Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-01367/USCOURTS-azd-2_04-cv-01367-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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WO

IN THE UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

ENERGEX ENTERPRISES, INC., a

Colorado corporation; and BRAD GEUKE,

an individual,

Plaintiffs,

vs.

SHUGHART, THOMSON & KILROY,

P.C., a Missouri professional corporation

d/b/a SHUGHART THOMSON KILROY

GOODWIN RAUP; and, MARTY

HARPER, EDWARD R. GLADY, JR.,

VICTORIA STEVENS, and KELLY

FLOOD, individuals, and BLACK &

WHITE CORPORATIONS I-X; and JOHN

DOES I-X and JANE DOES I-X,

Defendants.

NO. CIV-04-1367 PHX ROS

 OPINION AND ORDER

SHUGHART, THOMSON & KILROY,

P.C., a Missouri professional corporation

d/b/a SHUGHART THOMSON KILROY

GOODWIN RAUP,

 Counterclaimant,

 vs.

ENERGEX ENTERPRISES, INC., a

Colorado corporation, 

 Counterdefendant.

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1

 The Court did not set this matter for oral argument because the parties submitted

memoranda thoroughly discussing the law and evidence in support of their positions, and oral

argument would not have aided the Court's decision. See Mahon v. Credit Bur. of Placer

County, Inc., 171 F.3d 1197, 1200 (9th Cir. 1999).

2

 While Plaintiff Geuke was not a party to the first civil action, it is undisputed he

signed the Settlement Agreement as an individual subjecting him to personal liability in the

second civil action.

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Pending before the Court is Defendants' Motion for Partial Summary Judgment (Doc.

#64), Defendants' Motion for Judgment on the Pleadings (Doc. #85), and a number of procedural

and evidentiary motions. For the following reasons, Defendants' Motion for Partial Summary

Judgment will be denied and the Motion for Judgment on the Pleadings will be granted.1

BACKGROUND

In June of 2002, Plaintiff Energex Enterprises, Inc. ("Energex") filed an action in

Maricopa County Superior Court entitled Energex Enterprises, Inc. v. Aztech Energy Systems,

Inc., et. al., No. CV-2002-011251 ("first civil action"), in which they were represented by the

Defendants. (Doc. #4, pp. 2-3) Plaintiff Energex engaged Defendants pursuant to an oral

agreement to pay a maximum fee of $30,000, plus costs and expenses, in return for their

representation preparing for and arguing at a preliminary injunction hearing. (Id., p. 6) At the

suggestion of presiding Judge Cathy Holt, the parties and their counsel underwent settlement

discussions resulting in a settlement agreement, which was executed in July 2002. (Id., p. 3)

The president of Energex, Plaintiff Brad Geuke, was a signatory to the settlement agreement in

his individual capacity.2

 (Id.) 

The settlement agreement governed subsequent business transactions between Energex

and Aztech Energy Systems, LLC ("Aztech"), as well as commissions, royalties, and payments

from Aztech to Energex. (Id.) However, Aztech refused to make the payments to Energex,

arguing that the lack of term or provision in the agreement stating when payments were due

meant they did not owe a payment to Energex on a particular date. (Id.) In addition, Aztech

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3

 The Court's Rule 16 Revised Scheduling Order specifically states that all dispositive

motions were to be filed by January 15, 2006, and absent permission of the Court, only one

dispositive motion may be filed by each party. (Doc. #54) However, Defendants did not file

their first dispositive motion until January 17th, 2006 (Doc. #64), and their second

dispositive motion until April 27th, 2006. (Doc. #85) Defendants did not make any motions

requesting extensions of time or permission to file a second dispositive motion. 

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claimed that Energex and Geuke had breached the settlement agreement. Aztech commenced

a lawsuit against Plaintiffs, Aztech Energy Systems, Inc., Door Miser, LLC, John A. Bunch and

Bruce Malwitz v. Energex Enterprises, Inc., Brad Geuke and Sonya Geuke, No. CV 2003-

003253 ("second civil action"). (Id.) Plaintiffs responded with a counterclaim for breach of the

settlement agreement. (Doc. #65, p. 3) The second civil action was settled by entry of a

stipulated judgment in favor of Plaintiffs, and payment of $175,000 to them. (Id.) 

