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Nee
WILLIAM J. CASEY (SBN 116531)
| ALAMEDA
FILEDCOUNT y
ANDREW G. WANGER (SBN 166449)
CHRISTINA C. MARSHALL (SBN 209315)
HANCOCK ROTHERT & BUNSHOFT LLP
Four Embarcadero Center, Suite 300
San Francisco, California 94111-4168
Telephone: (415) 981-5550
FS
Facsimile: (415) 955-2599
A
Attorneys for Defendants
MICHAEL GUTA, JOHN E. HILL
DN
and LAW OFFICES OF JOHN E. HILL
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SUPERIOR COURT OF THE STATE OF CALIFORNIA
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FOR THE COUNTY OF ALAMEDA
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10
11 MICHAEL SMITH, CASE NO.: RG 04163436
12 _ Plaintiff,
SEPARATE STATEMENT IN SUPPORT
13 _ vz OF DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT
14 JOHN E. HILL, MICHAEL GUTA, LAW
OFFICES OF JOHN E. HILL, and DOES 1
15 through 100, inclusive, Date : October 3, 2005
Time : 2:00 p.m.
16 Defendant. Department: 31
Judge : Hon. Steven A. Brick
17
Action Filed: June 30, 2004
18 Trial Date : November 4, 2005
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20
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25
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27
28
HANCOCK
ROTHERT&
BUNSHOFT
LLP
4 EMBARCADERO
CENTER [SFDOC:2237-007-806230.1] RG 04163436
SANFRANCISCO,
CA94111
(415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Pursuant to the Code of Civil Procedure §437c(b) and Rule 342 of the Rules of
Court, defendants Michael Guta, John E. Hill and Law Offices of John E. Hill (collectively,
“Defendants”) submit this separate statement of undisputed material facts, together with references
to supporting evidence in support of Defendants’ Motion For Summary Judgment.
A. Summary Judgment Should be Granted Because Smith Cannot Demonstrate That
NN OH
Defendants Caused Him Any of the Damages Alleged in the Complaint.
1. — Issue #1: Smith Cannot Prove that He Was Damaged By Defendants’ Advice
Not to Accept QuadRep’s Buyout Payments.
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Undisputed Material Facts Supporting Evidence
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1. On June 30, 2004, Michael Smith (“Smith”) 1. Complaint dated June 30, 2004 [Ex. A to
10 filed this legal-malpractice action against Request for Judicial Notice (“RJN”)]
Defendants John Hill and Michael Guta of
11 The Law Offices of John Hill (collectively,
“Defendants”), alleging that their errors and
12 omissions caused Smith to lose “monies
rightfully due him as a minority
13 shareholder.” Defendants represented
Smith in the underlying action.
14
For approximately 20 years, Smith worked Third Amended Verified Complaint dated
15 for a sales-representative firm known as April 13, 2001, 912 [Ex. E to RJN]
QuadRep, which, beginning in the mid-
16 1990s, was divided into two corporate
entities, QuadRep, Inc. and QR, Inc.
17
QR, Inc. operated as a shell company, Michael Smith Depo. from Michael M.
18 deriving itsincome from QuadRep’s Smith v. OR, Inc. et al. 105:3-25, and
operating profits and distributing those attached hereto as Ex. 27 to the Declaration
19 profits to QR, Inc.’s five shareholders, of Andrew G. Wanger (““Wanger Decl.”)
Smith, Thomas McCarthy, Lyle Kelsey,
20 Patrick Morton, and William Mackin.
21 A 1995 shareholder’s agreement, to which Third Amended Verified Complaint dated
Smith was a party, memorialized the terms April 13, 2001, Ex. A, p. 9 [Ex. E to RJN]
22 of a succession plan which required each
shareholder of QR, Inc. to surrender his
23 shares once that shareholder reached age
62.
24
In 1999, the shareholders voted to amend Third Amended Verified Complaint dated
25 that agreement to require each shareholder April 13, 2001, 914 [Ex. E to RIN]
to surrender his shares in QR, Inc. when
26 QuadRep co-founder Patrick Morton turned
62 (as opposed to when each shareholder
27 ’ reached that age).
28 Smith did not approve of the amendment, it 6. Third Amended Verified Complaint dated
HANCOCK
ROTHERT&
BUNSHOFT
LLP
4 EMBARCADERO
CENTER
SANFRANCISCO,
CA04111 -007-806230.1) RG 04163436
(415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
passed because 87 percent of the shares April 13, 2001, {15 [Ex. E to RIN];
voted in favor of it,and the terms of the
shareholder’s agreement required only 85 7/30/99 letter from Smith to Directors, Ex.
percent approval. 3 to Michael Smith Depo. [Wanger Decl.
Ex. 4]; Michael Smith Depo. 63:3-25
[Wanger Decl. Ex. 1]
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This amendment to the shareholder’s Verified Complaint dated July 18, 2000
agreement gave rise to Smith’s lawsuit in [Ex. B to RIN]
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the underlying case.
DKON
Under the terms of the agreement (prior to Third Amended Verified Complaint dated
the amendment), Smith, who was 10 years April 13, 2001, 420 [Ex. E to RJN]
SN
younger than Morton, had been in line to
become the majority shareholder of QR,
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Inc. upon Morton’s retirement.
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Smith believed that by requiring him to Third Amended Verified Complaint dated
10 surrender his shares early, the amendment April 13, 2001, 920 [Ex. E to RJN]
eliminated 10 years of income that Smith
11 otherwise would have received.
12 10. In May 2000, Smith resigned and opted to 10. Third Amended Verified Complaint dated
pursue an action against the QuadRep April 13, 2001, 917 [Ex. E to RJN]
13 companies and their shareholders.
14 11. Before resigning, Smith consulted attorney . Michael Smith Depo. 93:15-25 — 94:1-21
Keith Rosenbaum of Berger Kahn Shafton [Wanger Decl. Ex. 1];
15 Moss Figler Simon & Gladstone in Irvine,
California, regarding his potential claims 1/12/00 e-mail from Rosenbaum to Smith
16 against his employer and fellow [Wanger Decl. Ex. 5]
shareholders.
17
12. Smith also consulted Arkansas attorney 12. Michael Smith Depo. 13:10-19, 97:22-25
18 Phillip Duncan, who referred Smith to [Wanger Decl. Ex. 1];
Defendants.
