting, at which Steve Shanks and his father, Chuck Shanks, were present and he was presented with a promissory note that had never been discussed and which he had never seen. Smith signed the note after he was told he could not leave without signing it. Second, Smith was not responsible for inventory at Erchonia. Smith denies taking any lasers or other equipment from Erchonia's premises when he left save his own personally-owned laser.

DECONCINI MCDONALD YETWIN & LACY, P.C.

9 10 11
North 16th Street, Suite 330 Phoenix, Arizona 85020
7310

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As counsel for Defendant Smith informed the Court at the hearing on August 13, 2007, Mr. Smith terminated his relationship with counsel and withdrew Mr. Bueler's authority to act on his behalf. Based on this, counsel orally moved to withdraw at that hearing. However, as counsel has not yet been given leave to withdraw Mr. Bueler has participated in the drafting of this document, including this section on Defendant's contentions.

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Third, Smith denies that he was disloyal to Erchonia when he was an employee. He did not help any other company improperly. Smith was not a fiduciary to Erchonia while he worked for the company. Dated this 17th day of August, 2007. DeCONCINI McDONALD YETWIN & LACY

DECONCINI MCDONALD YETWIN & LACY, P.C.

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North 16th Street, Suite 330 Phoenix, Arizona 85020

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By s/Ira M. Schwartz Ira M. Schwartz Michael A. Cordier 7310 N. 16th St., Suite 330 Phoenix, Arizona 85020 (602) 282-0500 Attorneys for Erchonia Medical Inc. and Kevin Tucek BUELER JONES, LLP

By s/Gordon S. Bueler Gordon S. Bueler 1300 N. McClintock Drive, Suite B-4 Chandler, AZ 85226 Attorneys for Miki Smith and KMS Marketing, Inc.

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Certificate of Service I certify that on August 17, 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 those attorneys registered with CM/ECF: Gordon S. Bueler, Esq. BUELER JONES, LLP 1300 N. McClintock Drive, Suite B-4 Chandler, AZ 85226 Attorneys for Miki Smith and KMS Marketing, Inc. s/Ira M. Schwartz

DECONCINI MCDONALD YETWIN & LACY, P.C.

9 10 11
North 16th Street, Suite 330 Phoenix, Arizona 85020
7310

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