On July 2, 2004, Plaintiffs filed a Complaint against Defendants (Doc. #1), followed by

an Amended Complaint on October 7, 2004 (Doc. #4). Plaintiffs allege two counts: professional

negligence and breach of contract. Both counts are based on Defendants' representation for the

settlement and drafting of the settlement agreement in the first civil action. (Doc. #4) On

January 17, 2006, Defendants filed a Motion for Partial Summary Judgment on Plaintiff's Claim

for Negligence. (Doc. #64) On April 27, 2006, Defendants filed a Motion for Judgment on the

Pleadings as to Count Two (Breach of Contract) and Plaintiffs' Claim for Emotional Distress

Damages.3

 (Doc. #85) Plaintiffs filed a Response to the Motion for Judgment on the Pleadings,

as well as a Motion to Strike, on May 15, 2006. (Doc. #87) 

ANALYSIS

I. Jurisdiction

Plaintiff Energex is organized under the laws of the state of Colorado, and Plaintiff Brad

Geuke is a resident of Colorado. Defendant Shughart, Thomson, & Kilroy, P.C. ("STK") is

licensed under the laws of the state of Missouri, and authorized to practice law in Arizona.

Defendants Marty Harper, Edward Glady, Victoria Stevens, and Kelly Flood are all licensed

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attorneys and domiciliaries of Arizona. In addition, the amount in controversy exceeds $75,000.

As a result, this Court has jurisdiction pursuant to 28 U.S.C. § 1332. 

II. Applicable Law

In diversity cases, the Court applies the choice of law rules of the forum state. Lange v.

Penn Mut. Life Ins. Co., 843 F.2d 1175, 1178 (9th Cir. 1988) (citing Van Dusen v. Barrack, 376

U.S. 612, 628 (1964)). Thus, the Court will look to Arizona law to determine the applicable law.

According to Bates v. Superior Court, 749 P.2d 1367, 1370 (Ariz. 1988), a court must "resolve

tort issues under the law of the state having the most significant relationship to both the

occurrence and the parties with respect to any particular question." The events underlying the

tort claim and the conduct causing the alleged damages occurred in Arizona. Also, the parties'

relationship was centered in Arizona and Defendants reside in Arizona. Finally, the parties do

not dispute that Arizona law should apply. 

In contract actions, the Court considers, "(a) the place of contracting, (b) the place of

negotiation of the contract, (c) the place of performance, (d) the location of the subject matter

of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of

business of the parties." Landi v. Arkules, 835 P.2d 458, 463 (Ariz. Ct. App. 1992). In this case,

the oral contract was made for STK's representation in Arizona, where STK and the other

Defendants conduct their legal practice. In addition, the alleged breach of contract concerned

Defendants' actions in Arizona. The parties do not dispute that Arizona law should apply. For

these reasons, the Court will apply Arizona law to both counts. 

III. Motion for Partial Summary Judgment

A. Legal Standard

A court must grant summary judgment if the pleadings and supporting documents, viewed

in the light most favorable to the non-moving party, "show that there is no genuine issue as to

any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.

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R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). Substantive law

determines which facts are material, and "[o]nly disputes over facts that might affect the outcome

of the suit under the governing law will properly preclude the entry of summary judgment."

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In addition, the dispute must be

genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the

nonmoving party." Anderson, 477 U.S. at 248. 

Furthermore, the party opposing summary judgment "may not rest upon the mere

allegations or denials of [the party's] pleading, but . . . must set forth specific facts showing that

there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Matsushita Elec. Indus. Co., Ltd. v.

Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). There is no issue for trial unless there is

sufficient evidence favoring the non-moving party; "[i]f the evidence is merely colorable, or is

not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-250

(citations omitted). However, "[c]redibility determinations, the weighing of the evidence, and

the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id.

at 255. Therefore, "[t]he evidence of the non-movant is to be believed, and all justifiable

inferences are to be drawn in [its] favor" at the summary judgment stage. Id. 