19 2/18/00 fax from Smith to Duncan [Wanger
Decl. Ex. 6]
20
13. Defendants met with Smith, reviewed the . Michael Smith Depo. 16:8-12, 23:17-24
21 documents Smith provided, and discussed [Wanger Decl. Ex. 1]
with Smith various legal claims available to
22 him.
23 14. After Defendants’ initialmeeting with . 7/7/00 letter from Duncan to Hill [Wanger
Smith, Duncan wrote to Defendants and Decl. Ex. 7]
24 explained that “the company simply wants
to pay the contract calculations to Mike and
25 Ellie of $1,289,345.40” and “they are
ignoring any tortious conduct at this point.”
26
15. Duncan’s letter, which refers to the Smiths 15. 7/7/00 letter from Duncan to Hill [Wanger
27 as “very good friends as well as clients,” Decl. Ex. 7]
also attaches amemorandum which
28 outlines his “observations” regarding
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4 EMBARCADERO
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SANFRANCISCO,
CA94114 [SFDOC:2237-007-806230.1) RG 04163436
(415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
correspondence Smith had received from °
QR, Inc. and QuadRep, Inc.
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16. Pursuant to Smith’s instructions, . Michael Smith Depo. 149:4-6, 101:21 —
Defendants regularly conferred with Mr. 102:1 [Wanger Decl. Ex. 1];
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Duncan, who took an active role in
developing the strategy for Smith’s case 5/23/00 letter from Duncan to Defendants
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and demanded fifteen percent of any [Wanger Decl. Ex. 8];
recovery by Smith.
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17. Smith’s legal team developed and drafted a 17. Michael Smith Depo. 136:25 — 138:1
DN
complaint, and in July 2000, Smith filed an [Wanger Decl. Ex. 1];
action against QR, Inc., QuadRep Inc.,
s
Morton, Mackin, McCarthy, and Kelsey Verified Complaint dated July 18, 2000
alleging causes of action for breach of [Ex. B to RJN]
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contract, fraud in inducement to enter
employment agreement, intentional
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infliction of emotional distress, breach of
10 fiduciary duty, fraud, and interference with
contractual relationship.
11
18. Smith reviewed, edited and verified the . Michael Smith Depo. 136:25 — 138:1,
12 original complaint and subsequent amended 152:19-153:4 [Wanger Decl. Ex. 1];
complaints.
13 Verified Complaint dated July 18, 2000
[Ex. B to RJN];
14
First Amended Verified Complaint dated
15 August 30, 2000 [Ex. C to RJN];
16 9/2/00 fax from Smith to Defendants
[Wanger Decl. Ex. 9];
17
Second Amended Verified Complaint dated
18 January 29, 2001 [Ex. D to RIN];
19 Third Amended Verified Complaint dated
April 13, 2001 [Ex. E to RJN]
20
19. During the time Smith initiated litigation . Michael Smith Depo. 124:15-21, 149:25 -
21 against QR, QuadRep and their 150:3, 151:23 — 152:4, 156:7-22 [Wanger
shareholders, QuadRep co-founder Patrick Decl. Ex. 1]
22 Morton began sending monthly checks to
Smith as installment payments due to Smith 6/26/00 letter from Morton to Smith
23 under the shareholders agreement and [Wanger Decl. Ex. 10];
amendment thereto (i.e.,as payments
24 towards the buyout of Smith’s shares). 8/1/00 letterfrom Morton to Smith [Wanger
Decl. Ex. 11];
25
8/29/00 letter from Morton to Smith
26 [Wanger Decl. 12];
27 10/31/00 letter from Morton to Smith
[Wanger Decl. Ex. 13]
28
HANCOCK
ROTHERT&
BUNSHOFT
LLP
4 EMBARCADERO
CENTER
SANFRANCISCO,
CA94114 {SFDOC:2237-007-806230.1] RG 04163436
(415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
20. Discovery commenced and numerous 20. Michael Smith Depo. 11:11-17, 78:19-20,
depositions were taken, including Smith’s 147:17-25, 160:8 — 161:3 [Wanger Decl.
and each individual defendant’s. Ex. 1]
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21. In June 2001, the parties scheduled a 21. Michael Smith Depo. 168:21 — 169:16
WW
meeting to discuss the litigation and the [Wanger Decl. Ex. 1];
basis for Smith’s claims.
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6/1/01 letter from Allard to Guta [Wanger
Decl. Ex. 14]
A
22. During the June 2001 meeting, counsel for 22. Michael Smith Depo. 172:5-16 [Wanger
HD
the QuadRep defendants advised Smith that Decl. Ex. 1]
the installment payments being made
XN
pursuant to the shareholder’s agreement
stillwere available to Smith.
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23, This June 2001 “offer” was consistent with 23. Michael Smith Depo. 156:7-22, 124:15-21,
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QuadRep’s position throughout the 149:25 — 150:3, 151:23 — 152:4 [Wanger
10 underlying case, namely that the Decl. Ex. 1]
shareholder’s agreement was valid and that
11 Smith was entitled to the approximately . 6/26/00 letterfrom Morton to Smith
$1.2 million called for in the agreement. [Wanger Decl. Ex. 10];
12
8/1/00 letter from Morton to Smith [Wanger
13 Decl. Ex. 11];
14 8/29/00 letter from Morton to Smith
[Wanger Decl. 12];
15
10/31/00 letter from Morton to Smith
16 [Wanger Decl. Ex. 13]
17 24. Smith did not want to accept a $1.2 million 24. Michael Smith Depo. 339:17-22, 129:25 —
settlement. He viewed the buyout under the 130:23 [Wanger Decl. Ex. 1]
18 contract as an “entitlement” separate and
apart from the lawsuit.
19
25. Smith maintained that he was entitled to 25. Michael Smith Depo. 129:25 — 130:1
20 additional tort damages as compensation [Wanger Decl. Ex. 1];
for the 10 years of income that he would
21 have derived from running the company 7/4/00 e-mail from Smith to Defendants,
had he not been required to surrender his with copy to Duncan [Wanger Decl. Ex. 15]
22 shares at age 52 (as opposed to 62).
