Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-02099/USCOURTS-azd-2_02-cv-02099-7/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 28:1441 Petition for Removal- Property Damage

---

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

27

28

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Diane Mann, as Trustee for )

the Estate of LeapSource, )

Inc., et al. )

)

Plaintiffs, ) No. CIV 02-2099-PHX RCB

)

vs. ) O R D E R

)

GTCR Golder Rauner, L.L.C., )

a Delaware limited liability )

company, et al., )

)

Defendants. ) )

On June 11, 2004, Plaintiffs filed their Fourth Amended

Complaint ("FAC") (doc. 121), in which the Trustee and individual

Plaintiffs assert claims against Defendant Kirkland & Ellis ("K&E")

for tortious interference with contract, tortious interference with

prospective economic advantage, breach of fiduciary duties, aiding

and abetting breach of fiduciary duty, and professional

malpractice. FAC (doc. 121) ¶¶ 320-23, 332-37, 384-88, 403-09,

414-22, 450-53, 467-73, 481-86. Many of Plaintiffs' claims against

K&E are based at least in part on a theory of vicarious liability 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 1 of 40
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

27

28

- 2 -

for the actions of Defendant David Eaton, who at the time of the

events in question maintained an "of counsel" relationship with

K&E. See id.; Defs.' Statement of Facts for Vicarious Liability

("DSOFVL") (doc. 251) ¶ 6.

Currently pending before the Court are K&E's motions for

summary judgment regarding vicarious liability (doc. 250), aiding

and abetting and tortious interference claims (doc. 255), and

professional malpractice and negligence (doc. 328), as well as AEG

Partners, LLC ("AEG") and David Eaton's motion for summary judgment

(doc. 247). All of these motions were argued orally on July 31,

2006. (doc. 415). Having carefully considered the arguments

presented by the parties, the Court now rules. 

I. Background Facts

A. Creation of LeapSource

This action was originally filed in the Superior Court of

Arizona in Maricopa County, alleging numerous state law based

claims arising out of the financial demise of LeapSource, Inc.

(“LeapSource”). LeapSource was a Phoenix-based “business process

outsourcing” ("BPO") company, formed to provide accounting and

employee benefit services to mid-sized businesses. The defendants

in this action include a number of individuals and companies who

were involved in various transactions related to the start-up and

operation of LeapSource. GTCR Golder Rauner, LLC, is a Chicagobased venture capital firm. Beginning in September 1999, three

partnerships (GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P.,

GTCR Associates VI) in which GTCR was a general partner made a

series of investments by purchasing stock in LeapSource.

Individual Plaintiff Christine Kirk was recruited by GTCR from

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 2 of 40
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

27

28

- 3 -

her prior position as a partner with Arthur Andersen. She then

recruited fellow Andersen employees to work for LeapSource,

including fellow partners, some of whom were also given the

opportunity to acquire shares of LeapSource. Between August 30,

1999 and September 14, 1999, Kirk negotiated with GTCR over the

terms of the parties' Statement of Understanding. After exchanging

numerous drafts and making a number of changes, the parties

executed the final version, dated September 14, 1999. Thereafter,

on September 16, 1999, LeapSource was incorporated--then named

“Kirkco, Inc.” At this time, LeapSource had no employees, and its

only shareholder other than the above-mentioned GTCR entities was

Christine Kirk, LeapSource’s start-up CEO. The parties, plus the

other individual Plaintiffs in this action, worked to gradually

grow the LeapSource business; however, the company eventually

failed and filed for chapter 7 bankruptcy liquidation. 

As an introductory matter, the FAC alleges Plaintiffs’ claims

against Defendants. These claims are made by different plaintiffs

and groups of plaintiffs against various groups of defendants. For

purposes of this order only, plaintiff-subgroups are referred to as

the "Trustee” (the bankruptcy trustee), and the "Plaintiffs" or

“individual Plaintiffs” referring to Christine Kirk (“Kirk”),

Kimberly Hartmann, Julie B. McCollum, Kelly Powers, Indu Gupta,

Bobby D. Scott, and Patrice E. Walker, and Thomas Gilman. 

Defendant-subgroups are referred to as "GTCR" to indicate GTCR

Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP,

GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih,

David A. Donnini and Philip A. Canfield, and "K&E" to refer to

Kirkland and Ellis.

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 3 of 40
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

27

28

- 4 -

B. K&E

K&E is a law firm organized as a limited liability partnership

with its principal office located in Illinois. K&E has represented

GTCR in private equity transactions and investments for well over

two decades. During the time when GTCR began negotiating with Kirk

over the possibility of forming a BPO company, K&E provided legal

advice and assistance to GTCR. In August and September 1999, Kirk

understood that GTCR was a long-standing client of K&E. 

In April 1999 or earlier, Kirk spoke with Jeff Gilbert, a

partner at the Sachnoff & Weaver law firm. The parties dispute

whether Sachnoff & Weaver represented Kirk at that time, however,

they agree that by late August and early September, Gilbert's

partner, Jeff Schumacher, was advising her in connection with the

negotiations with GTCR.

In connection with GTCR's investment in LeapSource, K&E

prepared documents related to the formation of the company. Kirk's

lawyer provided comments to K&E about the draft agreements,

including the Purchase Agreement. K&E prepared revised drafts of

these documents based on the comments received from Schumacher. In

the course of these negotiations, Schumacher explained the

agreements to Kirk and answered all of her questions. It is

undisputed that Kirk's lawyers at Sachnoff & Weaver understood that

K&E represented GTCR only, however Kirk claims that she understood

that K&E represented GTCR and LeapSource, concurrently.

During negotiations, Kirk's lawyers raised objections to the

language drafted in the documents because they wanted a firmer

commitment from GTCR. Specifically, Schumacher contested the use

of the words "up to" that described the funding commitment of GTCR

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 4 of 40
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

27

28

- 5 -

in the Purchase Agreement, and was involved in negotiations with

GTCR on whether that language should be deleted or replaced with

other language that would remove the conditional aspect associated

with the words. Kirk's lawyers fully explained the Purchase

Agreement to her before she signed it. 

Kirk does not recall meeting any of the K&E attorneys who were

representing GTCR on the LeapSource transaction. However, during

the negotiations, Kirk spoke with Richard Clyne, a K&E associate,

who told her that he would be faxing her materials to sign and

return, requested that she provide information for registration

forms for the company, advised Kirk that K&E would be forming

LeapSource, and that K&E would complete the tax filings required

for the corporation. Kirk spoke with Steve Ritchie, a K&E partner,

sometime in September 1999, but does not recall any conversations

with him thereafter.

A legal assistant or paralegal at K&E prepared and filed the

necessary paperwork to form Kirkco as a Delaware corporation on

September 16, 1999. However, there is no retainer letter between

K&E and LeapSource. Kirk was responsible for retaining counsel for

the company, however, she cannot identify any conversation or

writing in which she officially retained K&E to serve as

LeapSource's counsel during the period between September 16 and 27,

1999. 

In the fall of 1999, LeapSource retained the law firm Osborn

Maledon as its principal outside counsel for transactional and

corporate work. In addition to Osborn Maledon, LeapSource hired

other law firms to perform legal work, such as the Weinberg Legal

Group, for intellectual property matters. 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 5 of 40
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

27

28

- 6 -

Under Section 7(A) of the Purchase Agreement, Kirkco (later

LeapSource) was obligated to pay, among other things, the

reasonable fees and expenses incurred by GTCR in connection with

the negotiation and execution of the Purchase Agreement and the

consummation of the transactions contemplated by the Agreement. 

See Exbt. 24 (doc. 329) § 7(A). K&E asserts that, for this reason,

it sent certain bills jointly to LeapSource and to GTCR. 

Additionally, K&E associate Clyne communicated with LeapSource

in regard to his preparation of supplements to the Purchase

Agreement, and printed out related board consents and stock

certificates. Clyne confirmed with LeapSource's counsel at Osborn

Maledon that K&E would continue to perform this work after Osborn

Malendon was hired. Clyne also communicated with Kirk in early

October 1999 about a draft offer letter and employment agreement

checklist for LeapSource. K&E performed additional work for

LeapSource relating to the company's Harris Bank line of credit,

potential WARN Act violations, and the termination of LeapSource

officers and employees. Based on these and other acts, Plaintiffs

assert that K&E held an attorney-client relationship with

LeapSource.