B. Causation

Defendants have moved for Partial Summary Judgment on Plaintiffs' legal malpractice

claim. In order to prove legal malpractice, Plaintiffs must establish "(1) the existence of an

attorney-client relationship which imposes a duty on the attorney to exercise that degree of skill,

care and knowledge commonly exercised by members of the profession, (2) breach of that duty,

(3) that such negligence was a proximate cause of resulting injury, and (4) the fact and extent

of the injury." Phillips v. Clancy, 733 P.2d 300, 303 (Ariz. Ct. App. 1987). Plaintiffs claim that

Defendants' negligent representation and negligent drafting of the settlement agreement caused

them various damages including lost revenues, attorneys' fees, and emotional pain and suffering.

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Defendants move for Partial Summary Judgment, arguing that Plaintiffs will be unable to

demonstrate causation. (Doc. #64) Defendants contend that whether Aztech (the other party to

the settlement agreement) would have agreed to certain provisions, or whether such provisions

would have prevented Aztech's breaches and the second civil action, is speculation. (Id., p. 2)

Also, Defendants believe that the damages alleged are solely the result of Aztech's breach, rather

than Defendants' actions. (Id.) 

"The general rule is that the question of causation is one of fact for a jury except in those

instances where no reasonable persons could disagree." Molever v. Roush, 732 P.2d 1105, 1112

(Ariz. Ct. App. 1987); see also Robertson v. Sixpence Inns of America, Inc., 789 P.2d 1040,

1047 (Ariz. 1990). Arizona courts have relied on this principle and refused to grant summary

judgment on the issue of causation in legal malpractice cases similar to the current case. In Reed

v. Mitchell & Timbanard, P.C., 903 P.2d 621 (Ariz. Ct. App. 1995), the plaintiff brought a legal

malpractice action against her divorce attorneys alleging negligent failure to adequately secure

a promissory note from her ex-husband. The ex-husband had defaulted on the note and the

plaintiff argued that her attorneys' failure to secure the note with all available assets prevented

her from collecting on the note and constituted malpractice. The husband's failure to pay the

note was the most obvious cause of plaintiff's harm and the attorneys moved for summary

judgment based on their belief that the plaintiff would be unable to show that but for their

negligence she would have been able to collect the money from her ex-husband. Reed, 903 P.2d

at 625. The appellate court held that the plaintiff had presented sufficient evidence that the

attorneys' actions had caused her harm to survive summary judgment; causation was a fact issue

for the jury. Id. at 626. Similarly, in Tennen v. Lane, 716 P.2d 1031 (Ariz. Ct. App. 1986), the

plaintiff brought a legal malpractice claim against an attorney who had assisted her ex-husband

in fraudulently procuring her consent to a property agreement. The attorney argued that what

would have occurred absent plaintiff's fraudulently obtained consent was speculation because

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the husband could have disposed of certain property even without obtaining the plaintiff's

consent. Id. at 1033. The appellate court reversed the directed verdict entered in favor of the

attorney, finding that a question of fact existed whether the attorney's actions were "a proximate

cause of damage to the [plaintiff]," regardless of the potentially more culpable actions by the exhusband. Id. at 1034. 

Applying these cases to the current situation, there is a disputed issue of fact whether the

allegedly negligent drafting of the settlement agreement was a proximate cause of damage to

Plaintiffs. The fact that Aztech later breached the settlement agreement does not automatically

absolve Defendants of all responsibility for their actions. At this stage, Plaintiffs need not show

what would have happened if the settlement agreement had been properly drafted (i.e., Aztech

would have breached the agreement anyway); it is enough that Plaintiffs have shown they

suffered as a result of the allegedly negligent conduct by Defendants (i.e., Plaintiffs were forced

into litigation with Aztech as a result of disagreements regarding the settlement agreement). Id.

(ruling plaintiff did not have"to prove what would have happened . . . but for the negligence" but

merely "what happened with the negligence"). Thus, Aztech's breach does not mandate

summary judgment in favor of Defendants.