23 26. Smith took the position that he was entitled 26. Michael Smith Depo. 196:1-6, 129:25 —
to the entire $1.2 million buyout and that 130:1 [Wanger Decl. Ex. 1];
24 his lawsuit against the QuadRep defendants
was solely to recover the additional 7/4/00 e-mail from Smith to Defendants,
25 damages. with copy to Duncan [Wanger Decl. Ex. 15]
26 27. At a February 13, 2002 mediation, which 27. Michael Smith Depo. 190:2-13; 194:1-14 ©
Smith attended, the QuadRep defendants [Wanger Decl. Ex. 1]
27 offered Smith $25,000 for a release of the
tort claims. Smith rejected this offer.
28
SANFRANCISCO,
CA 84114 -007-806230.1) 5 RG 04163436
(415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
28. Smith maintains that even ifDefendants 28. Michael Smith Depo. 339:17-22 [Wanger
had recommended that he settle for $1.2 Decl. Ex. 1]
million, he would not have accepted that
ND
amount.
WW
29. After conferring with his attorneys, Smith 29. Settlement Statement [Wanger Decl. Ex.
agreed to a settlement which paid him 18]
BR
$250,000 in exchange for the dismissal of
his complaint and his appeal.
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30. As indicated above, the parties also agreed 30. Settlement Statement [Wanger Decl. Ex.
NN
to bear their own attorneys’ fees and costs, 18]
which included the purported $350,000 fee
SN
award against Smith.
o
31. As part of the settlement, Smith also agreed 31. Kevin McLean Depo. 101:1-14 [Wanger
to turn over his shares in QR, Inc. and Decl. Ex. 3];
QuadRep, Inc. and to waive his rights to
10 any and all payments due to him under the Settlement Statement [Wanger Decl. Ex.
shareholder’s agreement. 18]
11
32. At the hearing in which the court approved 32. Settlement Statement [Wanger Decl. Ex.
12 the settlement, Smith indicated on the 18] :
record that he understood the binding and
13 final effect of the settlement and the rights
that he would be giving up asa result of the
14 settlement.
15 33. Smith also discussed the settlement with his 33. Kevin McLean Depo. 101:6-9 [Wanger
attorneys, McLean and DeGarmo prior to Decl. Ex. 3]
16 resolving the case.
17 34. McLean confirmed that Smith found the 34. Kevin McLean Depo. 101:10-14 [Wanger
settlement to be acceptable at that time. Decl. Ex. 3]
18
19
2. Issue #2: Smith Was Fully Aware of the $250,000 Available to Him.
20
35. Smith’s Legal Malpractice Complaint also 35. Complaint dated June 30, 2004 [Ex. A to
21 alleges that Defendants failed to advise RJN]
Smith of approximately $250,000 in
22 installment payments which QR, Inc.
and/or QuadRep, Inc. had deposited into an
23 account for Smith.
24 36. During the time Smith initiated litigation 36. Michael Smith Depo. 156:7-22, 124:15-21,
against QR, QuadRep and their 149:25 — 150:3, 151:23 — 152:4 [Wanger
25 shareholders, QuadRep co-founder Patrick Decl. Ex. 1]
Morton began sending monthly checks to
26 Smith as installment payments due to Smith 6/26/00 letter from Morton to Smith
under the shareholders agreement and [Wanger Decl. Ex. 10];
27 amendment thereto (i.e.,as payments
towards the buyout of Smith’s shares). 8/1/00 letter from Morton to Smith [Wanger
28
HANCOCK
ROTHERT&
BUNSHOFT
LLP
4 EMBARCADERO
CENTER
SANFRANCISCO,
CA 94111 ; -007-806230.1) 6 RG 04163436
(415) 981-5550
SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Decl. Ex. 11];
8/29/00 letter from Morton to Smith
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[Wanger Decl. 12];
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10/31/00 letter from Morton to Smith
[Wanger Decl. Ex. 13]
FP
37. According to Patrick Morton’s calculations, 37, Michael Smith Depo. 124:15-21 [Wanger
AH
as indicated in his letter to Smith, the total Decl. Ex. 1];
buyout payments to Smith would total
DBD
$1,289,345.40. 6/26/00 letter from Morton to Smith
[Wanger Decl. Ex. 10]
SN
38. Smith recalls having received the firstfew . Michael Smith Depo. 156:7-22 [Wanger
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monthly installments. Decl. Ex. 1]
oOo
39. Smith sought Defendants’ advice with . Michael Smith Depo. 20:18 — 21:16
respect to these checks, and Defendants [Wanger Decl. Ex. 1]
CO
advised Smith that to accept the installment
me
payments could be seen as a ratification of
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the shareholder’s agreement and could
prejudice Smith’s breach of contract and
HO
tort case.
WOW
ee
40. Patrick Morton established a trust account . Michael Smith Depo. 30:10-15, 156:7-17
into which past and future installment [Wanger Decl. Ex. 1];
BP
payments were deposited. The account,
naming Smith as beneficiary, were opened 10/31/00 letter from Morton to Smith
UA
at Comerica Bank. [Wanger Decl. Ex. 13]
DB
41. At the settlement meeting in June 2001, 41. Michael Smith Depo. 172:5-16 [Wanger
counsel for the QuadRep defendants Decl. Ex. 1]
ND
advised Smith that the installment
payments being made pursuant to the
CGH
shareholder’s agreement stillwere available
to Smith.
O
RO
DBD
3. Issue #3: Smith Has Not Paid Any Tax Liabilities or Penalties as a Result of
Defendants’ Negligence.
NO
KH
42. Smith’s Legal Malpractice Complaint 42. Complaint dated June 30, 2004 [Ex. A to
NO
KN
against Defendants also alleges that Smith RJN] .
incurred tax liabilities and penalties as a
NYO
WO
result of Defendants’ erroneous advice
regarding the tax treatment of QuadRep’s
F&F
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$250,000 in attempted buyout payments to
Smith.
NO
A
43, Ellie Smith, not Michael Smith, was in 43. Ellie Smith Depo. 35:21-23, 159:3-10
DB
NO
charge of the family’s finances and handled [Wanger Decl. Ex. 2]
all issues relating to their taxes.
NO
“A
28
HANCOCK
ROTHERT&
BUNSHOFT
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4 EMBARCADERO
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SANFRANCISCO,
CA 94111[SFDOC'2237-007-806230.1) 7 RG 04163436
(415) 981-5550
SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
44, Ellie was never a client of Defendants. 44. Ellie Smith Depo. 55:6-25 [Wanger Decl.