C. David Eaton and AEG Partners, LLC

David Eaton is a businessman and attorney residing in

Illinois. DSOFVL (doc. 251) ¶ 1; Def.'s Supplemental Statement of

Facts for Vicarious Liability ("DSSOFVL") (doc. 369) ¶ 8. AEG is

an Illinois limited liability company formed in January of 2000 by

Eaton and two other businessmen to provide "financial advisory and

crisis management for financially distressed companies." See id.

¶¶ 14, 16; DSSOFVL (doc. 369) ¶ 7.

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 6 of 40
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

27

28

1 At oral argument, Plaintiffs raised the question as to whether

Kirk actually abstained from this vote. However, the board meeting

minutes, included as Exhibit 21 in Plaintiffs' response in opposition

to K&E's motion for summary judgement on the aiding and abetting

claims (doc. 292), reflect that Kirk voted in favor of retaining AEG.

- 7 -

In or about February 2001, K&E partner Kevin Evanich referred

Eaton, and Eaton's company, AEG, to GTCR. DSOFVL (doc. 251) ¶ 17;

Exbt. 1 (doc. 285) ¶ 17. At that time, Eaton held an "of counsel"

relationship with K&E pursuant to an agreement dated June 11, 1999. 

DSOFVL (doc. 251) ¶ 6; Exbt. 1 (doc. 285) ¶ 6. Both parties agree

that K&E suggested Eaton to GTCR as a "crisis manager" for

LeapSource. Resp. (doc. 292) at 2; Reply (doc. 303) at 3. Evanich

stated in his deposition that he referred Eaton to GTCR because

Eaton "was an expert in the financial restructuring advisory

business." Exbt. 4 (doc. 251) at 21:21-22:4. Thereafter, Eaton

met with GTCR at GTCR's offices in Chicago regarding LeapSource. 

DSOFVL (doc. 251) ¶ 21; Exbt. 1 (doc. 285) ¶ 21. On February 27,

2001, the LeapSource board of directors voted to retain AEG to

offer financial advisory services to LeapSource. Exbt. 21 (doc.

292) at 2. According to the LeapSource board minutes, the

directors voting in favor of retaining AEG were Bruce Rauner, Dan

Yih and Joe Nolan, all GTCR principals, and plaintiff Kirk.1 Id.

LeapSource and AEG formalized their relationship in an agreement

dated March 2, 2001 (the "Letter Agreement"). Id. ¶ 35. In that

agreement, LeapSource and AEG agreed that their relationship would

be governed by Illinois law. DSSOFVL (doc. 369) ¶ 1. Thereafter,

Eaton worked on the LeapSource transactions in both Illinois and

Arizona. Id. ¶ 2.

Plaintiffs assert that Eaton, being "of counsel" with K&E, was

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 7 of 40
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

27

28

- 8 -

obligated to avoid taking any position or action that was adverse

to K&E's client, GTCR, and, thus, caused the eventual demise of

LeapSource by dissipating LeapSource's assets "in order to

accomplish GTCR's objectives of shutting down LeapSource[.]" Resp.

(doc. 292) at 13-16. Additionally, Plaintiffs contend that Eaton

"served GTCR's interests with respect to LeapSource, which included

(a) limiting GTCR's downside, (b) avoiding embarrassment, and (c)

protecting its interest in other investments, including COMSYS,

another company funded by GTCR and a customer of LeapSource." Id.

at 15.

D. Pending Motions for Summary Judgment

Plaintiffs' complaint alleges various causes of action,

including claims against K&E based on theories of both direct and

vicarious liability, as well as against Eaton and AEG. On 

December 2, 2002, K&E filed a Rule 12(b)(6) motion to dismiss

arguing, inter alia, that it cannot be vicariously liable for

Eaton's conduct, as Eaton did not act in his "of counsel" role with

K&E during the provision of AEG's services to LeapSource. Mot.

(doc. 10) at 15. While observing that the relevant cases favored

K&E's position, the Court determined that dismissal prior to an

adequate opportunity for fact discovery would be premature, and

denied the motion on September 30, 2003. See Order (doc. 69) at

12-17. Discovery was conducted and, on September 8, 2005, K&E

filed its Motion for Summary Judgment Regarding Vicarious

Liability. Mot. Vicarious Liability (doc. 250). In addition,

Eaton and AEG filed their own motion for summary judgment. Mot.

Eaton (doc. 247).

Between December 26, 2005 and January 6, 2006, the Trustee and

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 8 of 40
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

27

28

2

 The paragraph of the Settlement Agreement entitled "Release

of AEG" provides in pertinent part as follows:

[T]he Trustee . . . and Plaintiffs, hereby

release, acquit, and forever discharge AEG, . .

. and each and every one of their past and

present . . . shareholders, members, officers,

directors, partners, principals, agents, . . .

and attorneys from any and all claims, causes of

action, . . . that the Trustee's bankruptcy

estate and Plaintiffs may have had or claimed to

have had in the past . . . against AEG . . . ;

provided, however, that the Trustee and

Plaintiffs do not release and expressly reserve

any Claims that she (in her capacity as Trustee)

and Plaintiffs might have or claim to have

against any person or entity other than AEG,

including, without limitation, the various

persons and entities named as defendants or

adverse parties in the Litigation or in any

adversary proceeding in which the Trustee is or

has been the plaintiff or other party asserting

a Claim, that currently is pending in the U.S.

District Court or the Bankruptcy Court, and that

arises from or relates to the Litigation or the

Debtor, including without limitation, the Other

- 9 -

Plaintiffs entered into an agreement with Eaton and AEG for the

settlement and release of all their claims (the "Settlement

Agreement"). See Exbt. 1 (doc. 404). A choice of law provision in

that agreement indicated the parties' intent that the agreement

"shall be governed, construed and enforced according to the laws of

the State of Arizona without regard to conflicts of laws

principles." Exbt. 3 (doc. 369) ¶ 14. Of particular relevance to

K&E's motion for summary judgment regarding vicarious liability

(doc. 250, 368), the parties also included language in the

Settlement Agreement by which the Trustee and Plaintiffs purported

to reserve their claims against K&E based on the firm's vicarious

liability for Eaton's conduct, notwithstanding their release of

Eaton.2

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 9 of 40
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

27

28

Defendants, regardless of whether AEG on the one

hand, and any one or more of the Other

Defendants, on the other hand, are or may be

alleged to be principals, agents, or joint

tortfeasors as to one or more of the Trustee's

reserved alleged Claims.

Exbt. 1 (doc. 404) (emphasis added).

- 10 -

After the settlement, the following events unfolded in the

LeapSource bankruptcy proceedings. On January 13, 2006, the

Trustee and Plaintiffs filed a motion in the bankruptcy court

requesting the bankruptcy judge to enter an order authorizing and

approving their settlement with Eaton and AEG. In re LeapSource,

Inc., No. B 01-09020 PHX JMM (Bankr. D. Ariz. 2001) (doc. 159). On

February 2, 2006, K&E filed a Notice of Reservation of Rights,

agreeing to the terms of the proposed settlement in the bankruptcy

proceedings, but "specifically reserv[ing] all of its rights,

claims, defenses, and/or other interests regarding the

interpretation of th[e] settlement agreement by the District

Court." Id. (doc. 162). On April 6, 2006, the bankruptcy court

entered an order authorizing and approving the settlement on the

terms of the Trustee's motion. Id. (doc. 172).

On October 7, 2005, during the briefing of K&E's motion for

summary judgment regarding vicarious liability (doc. 250),

Plaintiffs filed notice of their settlement with Eaton and AEG. 

Notice (doc. 259). Thereafter, on April 17, 2006, K&E filed a

supplement to its motion for summary judgment (doc. 250), arguing

that Plaintiffs' release of Eaton also operated as a release of K&E

from any vicarious liability for Eaton's conduct. Supplement (doc.

368).

