Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-02099/USCOURTS-azd-2_02-cv-02099-0/pdf.json

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

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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 October 21, 2002, Defendants GTCR Golder Rauner, L.L.C., et

al., filed their notice of removal in this action, attaching

Plaintiffs’ (Diane Mann, as Trustee for the Estate of LeapSource,

Inc., et al.) First Amended Complaint. Notice (doc. 2). On

November 20, 2002, Plaintiffs filed a motion to remand (doc. 8)

this action to the Superior Court of Arizona in Maricopa County. 

On February 7, 2003, that motion was denied. Order (doc. 51).

Thereafter, on June 11, 2004, Plaintiffs filed their Fourth Amended

Complaint ("FAC"). (doc. 121). 

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On August 22, 2005, Defendants GTCR Golder Rauner, L.L.C.,

GTCR Fund VI, L.P., GTCR VI Executive Fund, L.P., GTCR Associates

VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini

and Philip A. Canfield (“GTCR”) filed a motion for summary judgment

on all joint venture-related claims (Counts 11, 12, 14, 15, 16, and

22). Motion (doc. 239). On August 23, 2005, Defendant Kirkland &

Ellis ("K&E") joined GTCR's motion and filed their own motion for

summary judgment on Counts 12 and 14 of Plaintiffs' Fourth Amended

Complaint. K&E Joinder and Motion (doc. 242). GTCR's motion was

fully briefed and argued orally, however, Plaintiffs did not

respond to K&E's motion. For this reason, on October 18, 2005, K&E

moved for entry of judgment in their favor on Counts 12 and 14. 

Mot. Entry of Judg. (doc. 269). Having carefully considered the

arguments presented by the parties, the court now rules. 

I. Background Facts

As noted above, 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 Chicago-based 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.

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Individual Plaintiff Christine Kirk was recruited by

Defendants from 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. 

On August 18, 1999, GTCR sent Kirk a draft Summary of

Understanding ("SOU") that stated some of the terms on which GTCR

would be willing to provide funding to a corporation to be formed

with Kirk and her management team. After considering another

venture capital proposal from Bank of America, it is alleged that

on August 30, 1999, the GTCR entities and Plaintiffs engaged in a

joint venture to make preparations for LeapSource to commence

operations (the Kirk-GTCR Joint Venture). Plaintiffs assert that

the alleged terms of the Kirk-GTCR Joint Venture were:

(1) that GTCR would provide the financing required

to successfully establish the new venture, with

the understanding that the amounts required would

be in the range of $50-100 million;

(2) that GTCR's commitment was a long-term

commitment to the success of the new venture, and

that the new venture would be supported through a

start up period that was expected to take two

years, until it was successfully established as a

leading provider of BPO services, and ready to go

public or to be acquired when it would be

advantageous to the new venture;

(3) that the new venture would be expected to lose

substantial amounts of money during its start up

period (operating with negative EBITDA), that GTCR

understood the magnitude of the financial

commitment required to support the new venture

during its start up period (because GTCR actually

had similar loss experiences with other start-up

companies), was "well equipped" to handle such

losses, and was willing to finance the new venture

through the start up period;

(4) that GTCR's funding commitment was not

conditioned upon the new venture's losses reaching

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or exceeding any particular amount over the first

two years;

(5) that GTCR would not financially abandon the

new venture, but would stick by the new venture

even during bad times, in a way that other venture

capital firms would not (in one meeting expressed

by Rauner that, if Kirk would agree to leave

Andersen and join GTCR in this new BPO joint

venture, GTCR would be her "partner for life," and

in another conversation with Nolan, when the

possibility of obtaining financing from another

firm was mentioned, that "They won't stick by you

in bad times like we will.";

(6) that the purpose of the new venture would be

to create and develop a new BPO firm, to pursue

related opportunities, and to grow the business of

the new BPO firm through acquisitions, alliances,

and operations, as contemplated in the business

plan prepared by Chris Kirk and others, and

provided to GTCR;

(7) that Chris Kirk would be permitted to assemble

a management team to implement the business plan

and to manage the new venture, with the

understanding that a qualified team of

professionals and others would have to be brought

into the management teams to provide and to sell

the outsourcing services;

(8) that the new venture would need to hire and

train scores of employees even before outsourcing

contracts were signed (with Joe Nolan suggesting

that the appropriate number of people to bring on

board at the outset would be 100);

(9) that the new venture would have to be equipped

to provide the same level and depth of outsourcing

services that Andersen provided to its clients;

(10) that the management team put together by

Chris Kirk would be permitted to manage the new

venture (also expressed in other words that GTCR

did not get involved in management and would adopt

a "hands off" policy toward the management of the

new venture);