Ex. 2]
No
45, Ellie received a K-1 from QuadRep’s CPA 45. Ellie Smith Depo. 103:7 — 105:7 [Wanger
which treated the installments payments Decl. Ex. 2];
WH
made to Smith as taxable “income.”
K-1 [Wanger Decl. Ex. 16]
_
46. Ellie contacted Michael Guta requesting 46. Ellie Smith Depo. 105:1-12, 98:9 — 99:3
WN
advice regarding how to treat this [Wanger Decl. Ex. 2]
“income.” She never had any
BWA
communications with John Hill regarding
tax issues.
NN
47. Ellie also consulted at least one other 47. Ellie Smith Depo. 113:22 — 120:7 [Wanger
O&
lawyer, tax specialist Kevin Staker, Decl. Ex. 2];
regarding these issues, and paid him $500
o
for his services. 4/30/01 invoice from Staker & Esquibias
10 [Wanger Decl. Ex. 17]
11 48. Ellie was in regular communication with 48. Ellie Smith Depo. 132:24 — 133:24 [Wanger
her CPA about these tax issues. Decl. Ex. 2]
12
49. Ellie admitted that the IRS has placed the 49, Ellie Smith Depo. 163:12-25, 181:7 -
13 Smiths’ file “on hold” and the Smiths have 182:8, 183:21 — 184:1 [Wanger Decl. Ex. 2]
not paid any out-of-pocket costs to either
14 the IRS or the Franchise Tax Board.
15 50. The Smiths have no idea when, if at all, . 50. Ellie Smith Depo. 183:3 — 184:1 [Wanger
they will have to pay any amount to the Decl. Ex. 2]
16 IRS.
17
4, Issue #4: The Underlying Attorney’s Fees Order Does Not Constitute
18 Damages.
19 51. In the Legal Malpractice Complaint, Smith 51. Complaint dated June 30, 2004 [Ex. A to
claims that Defendants exposed him to RJN]
20 liabilities in excess of $350,000 based
upon the court order requiring Smith to
21 pay the attorneys’ fees and costs of those
QuadRep defendants who prevailed on
22 summary judgment.
23 52. Smith reviewed, edited, and verified the 52. Michael Smith Depo. 136:25 — 138:1,
original complaint and subsequent 152:9 — 153:4 [Wanger Decl. Ex. 1];
24 amended complaints, each of which named
the same parties. Verified Complaint dated July 18, 2000
25 [Ex. B to RJN];
26 First Amended Verified Complaint dated
August 30, 2000 [Ex. C to RJN];
27
9/2/00 fax from Smith to Defendants
28
HANCOCKROTHERT&
BUNSHOFT
LLP
4 EMBARCADERO
CENTER 8 ,
SANFRANCISCO,
CA84111 6230.1) RG 04163436
(415) 981-5550
SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
[Wanger Decl. Ex. 9];
Second Amended Verified Complaint
dated January 29, 2001 [Ex. D to RIN];
Ww
Third Amended Verified Complaint dated
April 13, 2001 [Ex. E to RJN]
&
53. In the course of the underlying litigation, — Order dated April 11, 2002 [Ex. F to RIN]; —
each of the QuadRep defendants filed a Order dated August 27, 2002 [Ex. G to
motion for summary judgment, and three RIN]
DH
of the six defendants’ motions were
successful.
NN
54. Smith’s employment claims were 54. Order dated April 11, 2002 [Ex. F to RJN];
Se
dismissed as to the two corporate Order dated August 27, 2002 [Ex. G to
defendants, QR, Inc. and QuadRep, Inc., RJN]
oO
and the breach of fiduciary duty claim was
10 dismissed as to Lyle Kelsey.
i 55. The court denied summary judgment as to Order dated April 11, 2002 [Ex. F to RJN];
the other individual defendants, William Order dated August 27, 2002 [Ex. G to
12 Mackin, Patrick Morton and Thomas RJN]
McCarthy, ruling that triable issues of fact
13 existed regarding whether these
shareholders breached a fiduciary duty to
14 Smith by voting to amend the
shareholder’s agreement.
15
56. Smith filed two separate appeals, one Michael Smith Depo. 39:3-7 [Wanger
16 challenging the court’s dismissal of Lyle Decl. Ex. 1]
Kelsey, and later another challenging the
17 dismissal of Smith’s employment case Unpublished Court of Appeal decision
against QR, Inc. and QuadRep, Inc. dated May 9, 2003 [Ex. H to RJN]
18
37. In an unpublished six-page decision, the Unpublished Court of Appeal decision
19 Court of Appeal affirmed the lower court’s dated May 9, 2003 [Ex. H to RJN]
ruling with respect to Kelsey. The second
20 appeal was pending at the time Smith Settlement Statement [Wanger Decl. Ex.
settled the underlying case. 18]
21
58. According to Smith, following its 58. Complaint dated June 30, 2004 [Ex. A to
22 summary-judgment rulings, the court RJN]
entered ajudgment requiring Smith to pay
23 the attorneys’ fees and costs of the three
prevailing defendants, which allegedly
24 totaled over $350,000.
25 39. The record establishes that the court 59. Judgment by Court Order dated April 20,
ordered that the prevailing defendants 2002 [Ex. J to RJN]
26 were entitled to their costs.
27 60. The parties then engaged in motion McLean Depo. 92:2-5 [Wanger Decl. Ex.
practice regarding the alleged entitlement 3]
28 to attorney’s fees by the defendants as an
SANFRANCISCO,
CA 04111 [SEROC:2237-007-806230.1) 9 RG 04163436
(415) 981-5550
SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
item of costs. Smith disputed the amount
allegedly owed to the three dismissed
defendants.
61. The court stayed any ruling on this issue 61. McLean Depo. 91:5 — 92:25, 30:5-18
pending trial of the case as itheld that if [Wanger Decl. Ex. 3]
Smith prevailed on his fiduciary duty
claims, he could seek fees from the
defendants. The entire amount claimed by
the defendants could have been offset by
the amounts incurred by Smith’s
attorney’s in the prosecution of the
NN
fiduciary duty claims.
62. Before those attorney’s fees claims could 62. McLean Depo. 73:11 — 74:13, 87:23 —
feo
be adjudicated (and after the court found 88:5, 88:11 — 89:5 [Wanger Decl. Ex. 3];
that Smith had made a prima facie
o
showing that the remaining defendants had Settlement Statement [Wanger Decl. Ex.