Additionally, on October 3, 2005, K&E filed a motion for

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 10 of 40
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

27

28

3 The Court notes that the order language of its March 28, 2006

Order mistakenly states that K&E's motion for summary judgment on

"Counts 12 and 13" was granted, however, within the body of the order

it is clear that the subject motion and the Court's decision were in

relation to Counts 12 and 14. Order (doc. 356) at 2, 40-41. 

- 11 -

summary judgment on the aiding and abetting and tortious

interference claims (Counts 1, 12, 14, 18, 21, and 23). Mot. Aid.

& Abett. (doc. 255). This motion was fully briefed on December

12, 2005. Reply (doc. 303). Thereafter, on March 28, 2006, the

Court granted summary judgment in favor of K&E on Counts 12 and 14. 

Order (doc. 356).3 Thus, the Court shall only consider K&E's

motion for summary judgment on the aiding and abetting and tortious

interference claims in regard to Counts 1, 18, 21 and 23. 

On February 27, 2006, K&E also filed a motion for summary

judgment on the malpractice and professional negligence claim

(Count 10). Mot. Malprac. (doc. 328). This motion was fully

briefed on May 22, 2006. Reply (doc. 406).

II. Standard of Review

To grant summary judgment, the Court must determine that the

record before it contains "no genuine issue as to any material

fact" and, thus, "that the moving party is entitled to judgment as

a matter of law." Fed. R. Civ. P. 56(c). In determining whether

to grant summary judgment, the Court will view the facts and

inferences from these facts in the light most favorable to the

nonmoving party. See Matsushita Elec. Co. v. Zenith Radio Corp.,

475 U.S. 574, 587 (1986).

Summary judgment is appropriate "against a party who fails to

make a showing sufficient to establish the existence of an element

essential to that party's case, and on which that party will bear

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 11 of 40
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

27

28

- 12 -

the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S.

317, 322 (1986). "In such a situation, there can be 'no genuine

issue as to any material fact,' since a complete failure of proof

concerning an essential element of the nonmoving party's case

necessarily renders all other facts immaterial." Id. at 323. In

such a case, the moving party is entitled to a judgment as a matter

of law. Id.

The mere existence of some alleged factual dispute between the

parties will not defeat an otherwise properly supported motion for

summary judgment; the requirement is that there be no genuine issue

of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 247-48 (1986). A material fact is any factual dispute that

might affect the outcome of the case under the governing

substantive law. Id. at 248. A factual dispute is genuine if the

evidence is such that a reasonable jury could resolve the dispute

in favor of the nonmoving party. Id. 

A party opposing a motion for summary judgment cannot rest

upon mere allegations or denials in the pleadings or papers, but

instead must set forth specific facts demonstrating a genuine issue

for trial. See id. at 250. Finally, if the nonmoving party's

evidence is merely colorable or is not significantly probative, a

court may grant summary judgment. See, e.g., California

Architectural Build. Prods., Inc. v. Franciscan Ceramics, 818 F.2d

1466, 1468 (9th Cir. 1987).

III. Discussion

K&E has filed motions for summary judgment regarding vicarious

liability (doc. 250), aiding and abetting and tortious interference

claims (doc. 255), and professional malpractice and negligence

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 12 of 40
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

27

28

- 13 -

(doc. 328). AEG and Eaton have also filed a motion for summary

judgment (doc. 247). The Court addresses each motion in turn.

A. K&E's Motion for Summary Judgment Regarding Vicarious 

 Liability

K&E argues that, under Illinois law, Plaintiffs' release of

Eaton also released K&E from any vicarious liability for Eaton's

conduct. Supplement (doc. 368) at 4-6. Plaintiffs do not dispute

the result under Illinois law, but maintain that Arizona law should

apply instead due to a choice of law provision in the Settlement

Agreement. See Resp. (doc. 404). They contend that Arizona law

allows a plaintiff to release an agent while expressly reserving

its claims against the agent's principal. See id. For the reasons

explained more fully below, the Court finds that (1) Illinois law

controls and (2), contrary to Plaintiffs assertions, the result

under Arizona law would be the same as under Illinois law.

1. Choice of Law

Two threshold issues before the Court are whether the choice

of law provision in Plaintiffs' Settlement Agreement requires the

Court to apply Arizona law, and, if not, whether Arizona law should

apply under the principles of conflicts of law. The Court answers

both questions in the negative.

A federal court sitting in diversity must apply the forum

state's choice of law rules. Klaxon Co. v. Stentor Elec. Mfg. Co.,

313 U.S. 487 (1941); Orr v. Bank of Am., 285 F.3d 764, 772 n.4 (9th

Cir. 2002). Arizona courts apply the principles of conflict of

laws as expressed in the Restatement, even in the face of

contractual choice of law provisions, as the one employed here,

which purport to preclude the courts from engaging such analysis. 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 13 of 40
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

27

28

4

 Plaintiffs state that Eaton executed the Settlement Agreement

"in his capacity as an individual defendant," yet claim that he did

so somehow "knowing" that he would bind his employer, K&E. Resp.

(doc. 404) at 5. The Court accepts Plaintiff's assertion that Eaton

signed in his individual capacity, and not as a member of the firm.

See 805 Ill. Comp. St. 205/18(b) (2005). Acting in his individual

capacity, Eaton could not bind K&E, regardless of his personal

opinion on his ability to do so. See id.

- 14 -

Jackson v. Chandler, 61 P.3d 17 (Ariz. 2003); Swanson v. Image

Bank, Inc., 77 P.3d 439, 441 n.2 (Ariz. 2003) (rejecting parties'

attempt to preclude court from applying conflict of laws principles

as "unsound and contrary to the intent of [the Restatement]").

K&E argues that Illinois law should determine whether

Plaintiffs' release of Eaton also released K&E from vicarious

liability for Eaton's conduct. Supplement (doc. 368) at 4-6. 

Plaintiffs, apparently believing that Arizona law dictates a more

favorable result, maintain that Arizona law should govern based on

a choice of law provision in the Settlement Agreement. That

provision states that the agreement "shall be governed, construed

and enforced according to the laws of the State of Arizona without

regard to conflicts of laws principles." Exbt. 3 (doc. 369) ¶ 14

(emphasis added). That provision is unenforceable here for two

reasons. First, it is not binding on K&E, because K&E was not a

party to the Settlement Agreement. Plaintiffs cannot by their

agreement with Eaton and AEG bind a nonsignatory like K&E.4 See In

re Kokomo Times Publ'g & Printing Corp., 301 F. Supp. 529, 536

(Bankr. S.D. Ind. 1968) (finding choice of law provision

unenforceable against creditors and purchasers who were not parties

to the agreement). Second, it is not binding on the Court,

because, under Arizona's choice of law rules, language purporting

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 14 of 40
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

27

28

- 15 -

to preclude the courts from applying the principles of conflicts of

laws is nugatory and void. See Swanson, 77 P.3d at 441 n.2; cf.

Magellan Real Estate Inv. Trust v. Losch, 109 F. Supp. 2d 1144,

1155 (D. Ariz. 2000) (finding choice of law provision inapplicable

to tort claims asserted by one contracting party against another). 

Therefore, the choice of law bearing upon the question of the

release's effect upon K&E's vicarious liability as a joint

tortfeasor will be determined with regard to conflicts of laws

principles.

Under the Restatement, "[t]he rights and liabilities of the

parties with respect to an issue in tort are determined by the

local law of the state which, with respect to that issue, has the

most significant relationship to the occurrence and the parties

under the principles stated in § 6." RESTATEMENT (SECOND) OF CONFLICT OF

LAWS § 145(1) (1971). The principles stated in § 6 include the

following:

(a) the needs of the interstate and

international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other

interested states and the relative

interests of those states in the

determination of the particular issue,

(d) the protection of justified

expectations,

(e) the basic policies underlying the

particular field of law,

(f) certainty, predictability and

uniformity of result, and

(g) ease in the determination and

application of the law to be applied.

Id. § 6(2). In applying these principles, courts must also

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 15 of 40
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

27

28

- 16 -

consider "(a) the place where the injury occurred, (b) the place

where the conduct causing the injury occurred, (c) the domicil,

residence, nationality, place of incorporation and place of

business of the parties, and (d) the place where the relationship,

if any, between the parties is centered." Id. § 145(2). "These

contacts are to be evaluated according to their relative importance

with respect to the particular issue." Id. With regard to issues

of release and vicarious liability, the situs of conduct and injury

alone are not determinative. Id. § 170, cmt. c.