(11) that the members of the management team would

have an ownership interest in the new venture,

with common stock in a new entity to be formed

pursuant to the new venture divided equally

between GTCR and the management team, and with

GTCR receiving preferred stock in return for its

financial investment;

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(12) that the members of the management team would

be assured of compensation at levels comparable to

the compensation that they had been receiving at

Andersen (and Chris Kirk, Kim Hartmann, and Julie

McCollum specifically discussed their individual

compensation as described below);

(13) that GTCR would indemnify the management team

against the costs of any action that might be

taken by Andersen as a result of the management

team's departure from Andersen;

(14) that, because of the non-competitive

provisions in the management team's agreements

with Andersen, the new venture would not be

permitted to start selling outsourcing services

for a period of months after their departure from

Andersen, which would further extend the start up

period discussed previously (when the new venture

would be losing money and requiring continuing

financial support from GTCR);

(15) that a new company would be formed to provide

outsourcing services, and would be a "standard

GTCR play," intended to replicate the AnswerThink

experience, which meant to start the business with

a substantial number of experienced employees from

Andersen so that the new venture could stake out a

leading position in the BPO services industry;

(16) that Kirk's $400,000 annual salary had been

accepted by the GTCR's Board of Directors, that

GTCR would make Kirk whole for any bonus

distribution withheld by Andersen, and would pay

her a one-year's severance package if she was

terminated without cause;

(17) that GTCR would make Hartmann whole with

respect to any compensation that she expected to

receive from Andersen but did not receive because

she left before October 1999, up to $1 million,

and that GTCR would pay Hartmann a one-year

severance package equal to her annual salary of

$300,000; and

(18) that McCollum would be made whole on any

earned but unpaid bonus she would have received

had she stayed at Andersen (with the understanding

that McCollum expected to receive a bonus from

Andersen in the amount of $80,000), and that GTCR

would provide McCollum with a one-year severance

package equal to her salary of $360,000.

Resp. (doc. 253) at 11-13.

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Between August 30, 1999 and September 14, 1999, Kirk

negotiated with GTCR over the terms of the SOU. 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 V. Kirk (“Kirk”), LeapSource’s start-up CEO. This group

(which is composed primarily of the individual Plaintiffs in this

action) worked to gradually grow the LeapSource business; however,

for reasons which are highly contested in this action, the company

failed and filed for chapter 7 bankruptcy liquidation. 

 The plaintiffs in this action include the LeapSource

bankruptcy trustee, as well as eight individuals who served in

principal positions with LeapSource (including Kirk). See Notice

of Rem. (doc. 1) Exbt. A, Amended Complaint. Plaintiffs’ complaint

alleges various causes of action against the various defendants

both collectively and individually. On September 30, 2003, the

Court granted in part and denied in part a motion to dismiss filed

by GTCR. Order (doc. 72) at 68. The Court granted dismissal of

Counts 1, 2, 3, 5, 13, 26, 27, and 29, and partial dismissal of

Counts 7, 8, 24 and 25. Id. at 68-71. The Court denied dismissal

of all the other contested claims. Id. Now, the Court reviews

GTCR's motion for summary judgment, which seeks summary judgment on

all of Plaintiffs' joint venture-related claims (Counts 11, 12, 14,

15, 16, and 22). Motion (doc. 239). 

As an introductory matter, the FAC obviously alleges

plaintiffs’ claims against the defendants. These claims are made

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 Plaintiffs do not claim that individual Plaintiff Thomas Gilman

joined the alleged joint venture. FAC (doc. 121) at ¶¶ 159-162.

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by different plaintiffs and groups of plaintiffs against various

groups of defendants. For purposes of this order only, plaintiffsubgroups are referred to as “Mann,” (the bankruptcy trustee), and

the “individual Plaintiffs” or "Plaintiffs" referring to Christine

Kirk, (“Kirk”), Kimberly Hartmann, Julie B. McCollum, Kelly Powers,

Indu Gupta, Bobby D. Scott, and Patrice E. Walker.1

 Defendantsubgroups 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.

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

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

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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

In its motion, GTCR asks the Court to grant summary judgment

on all of Plaintiffs' joint venture-related claims. Specifically,

GTCR requests summary judgment on Counts 11, 12, 14, 15, 16, and 22

of the FAC. GTCR argues that all of these claims fail because no

joint venture ever existed between the parties. "What plaintiffs

have labeled the 'Kirk-GTCR Joint Venture' for purposes of this

litigation is nothing more than negotiations that resulted in the

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parties' definitive written agreements governing LeapSource." 

Motion (doc. 239) at 15.