10 breached their fiduciary duties to Smith), 18]
Smith settled the case, and the defendants
11 waived any potential rights to recover their
fees.
12
63. As part of the settlement, the parties 63. Settlement Statement [Wanger Decl. Ex.
13 agreed to bear their own attorneys’ fees 18]
and costs.
14
15 64. As an additional condition to the 64. Settlement Statement [Wanger Decl. Ex.
settlement, Smith agreed to dismiss his 18]
16 pending appeal.
17 65. The prevailing QuadRep defendants at one 65. 1/31/03 letter from Defendants to John
point attempt
Preview
GrwiNAL @ augue a @ r — —_— ‘ _ 4 Nee WILLIAM J. CASEY (SBN 116531) | ALAMEDA FILEDCOUNT y ANDREW G. WANGER (SBN 166449) CHRISTINA C. MARSHALL (SBN 209315) HANCOCK ROTHERT & BUNSHOFT LLP Four Embarcadero Center, Suite 300 San Francisco, California 94111-4168 Telephone: (415) 981-5550 FS Facsimile: (415) 955-2599 A Attorneys for Defendants MICHAEL GUTA, JOHN E. HILL DN and LAW OFFICES OF JOHN E. HILL NN SUPERIOR COURT OF THE STATE OF CALIFORNIA Oo FOR THE COUNTY OF ALAMEDA oO 10 11 MICHAEL SMITH, CASE NO.: RG 04163436 12 _ Plaintiff, SEPARATE STATEMENT IN SUPPORT 13 _ vz OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT 14 JOHN E. HILL, MICHAEL GUTA, LAW OFFICES OF JOHN E. HILL, and DOES 1 15 through 100, inclusive, Date : October 3, 2005 Time : 2:00 p.m. 16 Defendant. Department: 31 Judge : Hon. Steven A. Brick 17 Action Filed: June 30, 2004 18 Trial Date : November 4, 2005 19 20 21 22 23 24 25 26 27 28 HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER [SFDOC:2237-007-806230.1] RG 04163436 SANFRANCISCO, CA94111 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Pursuant to the Code of Civil Procedure §437c(b) and Rule 342 of the Rules of Court, defendants Michael Guta, John E. Hill and Law Offices of John E. Hill (collectively, “Defendants”) submit this separate statement of undisputed material facts, together with references to supporting evidence in support of Defendants’ Motion For Summary Judgment. A. Summary Judgment Should be Granted Because Smith Cannot Demonstrate That NN OH Defendants Caused Him Any of the Damages Alleged in the Complaint. 1. — Issue #1: Smith Cannot Prove that He Was Damaged By Defendants’ Advice Not to Accept QuadRep’s Buyout Payments. eo Undisputed Material Facts Supporting Evidence o 1. On June 30, 2004, Michael Smith (“Smith”) 1. Complaint dated June 30, 2004 [Ex. A to 10 filed this legal-malpractice action against Request for Judicial Notice (“RJN”)] Defendants John Hill and Michael Guta of 11 The Law Offices of John Hill (collectively, “Defendants”), alleging that their errors and 12 omissions caused Smith to lose “monies rightfully due him as a minority 13 shareholder.” Defendants represented Smith in the underlying action. 14 For approximately 20 years, Smith worked Third Amended Verified Complaint dated 15 for a sales-representative firm known as April 13, 2001, 912 [Ex. E to RJN] QuadRep, which, beginning in the mid- 16 1990s, was divided into two corporate entities, QuadRep, Inc. and QR, Inc. 17 QR, Inc. operated as a shell company, Michael Smith Depo. from Michael M. 18 deriving itsincome from QuadRep’s Smith v. OR, Inc. et al. 105:3-25, and operating profits and distributing those attached hereto as Ex. 27 to the Declaration 19 profits to QR, Inc.’s five shareholders, of Andrew G. Wanger (““Wanger Decl.”) Smith, Thomas McCarthy, Lyle Kelsey, 20 Patrick Morton, and William Mackin. 21 A 1995 shareholder’s agreement, to which Third Amended Verified Complaint dated Smith was a party, memorialized the terms April 13, 2001, Ex. A, p. 9 [Ex. E to RJN] 22 of a succession plan which required each shareholder of QR, Inc. to surrender his 23 shares once that shareholder reached age 62. 24 In 1999, the shareholders voted to amend Third Amended Verified Complaint dated 25 that agreement to require each shareholder April 13, 2001, 914 [Ex. E to RIN] to surrender his shares in QR, Inc. when 26 QuadRep co-founder Patrick Morton turned 62 (as opposed to when each shareholder 27 ’ reached that age). 28 Smith did not approve of the amendment, it 6. Third Amended Verified Complaint dated HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER SANFRANCISCO, CA04111 -007-806230.1) RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT passed because 87 percent of the shares April 13, 2001, {15 [Ex. E to RIN]; voted in favor of it,and the terms of the shareholder’s agreement required only 85 7/30/99 letter from Smith to Directors, Ex. percent approval. 3 to Michael Smith Depo. [Wanger Decl. Ex. 4]; Michael Smith Depo. 63:3-25 [Wanger Decl. Ex. 1] LS This amendment to the shareholder’s Verified Complaint dated July 18, 2000 agreement gave rise to Smith’s lawsuit in [Ex. B to RIN] KH the underlying case. DKON Under the terms of the agreement (prior to Third Amended Verified Complaint dated the amendment), Smith, who was 10 years April 13, 2001, 420 [Ex. E to RJN] SN younger than Morton, had been in line to become the majority shareholder of QR, Oo Inc. upon Morton’s retirement. eo Smith believed that by requiring him to Third Amended Verified Complaint dated 10 surrender his shares early, the amendment April 13, 2001, 920 [Ex. E to RJN] eliminated 10 years of income that Smith 11 otherwise would have received. 12 10. In May 2000, Smith resigned and opted to 10. Third Amended Verified Complaint dated pursue an action against the QuadRep April 13, 2001, 917 [Ex. E to RJN] 13 companies and their shareholders. 14 11. Before resigning, Smith consulted attorney . Michael Smith Depo. 93:15-25 — 94:1-21 Keith Rosenbaum of Berger Kahn Shafton [Wanger Decl. Ex. 1]; 15 Moss Figler Simon & Gladstone in Irvine, California, regarding his potential claims 1/12/00 e-mail from Rosenbaum to Smith 16 against his employer and fellow [Wanger Decl. Ex. 5] shareholders. 