In this case, the conduct allegedly causing Plaintiffs'

injuries occurred in both Illinois and Arizona, as Eaton worked on

the LeapSource transaction out of offices in both states. See

DSSOFVL (doc. 369) ¶ 2. Thus, this factor neither favors nor

disfavors application of either state's law.

Although Plaintiffs' injuries allegedly occurred in Arizona,

this factor alone is not decisive. See RESTATEMENT (SECOND) OF CONFLICT

OF LAWS § 170, cmt. c (1971).

While Plaintiffs are Arizona residents, Eaton, AEG, and K&E

are all domiciliaries of, or are organized in, Illinois. See

DSSOFVL (doc. 369) ¶¶ 7-10. Because the issue here concerns the

rights and liabilities of joint tortfeasors–specifically, whether

one may unilaterally obtain a release from a plaintiff who purports

to reserve claims against the other--the Court finds that the

relative importance of Defendants' contacts with Illinois far

outweighs the significance of Plaintiffs' contacts with Arizona. 

Therefore, this factor favors Illinois law.

As to the place where the parties' relationships are centered,

K&E points out that in their original Letter Agreement LeapSource

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 16 of 40
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

27

28

- 17 -

and AEG agreed that their relationship would be governed by

Illinois law. DSSOFVL (doc. 369) ¶ 1. Plaintiffs respond that

their decision in the more recent Settlement Agreement to have

their relationship governed by Arizona law should take precedence. 

Resp. (doc. 404) at 2. The Court disagrees. When an injury is

caused by an act done in the course of a relationship between the

parties, the focus of the Restatement is on the place of that

relationship at the time of the act. See RESTATEMENT (SECOND) OF

CONFLICT OF LAWS § 145, cmt. e (1971). The fact that a party may

later find it expedient to recharacterize the place of that

relationship does not alter the analysis. In this case,

LeapSource's relationship with Eaton and AEG was centered in

Illinois at the time of the alleged tortious conduct. Therefore,

on balance, the relevant contacts favor Illinois law. With that in

mind, the Court will apply the principles of conflicts of laws set

forth in section 6(2). See id. § 145(2).

Given the prevalence of the Illinois contacts, the Court finds

that the "further[ance] of harmonious relations between states" and

the "facilitat[ion] [of] commercial intercourse between them"

counsels for the application of Illinois law. See id. § 6, cmt. d

(regarding needs of the interstate system). It may have been a

countervailing, although not determinative, consideration if the

relevant policies of Arizona, as the forum state, differed

significantly from Illinois law on the issues of release and

vicarious liability of joint tort. See id. § 6(2)(b) (relevant

policies of the forum). However, as explained later in this

opinion, Arizona law is actually consistent with Illinois law on

the questions at issue here, contrary to Plaintiffs' assertions

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 17 of 40
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

27

28

- 18 -

otherwise. Since there are no other interested states, the Court

concludes that the policies of the forum and interested states

favor the application of Illinois law. See Id. § 6(a), (b), and

(c). 

Ultimately, Plaintiffs have not offered any arguments directed

toward the principles of conflicts of laws, presumably due to their

confidence in the Settlement Agreement's choice of law provision. 

However, the mere fact that Plaintiffs, Eaton, and AEG have

expressed a preference for Arizona law does not bestow upon them

any "justified expectations" or interest in "uniformity of result"

with regard to the rights and liabilities of K&E, a non-party to

their agreement, in issues of tort. See RESTATEMENT (SECOND) OF

CONFLICT OF LAWS § 6, cmt. g; Id. § 145, cmt. b.

For all of the foregoing reasons, the Court finds that

Illinois is the state with the most significant relationship to the

occurrence and the parties with respect to the issues of release

and vicarious liability. Accordingly, the Court will apply

Illinois law in determining whether Plaintiffs may reserve their

claims against K&E based on its vicarious liability for Eaton's

conduct, notwithstanding their release of Eaton.

2. The Result Under Arizona Law Is the Same as Under 

Illinois Law

Under Illinois law, a settlement with the agent extinguishes

the principal's liability. Gilbert v. Sycamore Mun. Hosp., 156

Ill. 2d 511, 622 N.E.2d 788, 796-97 (1993); accord Doe v. City of

Chicago, 360 F.3d 667, 673 (7th Cir. 2004) (Posner, J.). The rule

is grounded in the unassailable logic that the agent would gain

nothing from a settlement that would allow the plaintiff to proceed

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 18 of 40
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

27

28

5

 Plaintiffs also claim that K&E did not object to the proposed

language of the Settlement Agreement when it had the opportunity to

do so in the bankruptcy court, and characterize K&E's motion for

summary judgment (doc. 250, 368) in this Court as an impermissible

collateral attack on the bankruptcy judge's order. Resp. (doc. 404)

at 5-8. Both positions are untenable. Although K&E did not object

to the Settlement Agreement's effect in the bankruptcy case, it did

voice its objections to the extent its rights would be affected in

this case, and correctly expressed its view that this Court, and not

the bankruptcy court, would exercise jurisdiction over those matters

and issues. See Exbt. 2 (doc. 404) ¶¶ 2-4. While the bankruptcy

judge's order properly reaches those claims over which the bankruptcy

court is vested with jurisdiction, it does not affect any of the

claims before this Court. See Exbt. 3 (doc. 404). Moreover, the

Court has not been asked to disturb the bankruptcy court's decision

with regard to the claims in the bankruptcy case, but only to

determine the effect of the Settlement Agreement on the claims in

this case. As such, Plaintiffs reliance on the collateral attack

doctrine is misplaced.

- 19 -

against the principal, as the principal would simply "turn around

and seek indemnity from the agent." City of Chicago, 360 F.3d at

673. Thus, K&E argues that Plaintiffs' settlement with, and

release of, Eaton also released K&E from any vicarious liability

for Eaton's conduct. Supplement (doc. 368) at 4-6. Rather than

challenge this result under Illinois law, Plaintiffs devote much of

their brief to arguments urging the application of Arizona law.5

See Resp. (doc. 404). As discussed above, those entreaties proved

unconvincing. There being no disputed issues of fact, the Court

finds that K&E is entitled to summary judgment on the issue of

vicarious liability, because Plaintiffs' release of Eaton also

operated to release K&E as a matter of law.

The Court hastens to note that the result would not be any

different under Arizona law. Plaintiffs seem to believe that in

Arizona an injured party may release an agent from liability while

reserving claims against the principal based on its vicarious

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 19 of 40
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

27

28

- 20 -

liability for the agent's conduct. In support of their position,

Plaintiffs claim that "[t]here is no case in Arizona that holds the

release of an agent, which expressly reserves rights against the

principal, relieves the principal of responsibility for the same

act(s)." Resp. (doc. 404). There are, of course, certain legal

doctrines that are so widely accepted, and thus so scarcely

litigated, that an extensive body of case law rarely develops. In

this instance, however, Arizona does have a case directly on point,

and it is cited in Plaintiffs' response.

The Supreme Court of Arizona has declared that "[i]t is, of

course, an elementary rule of law that the liability of joint

tortfeasors is joint and several and that the release of one

releases all." Faberberg v. Phoenix Flour Mills Co., 71 P.2d 1022,

1025 (Ariz. 1937). In Faberberg, the injured party entered into a

written agreement with one joint tortfeasor covenanting not to sue

that party, while attempting to reserve the right to sue the other

joint tortfeasor. Id. at 1025. After reiterating the "elementary

rule" that the "release of one releases all," the court was very

deliberate in explaining that a reservation of rights is only valid

in a covenant not to sue, and not in a release.

As we have said, from early times a release of

one joint tort-feasor released all the others.