Another way that Defendants dispute the existence of causation is their argument that

Aztech's breach of the settlement agreement broke any possible chain of causation and relieves

them of liability. (Doc. #75, p. 2) But "[t]he law does not relieve a defendant from liability

simply because of the intervening act of a third person. It is only when the intervening act is

considered [a] superseding cause that the original actor is relieved of liability for his negligence."

Rossell v. Volkswagen of America, 709 P.2d 517, 525 (Ariz. 1985). An intervening act is only

a superseding cause when it is unforeseeable or extraordinary. Id.; Robertson, 789 P.2d at 1047.

Plaintiffs submitted an expert affidavit detailing Defendants' failures to fulfill their professional

duty and stating that such failures caused the damages involved. (Doc. #71, Ex. C) The

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omissions in the settlement agreement leads to an inference that Aztech's breach was foreseeable.

In addition, whether an intervening act is foreseeable is usually a question of fact for the jury.

Robertson, 789 P.2d at 1048; see also Ileto v. Glock Inc., 349 F.3d 1191, 1203 (9th Cir. 2003)

("[F]oreseeability often is a question left for the jury to decide.")

Finally, Defendants argue that causation does not exist because Plaintiffs can not

demonstrate that Aztech would have agreed to extra provisions, such as specific dates when

payments become due. However, Plaintiffs suggest that absent Defendants' negligent

representation there would have been no settlement agreement at all. In his affidavit, Plaintiff

Brad Geuke states that if properly advised by Defendants he "would have insisted upon

provisions protecting Energex's interests including due and payable terms and remedies in the

event of default," without which he would not have consented to the settlement agreement.

(Doc. #71, Ex. G, p. 6) He also states that if there had been no settlement the parties would have

proceeded with the preliminary injunction hearing and Energex would have been successful.

(Id.) To support their argument that they would have been successful at the preliminary

injunction hearing, Plaintiffs submitted certain excerpts of the court transcript. (Id., Ex. F) 

Plaintiffs' assertions and proffered evidence create a question of fact for the jury as to whether

Plaintiffs would have been successful at the preliminary injunction hearing. See Reed v.

Mitchell & Timbanard, P.C., 903 P.2d 621, 625-26 (Ariz. Ct. App. 1995) (holding that whether

judge would have signed decree with terms defendants failed to include raises question of fact).

For these reasons, summary judgment regarding the negligence claim will be denied. 

IV. Motion for Judgment on the Pleadings 

A. Legal Standard 

Pursuant to Federal Rules of Civil Procedure 12(c), after pleadings are closed any party

may move for judgment on the pleadings. "A district court will render a judgment on the

pleadings when the moving party clearly establishes on the face of the pleadings that no material

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issue of fact remains to be resolved and that it is entitled to judgment as a matter of law." Enron

Oil Trading & Transp. Co., v. Walbrook Ins. Co., Ltd., 132 F.3d 526, 529 (9th Cir. 1997)

(citations omitted). In doing so, the court "must accept all material allegations of the complaint

as true and view them in the light most favorable to the plaintiff." Century 21 Real Estate Corp.,

v. Re/Max South County, 882 F. Supp. 915, 921 (C.D. Cal. 1994) (citations omitted). In fact,

"the allegations of the non-moving party must be accepted as true, while the allegations of the

moving party which have been denied are assumed to be false." Hal Roach Studios, Inc., v.

Richard Feiner and Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1990). 

B. Breach of Contract

Defendants have moved for Judgment on the Pleadings regarding Claim II, the Breach

of Contract claim. (Doc. #85) Under Arizona law, breach of the duties owed by attorneys to

their clients arises out of tort, not contract. Barmat v. John & Jane Doe Partners, 747 P.2d 1218,

1222 (Ariz. 1987) ("The cause of action for malpractice would exist even if the client or patient

had expressly declined the professional's services."). A legal malpractice claim can only arise

out of contract if there is evidence of a specific promise that was breached apart from the duty

imposed by law. Desilva v. Baker, 96 P.3d 1084, 1092 (Ariz. Ct. App. 2004); see also Collins

v. Miller & Miller, Ltd., 943 P.2d 747, 755 (Ariz. Ct. App. 1997) ("Only if there is a specific

promise contained in the contract can the action sound in contract."). Plaintiffs allege in their

complaint that Energex entered into an oral contract with Defendants for them "to provide proper

representation and prosecute the action to and through a preliminary injunction hearing." (Doc.