17 12. Smith also consulted Arkansas attorney 12. Michael Smith Depo. 13:10-19, 97:22-25 18 Phillip Duncan, who referred Smith to [Wanger Decl. Ex. 1]; Defendants. 19 2/18/00 fax from Smith to Duncan [Wanger Decl. Ex. 6] 20 13. Defendants met with Smith, reviewed the . Michael Smith Depo. 16:8-12, 23:17-24 21 documents Smith provided, and discussed [Wanger Decl. Ex. 1] with Smith various legal claims available to 22 him. 23 14. After Defendants’ initialmeeting with . 7/7/00 letter from Duncan to Hill [Wanger Smith, Duncan wrote to Defendants and Decl. Ex. 7] 24 explained that “the company simply wants to pay the contract calculations to Mike and 25 Ellie of $1,289,345.40” and “they are ignoring any tortious conduct at this point.” 26 15. Duncan’s letter, which refers to the Smiths 15. 7/7/00 letter from Duncan to Hill [Wanger 27 as “very good friends as well as clients,” Decl. Ex. 7] also attaches amemorandum which 28 outlines his “observations” regarding HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER SANFRANCISCO, CA94114 [SFDOC:2237-007-806230.1) RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT correspondence Smith had received from ° QR, Inc. and QuadRep, Inc. bh 16. Pursuant to Smith’s instructions, . Michael Smith Depo. 149:4-6, 101:21 — Defendants regularly conferred with Mr. 102:1 [Wanger Decl. Ex. 1]; Ww Duncan, who took an active role in developing the strategy for Smith’s case 5/23/00 letter from Duncan to Defendants hk and demanded fifteen percent of any [Wanger Decl. Ex. 8]; recovery by Smith. GN 17. Smith’s legal team developed and drafted a 17. Michael Smith Depo. 136:25 — 138:1 DN complaint, and in July 2000, Smith filed an [Wanger Decl. Ex. 1]; action against QR, Inc., QuadRep Inc., s Morton, Mackin, McCarthy, and Kelsey Verified Complaint dated July 18, 2000 alleging causes of action for breach of [Ex. B to RJN] Se contract, fraud in inducement to enter employment agreement, intentional So infliction of emotional distress, breach of 10 fiduciary duty, fraud, and interference with contractual relationship. 11 18. Smith reviewed, edited and verified the . Michael Smith Depo. 136:25 — 138:1, 12 original complaint and subsequent amended 152:19-153:4 [Wanger Decl. Ex. 1]; complaints. 13 Verified Complaint dated July 18, 2000 [Ex. B to RJN]; 14 First Amended Verified Complaint dated 15 August 30, 2000 [Ex. C to RJN]; 16 9/2/00 fax from Smith to Defendants [Wanger Decl. Ex. 9]; 17 Second Amended Verified Complaint dated 18 January 29, 2001 [Ex. D to RIN]; 19 Third Amended Verified Complaint dated April 13, 2001 [Ex. E to RJN] 20 19. During the time Smith initiated litigation . Michael Smith Depo. 124:15-21, 149:25 - 21 against QR, QuadRep and their 150:3, 151:23 — 152:4, 156:7-22 [Wanger shareholders, QuadRep co-founder Patrick Decl. Ex. 1] 22 Morton began sending monthly checks to Smith as installment payments due to Smith 6/26/00 letter from Morton to Smith 23 under the shareholders agreement and [Wanger Decl. Ex. 10]; amendment thereto (i.e.,as payments 24 towards the buyout of Smith’s shares). 8/1/00 letterfrom Morton to Smith [Wanger Decl. Ex. 11]; 25 8/29/00 letter from Morton to Smith 26 [Wanger Decl. 12]; 27 10/31/00 letter from Morton to Smith [Wanger Decl. Ex. 13] 28 HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER SANFRANCISCO, CA94114 {SFDOC:2237-007-806230.1] RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT 20. Discovery commenced and numerous 20. Michael Smith Depo. 11:11-17, 78:19-20, depositions were taken, including Smith’s 147:17-25, 160:8 — 161:3 [Wanger Decl. and each individual defendant’s. Ex. 1] N 21. In June 2001, the parties scheduled a 21. Michael Smith Depo. 168:21 — 169:16 WW meeting to discuss the litigation and the [Wanger Decl. Ex. 1]; basis for Smith’s claims. FS 6/1/01 letter from Allard to Guta [Wanger Decl. Ex. 14] A 22. During the June 2001 meeting, counsel for 22. Michael Smith Depo. 172:5-16 [Wanger HD the QuadRep defendants advised Smith that Decl. Ex. 1] the installment payments being made XN pursuant to the shareholder’s agreement stillwere available to Smith. fe 23, This June 2001 “offer” was consistent with 23. Michael Smith Depo. 156:7-22, 124:15-21, oO QuadRep’s position throughout the 149:25 — 150:3, 151:23 — 152:4 [Wanger 10 underlying case, namely that the Decl. Ex. 1] shareholder’s agreement was valid and that 11 Smith was entitled to the approximately . 6/26/00 letterfrom Morton to Smith $1.2 million called for in the agreement. [Wanger Decl. Ex. 10]; 12 8/1/00 letter from Morton to Smith [Wanger 13 Decl. Ex. 11]; 14 8/29/00 letter from Morton to Smith [Wanger Decl. 12]; 15 10/31/00 letter from Morton to Smith 16 [Wanger Decl. Ex. 13] 17 24. Smith did not want to accept a $1.2 million 24. Michael Smith Depo. 339:17-22, 129:25 — settlement. He viewed the buyout under the 130:23 [Wanger Decl. Ex. 1] 18 contract as an “entitlement” separate and apart from the lawsuit. 19 25. Smith maintained that he was entitled to 25. Michael Smith Depo. 129:25 — 130:1 20 additional tort damages as compensation [Wanger Decl. Ex. 1]; for the 10 years of income that he would 21 have derived from running the company 7/4/00 e-mail from Smith to Defendants, had he not been required to surrender his with copy to Duncan [Wanger Decl. Ex. 15] 22 shares at age 52 (as opposed to 62). 