. . . . Finally some ingenious counsel

advanced the theory that, while the injured

party could not release one of the tortfeasors

from liability without releasing the others, he

might for a sufficient consideration enter into

an agreement with one not to sue him for the

tort, and that such an agreement would not bar

his right of action against the others. This

ingenious method of "whipping the devil around

a stump" was seized upon by the courts as a

happy solution of the problem, and it was

quickly and practically unanimously held that,

if as a matter of law, an agreement with one of

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 20 of 40
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

27

28

- 21 -

several joint tortfeasors was only one not to

sue and not a legal release of the liability

for the tort, the other wrongdoers might be

sued by the injured party . . . . There have

been many cases before the courts involving

this question, and they all agree as to the

general rule of law stated above, the vital

question in each particular case being whether

or not the agreement involved therein was a

covenant not to sue or a release and

settlement. We must therefore consider the

document in question and determine which it

was. The phraseology shows clearly that it was

most carefully worded by someone who knew the

different legal effects of a release and

settlement and of a covenant not to sue, and

that it was the latter which was intended by

the parties. Nowhere therein is there any use

of the words "release" or "settlement" or

others of similar import . . . .

See id. at 1026. In other words, the rule is the same in Arizona

as it is in Illinois-- a plaintiff cannot release the agent without

simultaneously releasing the principal. See id. The cases upon

which Plaintiffs rely, distinguishing a covenant not to sue from a

settlement and release, reflect Arizona's exception to that rule. 

See id. (covenant not to sue); Blocher v. Thompson, 818 P.2d 167,

170 (Ariz. 1991) (same); see also Rager v. Superior Coach Sales &

Serv., 516 P.2d 324, 327 (Ariz. 1973) ("A covenant not to execute

is certainly not a satisfaction, nor is it the same as a release. 

Its legal effect is similar to a covenant not to sue, in that it

does not extinguish the plaintiff's cause of action and does not

operate to release other joint tortfeasors.") (citations omitted). 

Thus, the decisive inquiry is whether the document in question "was

a covenant not to sue or a release and settlement." Faberberg, 71

P.2d at 1026. If the latter, the general rule remains that a

release of one is a release of all. See id.

In the present case, Plaintiffs' agreement with Eaton and AEG

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 21 of 40
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

27

28

- 22 -

was a release and settlement, not a covenant not to sue. See Exbt.

1 (doc. 404). Therefore, even if Arizona law did apply, K&E would

still be entitled to summary judgment on the issue of vicarious

liability. In light of these conclusions, summary judgment on the

contested vicarious liability claims is appropriate as a matter of

law. The Court will grant K&E's motion for summary judgment

regarding vicarious liability (doc. # 250).

B. K&E's Motion for Summary Judgment Regarding Aiding and 

Abetting and Tortious Interference Claims

1. Aiding and Abetting

In the Fourth Amended Complaint, Plaintiffs claim that K&E

aided and abetted GTCR in committing breaches of its fiduciary duty

in its role as majority shareholder of LeapSource. FAC (doc. 121)

at 97 (Count 18). Under Arizona law, a claim for aiding and

abetting tortious conduct requires proof of three elements: (1) the

primary tortfeasor must commit a tort that causes injury to the

plaintiff; (2) the defendant must know that the primary

tortfeasor's conduct constitutes a breach of duty; and (3) the

defendant must substantially assist or encourage the primary

tortfeasor in the achievement of the breach. See Wells Fargo Bank

v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension

Trust Fund, 38 P.3d 12, 23 (Ariz. 2002). "Substantial assistance"

means more than "a little aid," and "requires a showing that the

defendant's assistance was a substantial factor in causing the

plaintiff's harm." In re Am. Cont'l Corp./Lincoln S. & L. Sec.

Litig., 794 F.Supp. 1424, 1434-35 (D. Ariz. 1992); see also Wells

Fargo, 38 P.2d at 26. 

In its motion for summary judgment, K&E asserts that

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 22 of 40
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

27

28

- 23 -

Plaintiffs have not met their burden on this claim, because they

have failed to show evidence that K&E rendered "substantial

assistance" to achieve a breach of fiduciary duty. Mot. Aid. &

Abett. (doc. 255) at 8. K&E notes that the only act that

Plaintiffs allege is the basis of this claim is K&E's communication

with GTCR. Id. This, however, it argues is not enough to

establish "substantial assistance." Id. (citing Witzman v.

Lehrman, Lehrman & Flom, 601 N.W.2d 179, 188-89 (Minn. 1999), and

Spinner v. Nutt, 631 N.E.2d 542, 556 (Mass. 1994)). "Plaintiffs

have not identified a single witness who could testify from

personal knowledge that K&E substantially assisted or encouraged

anyone to commit a tort, nor is there any document or other

evidence that would support such a finding." Id. at 9.

In response, Plaintiffs argue that they have satisfied the

element of "substantial assistance" in two ways. Resp. (doc. 292)

at 4-7. First, Plaintiffs assert that the evidence of K&E's act of

recommending David Eaton for his role at LeapSource, establishes

that K&E provided "substantial assistance" to the breaches of

fiduciary duty. Id. at 4. 

Here, the circumstances surrounding K&E's

recommendation that one of its own attorneys be

retained to act as "crisis manager" for a company

that it knew to be involved in a conflict with

another K&E client that paid the firm millions of

dollars in fees every year are so egregious that a

jury could reasonably conclude that Mr. Eaton was

recommended precisely because his relationship

with K&E would prevent him from taking any

position on behalf of LeapSource that would be

adverse to the interests of GTCR[.] 

Id. at 5-6. Second, the Plaintiffs argue that this element is

established through the acts of Eaton, who Plaintiffs assert was

"directly and actively involved in every one of the breaches of the

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 23 of 40
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

27

28

- 24 -

fiduciary duty complained of after he was retained as "crisis

manager" for LeapSource[.]" Id. at 7.

The Court finds that Plaintiffs have failed to establish that

K&E substantially assisted or encouraged GTCR in committing a

breach. At the outset, the Court notes that it has granted K&E's

motion for summary judgment on the vicarious liability claims

involving Eaton and AEG. Supra, section III(A). Thus, Eaton's

conduct is irrelevant to the issues discussed here, and the Court

shall only analyze Plaintiffs' claims as they relate to the conduct

of K&E. Consequently, the only viable act that Plaintiffs maintain

establishes the contested "substantial assistance" element is K&E's

recommendation of Eaton and AEG to GTCR. However, this act alone

does not constitute aiding and abetting the alleged breach of

fiduciary duty that GTCR owed in its role as majority shareholder

of LeapSource. Plaintiffs do not identify, nor can the Court find,

any evidence showing that K&E's recommendation to GTCR was a

"substantial factor" or equated to more than "a little aid" in any

alleged subsequent breach of fiduciary duty by GTCR. 

A party opposing a motion for summary judgment cannot rest

upon mere allegations or denials in the pleadings or papers, but

instead must set forth specific facts demonstrating a genuine issue

for trial. Anderson, 477 U.S. at 250. Summary judgment is

appropriate "against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial." Celotex Corp., 477 U.S. at 322. Here, Plaintiffs'

conclusory assumption that "Mr. Eaton was recommended precisely

because his relationship with K&E would prevent him from taking any

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 24 of 40
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

27

28

- 25 -

position on behalf of LeapSource that would be adverse to the

interests of GTCR" is not enough to survive summary judgment. See

Resp. (doc. 292) at 5-6. Due to Plaintiffs' lack of evidence

showing that K&E substantially assisted or encouraged GTCR to

commit the alleged breach of fiduciary duty, the Court finds that

they have failed to make a showing sufficient to establish the

existence of this element that is essential to their claim of

aiding and abetting. Summary judgement is appropriate as a matter

of law.

 2. Tortious Interference

Additionally, Plaintiffs claim that K&E tortiously interfered

in the performance of the Purchase Agreement between GTCR and

LeapSource (Count 1), the Senior Management Agreements and

Employment Agreements of the individual Plaintiffs (Count 21), and

the Stockholders Agreement and Purchase Agreement (Count 23). FAC

(doc. 121) at 74-75, 100-01, 103. In Safeway Insurance Co. v.

Guerrero, 106 P.3d 1020, 1025 (Ariz. 2005), the Arizona Supreme

Court set forth the elements of this tort, stating: 

The tort of intentional interference with contractual

relations requires a plaintiff to prove: (1) existence of

a valid contractual relationship, (2) knowledge of the

relationship on the part of the interferor, (3)

intentional interference inducing or causing a breach,

(4) resultant damage to the party whose relationship has

been disrupted, and (5) that the defendant acted

improperly. 