#4, p. 6) These are the only allegations, besides the payment amount, in the Plaintiffs' complaint

that establish the existence of a contract between the parties. (Id.) An "agreement to provide

'reasonable and necessary legal services' is nothing more than a general promise which

encompasses the basic duty imposed by law . . . . It clearly lacks the specificity required for a

breach of contract action." Collins, 943 P.2d at 755. Plaintiffs' agreement with Defendants is

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just as general, and as a result their Breach of Contract claim must be dismissed.

Plaintiffs argue that dismissal is unwarranted as there is a genuine issue of material fact

due to Defendants' denial of the existence of a contract in their Answer to the Complaint. (Doc.

#87, p. 10) Plaintiffs contend that questions regarding the existence or validity of a contract

require determination by the jury. (Id.) However, Plaintiffs' arguments in opposition of

dismissal are without merit. Even when examining Plaintiffs' pleadings in the most favorable

light and accepting all allegations as true, dismissal must be granted. The alleged contract

between Plaintiffs and Defendants is a general agreement, which as a matter of law does not

raise a contract claim. For these reasons, Defendants' Motion as to the Breach of Contract claim

is granted. 

C. Emotional Distress Damages

Defendants have also moved for Judgment on the Pleadings regarding Plaintiffs' Claim

for Emotional Distress Damages. (Doc. #85) Under Arizona law, emotional distress damages

in negligence actions require physical injury, outrageous conduct, intentional infliction of

emotional distress, or allegations of bad faith. Deno v. Transamerica Title Ins. Co., 617 P.2d 35,

37-38 (Ariz. Ct. App. 1980). In Reed, the court held "that simple legal malpractice resulting in

pecuniary loss which in turn causes emotional upset, even with physical symptoms, will not

support a claim for damages for emotional distress," except when damages are to a personal

interest. 903 P. 2d at 626-27. Plaintiffs allege in their Complaint that Defendants' negligence

resulted in Plaintiff Geuke being exposed to personal liability, so that he was required to

personally defend himself in the second civil action. (Doc. #4, p. 4) Plaintiffs allege that

Geuke's exposure to "irreparable risk of loss and damage" resulted in him experiencing "mental

and emotional pain & suffering and emotional stress, loss [or] an impairment of the enjoyment

of life and other such non-economic loss and injury." (Id., p. 5, lns. 5-8) 

Plaintiffs argue that Geuke's emotional distress damages are not the result of possible

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4

 Plaintiffs also argue that it is more appropriate for the Defendants to request a

limiting jury instruction as to specific damages, rather than seek dismissal. (Doc. #87, p. 7) 

However, it is clear that pre-trial judgments on damages may be issued. See Reed, 903 P.2d

at 627 (granting partial summary judgment regarding emotional distress damages); Hislop v.

Salt River Project Agric. Improvement & Power Dist., 593 P.2d 668 (Ariz. 1979) (affirming

trial court's grant of summary judgment denying emotional distress damages).

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pecuniary loss, but are personal losses within an exception outlined in Reed.

4

 (Doc. #87, p. 11)

Emotional distress damages may be warranted when personal interests are involved (such as in

child custody cases), but that exception is not applicable in this instance. See Reed, 903 P.2d

at 626-27 (citing D. Dusty Rhoades and Laura W. Morgan, Recovery for Emotional Distress

Damages in Attorney Malpractice Cases, 45 S.C. L. Rev. 837, 845-49 (1994) (discussing cases

involving loss of liberty or family law)). (Id., p. 12) The clear language of the Complaint

precludes Plaintiffs' argument as it states that the "great and irreparable risk of loss and damage,"

e.g., possibility of pecuniary loss, made him suffer "mental and emotional pain." Due to the

absence of allegations of bad faith or intention on the Defendants' part, Plaintiffs are entitled to

judgment on the pleadings for the claim for emotional distress damages. 