23 26. Smith took the position that he was entitled 26. Michael Smith Depo. 196:1-6, 129:25 — to the entire $1.2 million buyout and that 130:1 [Wanger Decl. Ex. 1]; 24 his lawsuit against the QuadRep defendants was solely to recover the additional 7/4/00 e-mail from Smith to Defendants, 25 damages. with copy to Duncan [Wanger Decl. Ex. 15] 26 27. At a February 13, 2002 mediation, which 27. Michael Smith Depo. 190:2-13; 194:1-14 © Smith attended, the QuadRep defendants [Wanger Decl. Ex. 1] 27 offered Smith $25,000 for a release of the tort claims. Smith rejected this offer. 28 SANFRANCISCO, CA 84114 -007-806230.1) 5 RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT 28. Smith maintains that even ifDefendants 28. Michael Smith Depo. 339:17-22 [Wanger had recommended that he settle for $1.2 Decl. Ex. 1] million, he would not have accepted that ND amount. WW 29. After conferring with his attorneys, Smith 29. Settlement Statement [Wanger Decl. Ex. agreed to a settlement which paid him 18] BR $250,000 in exchange for the dismissal of his complaint and his appeal. WN 30. As indicated above, the parties also agreed 30. Settlement Statement [Wanger Decl. Ex. NN to bear their own attorneys’ fees and costs, 18] which included the purported $350,000 fee SN award against Smith. o 31. As part of the settlement, Smith also agreed 31. Kevin McLean Depo. 101:1-14 [Wanger to turn over his shares in QR, Inc. and Decl. Ex. 3]; QuadRep, Inc. and to waive his rights to 10 any and all payments due to him under the Settlement Statement [Wanger Decl. Ex. shareholder’s agreement. 18] 11 32. At the hearing in which the court approved 32. Settlement Statement [Wanger Decl. Ex. 12 the settlement, Smith indicated on the 18] : record that he understood the binding and 13 final effect of the settlement and the rights that he would be giving up asa result of the 14 settlement. 15 33. Smith also discussed the settlement with his 33. Kevin McLean Depo. 101:6-9 [Wanger attorneys, McLean and DeGarmo prior to Decl. Ex. 3] 16 resolving the case. 17 34. McLean confirmed that Smith found the 34. Kevin McLean Depo. 101:10-14 [Wanger settlement to be acceptable at that time. Decl. Ex. 3] 18 19 2. Issue #2: Smith Was Fully Aware of the $250,000 Available to Him. 20 35. Smith’s Legal Malpractice Complaint also 35. Complaint dated June 30, 2004 [Ex. A to 21 alleges that Defendants failed to advise RJN] Smith of approximately $250,000 in 22 installment payments which QR, Inc. and/or QuadRep, Inc. had deposited into an 23 account for Smith. 24 36. During the time Smith initiated litigation 36. Michael Smith Depo. 156:7-22, 124:15-21, against QR, QuadRep and their 149:25 — 150:3, 151:23 — 152:4 [Wanger 25 shareholders, QuadRep co-founder Patrick Decl. Ex. 1] Morton began sending monthly checks to 26 Smith as installment payments due to Smith 6/26/00 letter from Morton to Smith under the shareholders agreement and [Wanger Decl. Ex. 10]; 27 amendment thereto (i.e.,as payments towards the buyout of Smith’s shares). 8/1/00 letter from Morton to Smith [Wanger 28 HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER SANFRANCISCO, CA 94111 ; -007-806230.1) 6 RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Decl. Ex. 11]; 8/29/00 letter from Morton to Smith NYO [Wanger Decl. 12]; WD 10/31/00 letter from Morton to Smith [Wanger Decl. Ex. 13] FP 37. According to Patrick Morton’s calculations, 37, Michael Smith Depo. 124:15-21 [Wanger AH as indicated in his letter to Smith, the total Decl. Ex. 1]; buyout payments to Smith would total DBD $1,289,345.40. 6/26/00 letter from Morton to Smith [Wanger Decl. Ex. 10] SN 38. Smith recalls having received the firstfew . Michael Smith Depo. 156:7-22 [Wanger Oe monthly installments. Decl. Ex. 1] oOo 39. Smith sought Defendants’ advice with . Michael Smith Depo. 20:18 — 21:16 respect to these checks, and Defendants [Wanger Decl. Ex. 1] CO advised Smith that to accept the installment me payments could be seen as a ratification of KH the shareholder’s agreement and could prejudice Smith’s breach of contract and HO tort case. WOW ee 40. Patrick Morton established a trust account . Michael Smith Depo. 30:10-15, 156:7-17 into which past and future installment [Wanger Decl. Ex. 1]; BP payments were deposited. The account, naming Smith as beneficiary, were opened 10/31/00 letter from Morton to Smith UA at Comerica Bank. [Wanger Decl. Ex. 13] DB 41. At the settlement meeting in June 2001, 41. Michael Smith Depo. 172:5-16 [Wanger counsel for the QuadRep defendants Decl. Ex. 1] ND advised Smith that the installment payments being made pursuant to the CGH shareholder’s agreement stillwere available to Smith. O RO DBD 3. Issue #3: Smith Has Not Paid Any Tax Liabilities or Penalties as a Result of Defendants’ Negligence. NO KH 42. Smith’s Legal Malpractice Complaint 42. Complaint dated June 30, 2004 [Ex. A to NO KN against Defendants also alleges that Smith RJN] . incurred tax liabilities and penalties as a NYO WO result of Defendants’ erroneous advice regarding the tax treatment of QuadRep’s F&F KN $250,000 in attempted buyout payments to Smith. NO A 43, Ellie Smith, not Michael Smith, was in 43. Ellie Smith Depo. 35:21-23, 159:3-10 DB NO charge of the family’s finances and handled [Wanger Decl. Ex. 2] all issues relating to their taxes. NO “A 28 HANCOCK ROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER SANFRANCISCO, CA 94111[SFDOC'2237-007-806230.1) 7 RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT 44, Ellie was never a client of Defendants. 44. Ellie Smith Depo. 55:6-25 [Wanger Decl. Ex. 2] No 45, Ellie received a K-1 from QuadRep’s CPA 45. Ellie Smith Depo. 103:7 — 105:7 [Wanger which treated the installments payments Decl. Ex. 2]; WH made to Smith as taxable “income.” K-1 [Wanger Decl. Ex. 16] _ 46. Ellie contacted Michael Guta requesting 46. Ellie Smith Depo. 105:1-12, 98:9 — 99:3 WN advice regarding how to treat this [Wanger Decl. Ex. 2] “income.” She never had any BWA communications with John Hill regarding tax issues. NN 47. Ellie also consulted at least one other 47. Ellie Smith Depo. 113:22 — 120:7 [Wanger O& lawyer, tax specialist Kevin Staker, Decl. Ex. 2]; regarding these issues, and paid him $500 o for his services. 