Id.; see also Wells Fargo, 38 P.3d at 31. Element (5) specifically

requires that the claimant prove that the defendant acted

improperly. On this issue, the Restatement (Second) of Torts

advises, 

...[i]n determining whether an actor's conduct in

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 25 of 40
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

27

28

- 26 -

intentionally interfering with a contract or a

prospective contractual relation of another is

improper or not, consideration is given to the

following factors:

(a) the nature of the actor's conduct,

(b) the actor's motive,

(c) the interests of the other with which the

actor's conduct interferes, 

(d) the interests sought to be advanced by the actor,

(e) the social interests in protecting the freedom

of action of the actor and the contractual

interests of the other,

(f) the proximity or remoteness of the actor's

conduct to the interference and

(g) the relations between the parties.

RESTATEMENT (SECOND) OF TORTS § 767 (1979); see also Wagenseller v.

Scottsdale Mem'l Hosp., 710 P.2d 1025, 1042-43 (Ariz. 1985),

superseded in part by A.R.S. § 23-1501. If the plaintiff is unable

to show the impropriety of the defendant's conduct based on an

examination of these factors, the conduct is not tortious.

Wagenseller, 710 P.2d at 1043.

In its motion for summary judgment, K&E argues that Plaintiffs

have shown no genuine issue of material fact relating to their

claims for tortious interference with contractual relations, and,

therefore, assert that they are entitled to judgment as a matter of

law. Mot. Aid. & Abett. (doc. 255) at 5-8. Specifically, K&E

asserts that Plaintiffs have produced no evidence that K&E acted

improperly to interfere with any of the written agreements, or that

K&E intentionally interfered at all. Id. K&E maintains that the

evidence in the record only establishes that it communicated with

its client, GTCR. Id. at 6. K&E argues that the mere act of

giving legal advice to a client cannot constitute tortious

interference. Id. (citing Safeway Ins. Co., 106 P.3d at 1025 n.7). 

In response, Plaintiffs have, for the most part, focused their

arguments on the acts of David Eaton. Resp. (doc. 292) at 7-16. 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 26 of 40
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

27

28

- 27 -

As the Court previously noted, it has granted K&E's motion for

summary judgment on the vicarious liability claims involving Eaton

and AEG. Supra, section III(A). Thus, Eaton's conduct is

irrelevant to the issues discussed here, and the Court shall

analyze Plaintiffs' claims of tortious interference with a contract

as they relate to the conduct of K&E alone. Consequently, the only

act that Plaintiffs maintain establishes that K&E intentionally

interfered and acted improperly is K&E's recommendation of Eaton

and AEG to GTCR. Resp. (doc. 292) at 2. 

Basically, Plaintiffs argue that the act of recommending Eaton

and AEG to GTCR, while facing the alleged conflict of interest K&E

held by advising GTCR, establishes the improper conduct required of

their claim. Id. at 13. "K&E's authorities regarding the nonliability of a lawyer for doing no more than providing legal advice

to his own client have no application to a situation in which the

lawyer has a conflict of interest." Id. at 10. However,

Plaintiffs cite no authority that supports their argument that, if

a conflict did exist, the act of recommending an individual, with

whom the recommender holds an "of counsel" relationship, to a

client for the purpose of acting as a "crisis manager" equates to

an improper activity. Plaintiffs seem to assert that K&E's act was

improper because the law firm intended to encourage GTCR to

encourage LeapSource to hire Eaton in some capacity that would

eventually destroy the company. Id. at 8. They do not, however,

point to any evidence that supports this allegation. 

Additionally, Plaintiffs offer no arguments, nor point to any

evidence, that indicates that K&E intentionally interfered with

either the Purchase Agreement between GTCR and LeapSource, the

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 27 of 40
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

27

28

- 28 -

Senior Management Agreements, the Employment agreements of the

individual Plaintiffs, or the Stockholders Agreement and Purchase

Agreement, inducing or causing a breach of such contracts. 

Plaintiffs cite a specific Arizona case where the court held that a

claim of tortious interference does not require proof that the

defendant actually desired to interfere with the plaintiff's

contract. Resp. (doc. 292) at 9 (citing Snow v. Western Sav. &

Loan Ass'n, 730 P.2d 204 (Ariz. 1986). Specifically, Plaintiffs

note that in Snow, the court stated that the tort is intentional if

the defendant must "have known that this result was substantially

certain to be produced by its conduct." Resp. (doc. 292) at 9

(citing Snow, 730 P.2d at 211). In any event, Plaintiffs maintain

that summary judgment is inappropriate because questions of intent

are ordinarily for the finder of fact to decide. Resp. (doc. 292)

at 10 (citing Snow, 730 P.2d at 211-12). The Court, however, does

not find that K&E's intent remains a genuine issue of material

fact. 

Plaintiffs fail to make any argument or show any evidence that

indicates that K&E "must have known" that its recommendation of

Eaton to GTCR would cause the alleged breach of any of the parties'

contracts. Evanich testified at his deposition that he recommended

Eaton to GTCR because he "was an expert in the financial

restructuring advisory business." Exbt. 4 (doc. 251) at 21:21-

22:4. The parties do not dispute that Evanich only recommended

Eaton to GTCR and made no similar recommendation to LeapSource. 

Plaintiffs fail to show any evidence that indicates that Evanich

directly intended to interfere with Plaintiffs' contracts, or that

he must have known that his recommendation would result in GTCR's

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 28 of 40
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

27

28

- 29 -

alleged breaches of the contested contracts. Without further

evidence, any connection between these events is tenuous and

requires numerous leaps in logic on the part of this Court. 

A party opposing a motion for summary judgment cannot rest

upon mere allegations or denials in the pleadings or papers, but

instead must set forth specific facts demonstrating a genuine issue

for trial. Anderson, 477 U.S. at 250. Summary judgment is

appropriate "against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial." Celotex Corp., 477 U.S. at 322. Due to Plaintiffs' lack

of evidence that K&E intentionally interfered with either the

Purchase Agreement between GTCR and LeapSource, the Senior

Management Agreements, the Employment agreements of the individual

Plaintiffs, or the Stockholders Agreement and Purchase Agreement,

or that any of its acts were improper, the Court finds that they

have failed to make a showing sufficient to establish the existence

of these elements that are essential to their claim of tortious

interference with a contract. Summary judgement on the aiding and

abetting and tortious interference claims is appropriate as a

matter of law. 

C. K&E's Motion for Summary Judgment Regarding Malpractice and

 Professional Negligence

In the case at bar, the Trustee asserts a malpractice claim

against K&E alleging that (1) K&E represented GTCR in early 2001

concerning GTCR's relationship with LeapSource, and (2) K&E had a

conflict because it simultaneously represented LeapSource in early

2001, or alternatively, because it had represented LeapSource

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 29 of 40
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

27

28

- 30 -

during the September 1999 formation negotiations during which it

learned that Kirk wanted a firmer funding commitment from GTCR. In

order to be successful on a legal malpractice claim, a party must

establish: (1) the existence of an attorney-client relationship

that imposes a duty on the attorney to exercise that degree of

skill, care, and knowledge commonly exercised by members of the

profession; (2) a breach of that duty; (3) that such negligence was

a proximate cause of resulting injury; and (4) the fact and extent

of the injury. See Phillips v. Clancy, 733 P.2d 300, 303 (Ariz.

Ct. App. 1986). Here, the parties dispute elements one and three,

requiring that the parties have an attorney-client relationship and

that the alleged negligence proximately cause the claimed injury. 

1. Proximate Cause (Element Three)

An essential element of the Trustee's claim of professional

negligence is that there must be some reasonable connection between

the act or omission of K&E and the damage which LeapSource

suffered. See Purcell v. Zimbelman, 500 P.2d 335, 342 (Ariz. Ct.