V. Motion to Strike

Plaintiffs move to strike Defendants' Motion for Judgment on the Pleadings (Doc. #85),

as well as an award of reasonable attorney fees, as a sanction for failing to comply with this

Court's Scheduling Order (Doc. #54). (Doc. #87, pp. 12-13) Because the Court finds that

Defendants' Motion for Judgment on the Pleadings is warranted and should be granted, the Court

will not grant Plaintiffs' Motion to Strike. However, the Court advises Defendants that the Court

takes noncompliance with provisions of its scheduling orders seriously and further violations of

any Court orders will be dealt with more severely. 

VI. Motion to Conduct Additional Depositions

Plaintiffs filed a Motion for Permission to Conduct Trial Testimony Depositions in Lieu

of Live Trial Testimony. (Doc. 89) Plaintiffs request that they be allowed "to conduct

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5

 There appears to be some confusion involving the parties' agreement regarding these

witnesses. If the parties are not, in fact, in agreement regarding their testimony, Defendants

should file an additional motion in limine setting forth that disagreement.

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preservation depositions and obtain the 'trial' testimony of certain witnesses." (Doc. #89, p.2)

These depositions would be "used in lieu of live trial testimony." (Id.) The only basis for

Plaintiffs' request is that "[j]udicial economy and reduction of trial expenses will result from the

taking of the trial testimony . . . by deposition." (Id.) Plaintiffs cite no authority in support of

their request.

"The Federal Rules of Civil Procedure do not distinguish between depositions taken for

discovery purposes and those taken strictly to perpetuate testimony for presentation at trial."

Integra Lifesciences I, Ltd. v. Merck KgaA, 190 F.R.D. 556, 558 (S.D. Cal. 1999). Plaintiffs'

argument that these depositions should be allowed based upon such a distinction would

effectively eviscerate the discovery deadlines set forth in scheduling orders. See id. A party

would be free to wait until after the close of discovery to take any number of depositions. Thus,

"a party [that] makes a tactical decision during discovery to refrain from deposing a non-party

witness . . . takes the risk that the testimony will not be presented if the witness does not

voluntarily appear." Id. at 559. Plaintiffs took that risk and they must now live with their

choice. The motion to conduct additional depositions will be denied.

VII. Motion in Limine

Also pending before the Court is a Motion in Limine filed by Defendants seeking to

exclude the testimony of four individuals. (Doc. 86) The parties subsequently agreed that two

of the witnesses would not be called.5

 (Doc. 88, 92) The two remaining witnesses, Judge Cathy

Holt and Myrna Ferguson, were scheduled to testify via deposition. Because that is no longer

an option, the motion in limine is potentially moot and will be denied. If Plaintiffs intend to

have these witnesses testify in person, Defendants may file another motion in limine that the

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Court will address at the Final Pretrial Conference.

Accordingly,

IT IS ORDERED that Defendants' Motion for Partial Summary Judgment (Doc. #64)

is DENIED.

IT IS FURTHER ORDERED that Defendants' Motion for Judgment on the Pleadings

(Doc. #85) is GRANTED.

IT IS FURTHER ORDERED that Plaintiffs' Motion to Strike (Doc. #87) is DENIED.

IT IS FURTHER ORDERED Plaintiffs' Motion for Permission to Conduct Trial

Testimony Depositions in Lieu of Live Trial Testimony is DENIED. (Doc. 89)

IT IS FURTHER ORDERED Defendants' Motion in Limine (Doc. 86) is DENIED.

IT IS FURTHER ORDERED that the Parties are to file their Joint Proposed Pretrial

Order, all Motions in Limine, Joint Statement of the Case, Joint Jury Instructions, Verdict Forms,

and Stipulated Voir Dire Questions by October 11, 2006. 

IT IS FURTHER ORDERED the Final Pretrial Conference is set for November 9, 2006

at 1:30 P.M.. 

IT IS FURTHER ORDERED trial is set for November 14, 2006 at 9 a.m.

DATED this 17th day of August, 2006.

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