4/30/01 invoice from Staker & Esquibias 10 [Wanger Decl. Ex. 17] 11 48. Ellie was in regular communication with 48. Ellie Smith Depo. 132:24 — 133:24 [Wanger her CPA about these tax issues. Decl. Ex. 2] 12 49. Ellie admitted that the IRS has placed the 49, Ellie Smith Depo. 163:12-25, 181:7 - 13 Smiths’ file “on hold” and the Smiths have 182:8, 183:21 — 184:1 [Wanger Decl. Ex. 2] not paid any out-of-pocket costs to either 14 the IRS or the Franchise Tax Board. 15 50. The Smiths have no idea when, if at all, . 50. Ellie Smith Depo. 183:3 — 184:1 [Wanger they will have to pay any amount to the Decl. Ex. 2] 16 IRS. 17 4, Issue #4: The Underlying Attorney’s Fees Order Does Not Constitute 18 Damages. 19 51. In the Legal Malpractice Complaint, Smith 51. Complaint dated June 30, 2004 [Ex. A to claims that Defendants exposed him to RJN] 20 liabilities in excess of $350,000 based upon the court order requiring Smith to 21 pay the attorneys’ fees and costs of those QuadRep defendants who prevailed on 22 summary judgment. 23 52. Smith reviewed, edited, and verified the 52. Michael Smith Depo. 136:25 — 138:1, original complaint and subsequent 152:9 — 153:4 [Wanger Decl. Ex. 1]; 24 amended complaints, each of which named the same parties. Verified Complaint dated July 18, 2000 25 [Ex. B to RJN]; 26 First Amended Verified Complaint dated August 30, 2000 [Ex. C to RJN]; 27 9/2/00 fax from Smith to Defendants 28 HANCOCKROTHERT& BUNSHOFT LLP 4 EMBARCADERO CENTER 8 , SANFRANCISCO, CA84111 6230.1) RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT [Wanger Decl. Ex. 9]; Second Amended Verified Complaint dated January 29, 2001 [Ex. D to RIN]; Ww Third Amended Verified Complaint dated April 13, 2001 [Ex. E to RJN] & 53. In the course of the underlying litigation, — Order dated April 11, 2002 [Ex. F to RIN]; — each of the QuadRep defendants filed a Order dated August 27, 2002 [Ex. G to motion for summary judgment, and three RIN] DH of the six defendants’ motions were successful. NN 54. Smith’s employment claims were 54. Order dated April 11, 2002 [Ex. F to RJN]; Se dismissed as to the two corporate Order dated August 27, 2002 [Ex. G to defendants, QR, Inc. and QuadRep, Inc., RJN] oO and the breach of fiduciary duty claim was 10 dismissed as to Lyle Kelsey. i 55. The court denied summary judgment as to Order dated April 11, 2002 [Ex. F to RJN]; the other individual defendants, William Order dated August 27, 2002 [Ex. G to 12 Mackin, Patrick Morton and Thomas RJN] McCarthy, ruling that triable issues of fact 13 existed regarding whether these shareholders breached a fiduciary duty to 14 Smith by voting to amend the shareholder’s agreement. 15 56. Smith filed two separate appeals, one Michael Smith Depo. 39:3-7 [Wanger 16 challenging the court’s dismissal of Lyle Decl. Ex. 1] Kelsey, and later another challenging the 17 dismissal of Smith’s employment case Unpublished Court of Appeal decision against QR, Inc. and QuadRep, Inc. dated May 9, 2003 [Ex. H to RJN] 18 37. In an unpublished six-page decision, the Unpublished Court of Appeal decision 19 Court of Appeal affirmed the lower court’s dated May 9, 2003 [Ex. H to RJN] ruling with respect to Kelsey. The second 20 appeal was pending at the time Smith Settlement Statement [Wanger Decl. Ex. settled the underlying case. 18] 21 58. According to Smith, following its 58. Complaint dated June 30, 2004 [Ex. A to 22 summary-judgment rulings, the court RJN] entered ajudgment requiring Smith to pay 23 the attorneys’ fees and costs of the three prevailing defendants, which allegedly 24 totaled over $350,000. 25 39. The record establishes that the court 59. Judgment by Court Order dated April 20, ordered that the prevailing defendants 2002 [Ex. J to RJN] 26 were entitled to their costs. 27 60. The parties then engaged in motion McLean Depo. 92:2-5 [Wanger Decl. Ex. practice regarding the alleged entitlement 3] 28 to attorney’s fees by the defendants as an SANFRANCISCO, CA 04111 [SEROC:2237-007-806230.1) 9 RG 04163436 (415) 981-5550 SEPARATE STATEMENT IN SUPPORT OF DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT item of costs. Smith disputed the amount allegedly owed to the three dismissed defendants. 61. The court stayed any ruling on this issue 61. McLean Depo. 91:5 — 92:25, 30:5-18 pending trial of the case as itheld that if [Wanger Decl. Ex. 3] Smith prevailed on his fiduciary duty claims, he could seek fees from the defendants. The entire amount claimed by the defendants could have been offset by the amounts incurred by Smith’s attorney’s in the prosecution of the NN fiduciary duty claims. 62. Before those attorney’s fees claims could 62. McLean Depo. 73:11 — 74:13, 87:23 — feo be adjudicated (and after the court found 88:5, 88:11 — 89:5 [Wanger Decl. Ex. 3]; that Smith had made a prima facie o showing that the remaining defendants had Settlement Statement [Wanger Decl. Ex. 10 breached their fiduciary duties to Smith), 18] Smith settled the case, and the defendants 11 waived any potential rights to recover their fees. 12 63. As part of the settlement, the parties 63. Settlement Statement [Wanger Decl. Ex. 13 agreed to bear their own attorneys’ fees 18] and costs. 14 15 64. As an additional condition to the 64. Settlement Statement [Wanger Decl. Ex. settlement, Smith agreed to dismiss his 18] 16 pending appeal. 17 65. The prevailing QuadRep defendants at one 65. 1/31/03 letter from Defendants to John point attempt