App. 1972). On the issue of causation, the plaintiff has the

burden of proof. Id. Thus, the plaintiff must introduce evidence

which affords a reasonable basis for the conclusion that it is more

likely than not that the conduct of the defendant was a substantial

factor in bringing about the result. Id. Although a mere

possibility of such causation is not enough, the plaintiff is not

required to prove his case beyond a reasonable doubt and he need

not negate entirely the possibility that defendant's conduct was

not a cause. Id. All that is required in negligence cases is for

the plaintiff to present probable facts from which negligence and

causal relations may be reasonably inferred. Id.

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 30 of 40
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

27

28

- 31 -

Proximate causation generally presents a question of fact for

the jury. See Hydroculture, Inc. v. Coopers & Lybrand, 848 P.2d

856, 862 (Ariz. Ct. App. 1992). Only when the facts are undisputed

and reasonable jurors could not differ as to the conclusion the

facts support can the court determine the issue as a matter of law. 

Id. In a legal malpractice claim, a claimant cannot satisfy her

burden on causation by merely pointing to an alleged conflict of

interest, but, instead, must present specific facts showing that a

breach of duty by the defendant was the proximate cause of the

damage suffered by the claimant. See Brosie v. Stockton, 468 P.2d

933, 936 (Ariz. 1970). 

Expert testimony is generally required to establish the

standard of care in a professional malpractice action. See Asphalt

Engineers, Inc. v. Galusha, 770 P.2d 1180, 1181-82 (Ariz. Ct. App.

1989). Moreover, the parties do not dispute that, in the absence

of specific evidence establishing causation, a claimant must

present expert testimony to substantiate the link between the

claimed breach and the alleged injury. Mot. Malprac. (doc. 328) at

16 (citing Carbone v. Tierney, 864 A.2d 308, 314-15 (N.H. 2004);

Gregg v. Nat'l Med. Health Care Servs., Inc., 699 P.2d 925, 928

(Ariz. Ct. App. 1985)). In the case at bar, the Trustee retained

Professor Geoffrey Hazard to offer expert opinions and testimony

regarding the conduct of K&E in relation to the malpractice and

professional negligence claim. 

In its motion, K&E argues that the Trustee has failed to

produce any evidence of causation to support her claim of

professional negligence and malpractice. Mot. Malprac. (doc. 328)

at 14-17. K&E asserts that, even assuming an attorney-client

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 31 of 40
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

27

28

- 32 -

relationship existed between it and LeapSource, which it adamantly

asserts did not, the Trustee has failed to produce specific facts

showing that a breach of K&E's duty was the proximate cause of

damage suffered by LeapSource. Id. at 15. K&E notes that Hazard,

the Trustee's expert, identified a conflict in late 2000 and early

2001 when K&E represented GTCR regarding its LeapSource investment. 

Id. Such conflict allegedly arose from K&E's knowledge that Kirk

wanted a firm funding commitment from GTCR. Id. K&E notes that

the nature of GTCR's funding commitment was a heavily negotiated

point during September 1999, and GTCR was aware of Kirk's desire

for a firmer commitment. Id. at 16. Regardless, K&E argues that

there is no causal connection between Kirk's desire for a firmer

commitment from GTCR and any harm suffered by LeapSource in 2001. 

Mot. Malprac. (doc. 328) at 15-16. K&E notes that in his report,

Hazard offers no expert opinion on causation, and, in contrast,

concedes that if LeapSource received any independent legal advice

in late 2000 and early 2001, it would raise a question about any

proximate cause. Id. at 16-17. K&E argues that LeapSource had

such outside representation at that time. Id. at 17. 

In response, the Trustee asserts that Hazard did express an

opinion on the subject of proximate cause in his report. Resp.

(doc. 375) at 9-15. The Trustee states that "Hazard opined that

assuming LeapSource would have survived as a functioning company

and avoid [sic] bankruptcy if it had been properly advised and

assisted 'it was reasonably foreseeable to Kirkland and Eaton that

their course of conduct in the period from late 2000 through May

2001 would have material adverse affect on LeapSource and Ms. Kirk

and her associates.'" Id. at 9. Hazard explained that, in making

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 32 of 40
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

27

28

- 33 -

his assumption regarding LeapSource's viability if it had been

properly advised, he relied principally upon the analysis done by

Tom Gilman in his memorandum to the LeapSource board dated February

24, 2001 ("Gilman Memorandum"). Id. The Trustee argues that

"[t]he Gilman Memorandum and Professor Hazard's report together

establish the existence of conflicts of interest between LeapSource

and GTCR, and a more than sufficient basis to support a jury

verdict that K&E's (and Eaton's) harmful and improper conduct in

the face of those conflicts of interest was a proximate cause of

the very foreseeable damage to LeapSource." Id. at 9-10. However,

the Trustee does not specifically point out what evidence or facts

from these documents establish the necessary proximate cause. 

Later in her response, the Trustee restates that there is

"overwhelming evidence" establishing that K&E's acts proximately

caused damage to LeapSource. Id. at 13.

Notwithstanding K&E's memorandum, which simply

ignores the relevant evidence of K&E's and Eaton's

conduct, the Plaintiff's evidence of causation is

not limited to the existence of a conflict of

interest. It is based upon the overwhelming

evidence of K&E's and Eaton's direct assistance to

GTCR in conduct that resulted in the destruction

of LeapSource - including the sale of the ICG

assets to an insider without consideration, and

the breaches of duty described in the Gilman

Memorandum even before Chris Kirk was removed as

CEO of LeapSource.

Id. However, again, the Trustee does not point to any evidence

that establishes that K&E was involved in the "sale of the ICG

assets," any of the alleged "breaches of duty" described in the

Gilman Memorandum, or that it acted in any other way that

proximately caused damage to LeapSource. The Trustee makes this

conclusory statement without providing any citation to exhibits or

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 33 of 40
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

27

28

- 34 -

other evidence that would provide it support. 

Lastly, the Trustee seems to assert that K&E's recommendation

of David Eaton for "a position of trust" at LeapSource was the

breach of K&E's alleged duty to LeapSource that proximately caused

damage to the company. Resp. (doc. 375) at 13-14. "With knowledge

of the conflicts between GTCR and LeapSource (made unmistakably

clear by the Gilman Memorandum), K&E recommended Eaton for a

position of trust and responsibility at LeapSource, and caused him

to be engaged at LeapSource, knowing that he could not take any

position on behalf of LeapSource that would be adverse to GTCR." 

Id. at 13. The Trustee cites the "Of Counsel" Agreement K&E held

with David Eaton, which stated that Eaton could not "undertake any

employment, representation, or consultancy that is adverse to any

Kirkland & Ellis client." Id. at 14; see also Exbt. 14 (doc. 292)

at 2. Again, the Trustee cites no evidence that indicates that K&E

recommended or encouraged LeapSource to hire Eaton as their Chief

Restructuring Officer.

In the case at bar, the parties do not dispute that, in the

absence of specific evidence establishing causation, a claimant

must present expert testimony to substantiate the link between the

claimed breach and the alleged injury. Mot. Malprac. (doc. 328) at

16 (citing Carbone v. Tierney, 864 A.2d 308, 314-15 (N.H. 2004);

Gregg v. Nat'l Med. Health Care Servs., Inc., 699 P.2d 925, 928

(Ariz. Ct. App. 1985)). Here, the Court concludes that Hazard did

not express a specific opinion regarding causation in this matter. 

First, the Court notes that Hazard, in his report, states that he

believes K&E had a conflict of interest in concurrently

representing LeapSource and GTCR. Exbt. 28 (doc. 329) at 5. 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 34 of 40
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

27

28

6 The Court notes that, originally, it was not provided a

complete copy of Hazard's report, but instead only had the first five

pages of that report for its review. However, on July 19, 2006,

counsel for K&E submitted the missing page of the report to the

court. In any event, the first sentence of the quoted section, which

is critical to this analysis, was made available to the Court.

- 35 -

Moreover, Hazard opines that K&E's "proceeding with assistance to

GTCR . . . fell below the standards of recognized professional

practice and constitutes a failure to conform to the standard of

care reasonably expected of a professional in such circumstances." 

Id. Finally, the parties note that, after accepting certain

assumptions, Hazard opines that K&E's acts were a substantial cause

of injury to LeapSource. See Resp. (doc. 375) at 9; Reply (doc.