A. Existence of a Joint Venture

Individual Plaintiffs allege claims against GTCR based on its

alleged breach of a joint venture agreement. Under Arizona law, a

joint venture is formed when two or more parties agree to pursue a

particular enterprise in the hope of sharing a profit. Arizona

Public Service Co. v. Lamb, 84 Ariz. 314, 317 (1958). To establish

a joint venture, there must be: “(1) an agreement; (2) a common

purpose; (3) a community of interest; (4) an equal right of

control; and (5) participation in profits and losses.” Estate of

Hernandez v. Flavio, 187 Ariz. 506, 509 (1997). Where there is a

question as to the existence or nature of a joint venture, each

case must be resolved upon its own facts. See Mercer v. Vinson, 85

Ariz. 280, 286 (1959).

Plaintiffs allege that they engaged in two separate business

relationships to carry out the business of LeapSource. The first

relationship was a joint venture between the individual Plaintiffs

and GTCR. The other relationship was formed later when LeapSource

was incorporated, in order to carry out the purposes of the joint

venture. Plaintiffs claim that they engaged in separate agreements

governing each of these relationships. The FAC first claims: 

¶ 146. . . . On August 30, 1999, [Kirk] notified Nolan

that, in reliance on the representations and promises

made by GTCR, she would leave Anderson [her former

employer] and join the new BPO joint venture with GTCR. 

In response, Nolan said that GTCR would send to Kirk a

written agreement of their understanding. 

¶ 147. At this point, a joint venture came into

existence (the “Kirk-GTCR Joint Venture”). 

FAC (doc. 121). As a result, on August 30, 1999, Plaintiffs allege

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that the joint venture came into existence which created legal

rights and obligations between the parties. "In reliance upon the

representations and promises made by GTCR[,] Kirk, Hartmann,

McCollum, Walker, Powers, Scott and Gupta left their positions at

Andersen and began work on the new joint venture with GTCR." Resp.

(doc. 253) at 4. 

Thereafter, as contemplated, a new company was created in

order to carry out the objectives of the Kirk-GTCR Joint Venture. 

The complaint makes clear that this new company, originally named

KirkCo, was incorporated in Delaware on September 16, 1999, and

renamed “LeapSource.” Id. at ¶ 170. Hence, LeapSource was formed

as an instrumentality of the Kirk-GTCR Joint Venture. Id. at ¶

171. In order to implement the joint venture through LeapSource, a

number of agreements were entered between the parties. As stated

in the FAC: 

¶ 175. . . . on September 27, 1999, LeapSource and/or

Individual Plaintiffs entered into five major agreements

in order to implement GTCR’s $65 million funding

commitment to the Kirk-GTCR Joint Venture, and to launch

the operations of the Company under Kirk as CEO. These

agreements included the “Purchase Agreement,”

“Stockholders Agreement,” “Senior Management Agreement,”

“Registration Agreement,” and “Professional Services

Agreement” (collectively, the “Agreements”). 

FAC (doc. 121).

While the FAC alleges that GTCR breached the joint venture

agreement, GTCR contends that there was no joint venture to be

breached. GTCR asserts that no joint venture existed between the

parties because (1) the parties never intended to associate as

joint venturers, (2) the parties never agreed to an equal right of

control, and (3) the parties never agreed to participate in profits

and losses. Motion (doc. 239) at 16. In their motion, GTCR does

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not challenge the existence of "an agreement," a "common purpose,"

or a "community of interest" between the parties; the first, second

and third elements required to establish a joint venture. 

1. The Parties' Intentions

GTCR asserts that no joint venture ever existed between itself

and Plaintiffs because the parties did not "intend" to form a joint

venture. In their motion, GTCR argues that, based on the SOU, the

parties did not intend to create a joint venture. First, GTCR

contends that the Kirk-GTCR Joint Venture could not have come into

existence on August 30, 1999, because the terms of the alleged

joint venture remained under negotiation until September 14, 1999,

when Defendant Nolan signed the SOU on behalf of GTCR. Motion

(doc. 239) at 16; FAC (doc. 121) at ¶ 159. Second, GTCR argues

that the SOU itself demonstrates that the purpose of the parties'

on-going negotiations was to form a corporation that would provide

BPO services. Motion (doc. 239) at 16. GTCR notes that neither

the SOU nor any other document exchanged between the parties

referenced a "joint venture." Id. at 16-17. Third, GTCR argues

that the SOU itself made clear that its terms were not

independently binding, and that they served only to memorialize

terms that would ultimately be included in definitive agreements. 

Id. at 17. 

This agreement is not binding until the execution

of a definitive legal agreement and completion of

due diligence (including reference checks). GTCR

and Management will hold terms in confidence.

DSOF (doc. 240) at Exbt. 4. 