406) at 4-5.6 

I understand that there will be other evidence

that, if LeapSource had been properly advised and

assisted, it would have survived as a functioning

company rather than going into bankruptcy.

Assuming there is such evidence, in my opinion it

was reasonably foreseeable to Kirkland and Eaton

that their course of conduct in the period from

late 2000 through March 2001 would have material

adverse effect on LeapSource and Ms. Kirk and her

associates. On that basis, the inhibitions imposed

by their conflicts of interest in my opinion were

a substantial cause of injury to LeapSource and

Ms. Kirk and her associates.

Reply (doc. 406) at 4-5; see also Exbt. 28 (doc. 329) at 5. 

Basically, Hazard opines that K&E had a conflict of interest and

breached its duty to LeapSource by providing assistance to GTCR and

not LeapSource during the period from late 2000 through March 2001. 

Hazard does not, however, go further to opine that if K&E had

properly advised and assisted LeapSource, thus not breaching its

alleged duty, the company would have survived instead of going into

bankruptcy. In his report, Hazard only assumes that there will be

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 35 of 40
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

27

28

- 36 -

evidence to establish this causation. See Exbt. 28 (doc. 329) at 5

("I understand that there will be other evidence that, if

LeapSource had been properly advised and assisted, it would have

survived as a functioning company rather than going into

bankruptcy."). 

Although the Trustee ensures the Court that such assumptions

are normal in the creation of expert reports, this assumption is

critical to the Trustee's claim, as it involves a specific element

required of the Trustee's cause of action. On a motion for summary

judgement, the Court is unable to make such assumptions. Specific

facts and evidence must be brought forward to indicate the

existence of all the elements required in the claim. Without

evidence or facts that support Hazard's assumption that but for

K&E's alleged breach of providing assistance to GTCR and not

LeapSource, LeapSource would have survived as a company, the

element of causation remains unestablished. Thus, the Court cannot

rely on Hazard's statement that K&E's acts or omissions were "a

substantial cause of injury to LeapSource." This would be an act

of putting the cart before the proverbial horse. 

Additionally, the Gilman Memorandum, which the Trustee

maintains provides evidence of causation and lists K&E's "breaches

of duty," fails to even mention K&E. See Exbt. 6 (doc. 292). The

Court concludes that neither the Hazard Report nor the Gilman

Memorandum sufficiently establishes the element of causation in

Plaintiff's malpractice and professional negligence claim. 

Furthermore, the Court disagrees with the Trustee's allegation

that K&E's recommendation of Eaton for "a position of trust" at

LeapSource was the breach of duty that proximately caused damage to

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 36 of 40
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

27

28

7

 The Court notes that it was not provided a full transcript of

the Evanich deposition or the specific pages on which this testimony

allegedly lies. Thus, the Court is unable to independently verify

the quoted testimony.

8 At oral argument, Plaintiff raised the question as to whether

Kirk actually abstained from this vote. However, the board meeting

- 37 -

LeapSource. As previously indicated, the Trustee has cited no

evidence showing that K&E "recommended" Eaton for "a position of

trust" at LeapSource. The Court itself cannot find any evidence in

the record that indicates that K&E recommended Eaton to LeapSource

or encouraged LeapSource to hire Eaton in any capacity. 

Plaintiff's own statement of facts indicates that Eaton was

referred by Kevin Evanich, a K&E partner, to GTCR only. PSOFM

(doc. 375) at ¶ 173.

Eaton was recommended to become involved in a

matter in which K&E was already involved on behalf

of GTCR. David Eaton was referred to GTCR by Mr.

Evanich at K&E.

Id. Although the Trustee, in her statement of facts, cites

Evanich's deposition testimony where he allegedly stated that he

"referred David Eaton to GTCR, to represent G -- to talk to GTCR

about working for LeapSource," the Trustee has produced no evidence

or argument regarding how this act proximately caused damage to

LeapSource. Id.7 Plaintiff's Statement of Facts further indicate

that Eaton was originally consulted to advise GTCR about what

course of action was in GTCR's best interests. Id. at ¶ 178. 

Moreover, according to the LeapSource board minutes, the directors

voting in favor of retaining AEG were Bruce Rauner, Dan Yih and Joe

Nolan, all GTCR principals, and plaintiff Kirk. Id. at ¶ 183;

Exbt. 21 (doc. 292) at 2.8 The Trustee provides no argument or

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 37 of 40
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

27

28

minutes, included as Exhibit 21 in Plaintiff's response in opposition

to K&E's motion for summary judgement on the aiding and abetting

claims (doc. 292), reflect that Kirk voted in favor of retaining AEG.

- 38 -

analysis to explain how causation could be or is established under

these circumstances. The Court does not see how K&E's

recommendation of Eaton to GTCR could have proximately caused any

damage to LeapSource. 

A party opposing a motion for summary judgment cannot rest

upon mere allegations or denials in the pleadings or papers, but

instead must set forth specific facts demonstrating a genuine issue

for trial. Anderson, 477 U.S. at 250. Here, the Court finds that

the Trustee has failed to set forth specific facts demonstrating a

genuine issue for trial regarding causation in this claim.

Moreover, to the extent that the Trustee is asserting that

causation is established vicariously due to the individual actions

of Eaton, this claim is now moot as summary judgment has been

granted in favor of K&E on all of Plaintiffs' vicarious liability

claims involving Eaton and AEG. Supra, section III(A). Summary

judgment is appropriate "against a party who fails to make a

showing sufficient to establish the existence of an element

essential to that party's case, and on which that party will bear

the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S.

317, 322 (1986). The Court concludes that the Trustee has failed

to make a showing sufficient to establish the existence of the

causation element essential to her claim. The relevant facts are

undisputed and reasonable jurors could not differ as to the

conclusion the facts support. In light of this determination, the

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 38 of 40
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

27

28

9

 Those terms and conditions purporting to affect the rights and

liabilities of K&E, a non-party to the Settlement Agreement, will be

construed in a manner consistent with this opinion.

- 39 -

Court need not analyze the remaining elements of the malpractice

and professional negligence claim. Summary judgment on the

malpractice and professional negligence claim is appropriate as a

matter of law.

D. AEG and Eaton's Motion for Summary Judgment

Prior to their settlement with Plaintiffs, AEG and Eaton filed

a motion for summary judgment (doc. 247). Pursuant to the terms

and conditions of their Settlement Agreement9, the parties have

stipulated and requested that all of Plaintiffs' claims against AEG

and Eaton be dismissed with prejudice. Stipulation (doc. 371). 

Accordingly, the court determines that there is no just reason for

delay and will direct the Clerk of the Court to enter judgment in

favor of Defendants AEG and Eaton pursuant to Federal Rule of Civil

Procedure 54(b), and Defendants' motion for summary judgment (doc.

247) will be denied and dismissed as moot. 

 Therefore, 

IT IS ORDERED that Defendant Kirkland & Ellis's supplemented

Motion for Summary Judgment Regarding Vicarious Liability (doc.

250, 368) is GRANTED.

IT IS FURTHER ORDERED that K&E's motion for summary judgment

on the aiding and abetting and tortious interference claims (Counts

1, 18, 21, and 23) (doc. 255) is GRANTED.

IT IS FURTHER ORDERED that K&E's motion for summary judgment

on the malpractice and professional negligence claim (Count 10)

(doc. 328) is GRANTED. 

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 39 of 40
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

27

28

- 40 -

IT IS FURTHER ORDERED that the second order in the Court's

order dated March 28, 2006 (doc. 356) is corrected to read:

IT IS FURTHER ORDERED that K&E's motion for summary 

judgment on Counts 12 and 14 (doc. 242) is GRANTED.

IT IS FURTHER ORDERED, having determined that there is no just

reason for delay, directing the Clerk of the Court to enter

judgment in favor of Defendants AEG Partners, LLC and David Eaton

pursuant to Federal Rule of Civil Procedure 54(b).

IT IS FINALLY ORDERED that Defendant AEG Partners, LLC and

David Eaton's Motion for Summary Judgment (doc. 247) is DENIED and

dismissed as moot.

DATED this 28th day of August, 2006.

Copies to counsel of record.

Case 2:02-cv-02099-RCB Document 457 Filed 08/28/06 Page 40 of 40