Finally, GTCR asserts that Plaintiffs' testimony is

insufficient to prove that they had the requisite intent to form a

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joint venture. Motion (doc. 239) at 17. GTCR notes that Kirk

never told anyone that she intended to create a joint venture that

would exist throughout the life of LeapSource. Id. In addition,

GTCR contends that the individual Plaintiffs' testimony indicates

that each of them knew "virtually nothing about the terms of the

alleged joint venture and had little if any communication with

GTCR." Id. at 18. Regardless, GTCR asserts that it never heard of

nor joined a joint venture with the individual Plaintiffs, but if

any joint venture were ever formed, it did not survive the

execution of the five written agreements dated September 27, 1999. 

Id. at 18-19. 

In response, Plaintiffs assert that intent is not an element

required to form a joint venture. Resp. (doc. 253) at 9. Citing

the Uniform Partnership Act, Plaintiffs contend that such a

partnership may be formed despite the intent of the parties

involved. Id.

Except as otherwise provided in subsections B and

C, the associations of two or more persons to

carry on as co-owners of a business for profit

forms a partnership, whether or not the persons

intended to form a partnership.

A.R.S. § 29-1012(A). Plaintiffs also cite numerous sections from

the individual Plaintiffs' depositions where they spoke about

certain aspects of the joint venture, indicating that they did know

of its existence. Resp. (doc. 253) at 10-11. Moreover, Plaintiffs

assert, and GTCR does not dispute, that it is inappropriate to

resolve issues of credibility, motive, and intent on motions for

summary judgment. Id. at 6-7.

Under Arizona law, a joint venture, which "arises out of

express or implied contract, is founded upon mutual understanding

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and agreement between the adventurers...and arises only where they

intend to associate themselves as such." Helfenbein v. Barae

Investment Co., 19 Ariz. App. 436, 439 (1973). Generally, it is

inappropriate to resolve issues of credibility, motive, and intent

on motions for summary judgment. See Box v. A & P Tea Co., 772

F.2d 1372, 1378 (7th Cir. 1985); Hardin v. Pitney-Bowes, Inc., 451

U.S. 1008 (1981) (dissenting opinion of Justice Rehnquist); State

v. Ashton Co., 4 Ariz. App. 599, 602 (1967). Thus, the Court

concludes that the parties' intent remains a genuine issue of

material fact.

2. Equal Right of Control

Under Arizona law, parties to a joint venture must have an

equal right of control over the venture. See Estate of Hernandez,

187 Ariz. at 509. Here, GTCR argues that no such right existed

between the parties, thus indicating that there was no Kirk-GTCR

Joint Venture. Motion (doc. 239) at 19.

On December 4, 2002, GTCR moved to dismiss Plaintiffs' joint

venture claims on this same basis. Mot. to Dismiss (doc. 16). At

that time, GTCR argued that under the Senior Management Agreement

(“SMA”) each of the individual Plaintiffs was an at-will employee

of LeapSource, and, therefore, was subject to termination at any

time, even without cause. Id. at 9. They asserted that such a

relationship is inconsistent with a joint venture. Id., citing

North Am. Van Lines v. Emmons, 50 S.W.3d 103, 117 (Tex. App. 2001);

Glynn v. Roy Al Boat Mgmt. Corp., 57 F.3d 1495, 1499 (9th Cir.

1995). For example, even though Kirk was the company’s CEO, she

reported to LeapSource’s board of directors (a majority of which

were appointed by the GTCR entities), she could be terminated

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without cause, and the board could override her management

decisions. Mot. to Dismiss (doc. 16) at 9. As a result, since the

Plaintiffs could be fired without cause, and even the CEO’s

decisions could be overridden by the board, GTCR contended that

there was no equal right of control over the purported joint

venture. Id. at 9.

In their response, Plaintiffs asserted that GTCR’s argument

confused the terms of the Kirk-GTCR Joint Venture with the

LeapSource agreements. Mot. to Dismiss Response (doc. 48) at 15. 

In other words, Plaintiffs disputed that the SMA, a LeapSource

governing document (which creates an employment at-will

relationship for Plaintiffs), governs the separate joint venture.

Id. 

Plaintiffs argued that the joint venture was formed before

LeapSource and that the execution of the LeapSource documents came

later. Order (doc. 72) at 21. In other words, Plaintiffs argued

that the at-will relationship created under the SMA only governed

the relationship of the parties as far as the LeapSource entity was

concerned, but that no at-will relationship existed under the joint

venture agreement. Id. The Court, in its order, noted that this

description of the parties' relationship created an odd situation.

Order (doc. 72) at 21-22.

This rather odd situation presents the

hypothetical question of what would occur if a

Plaintiff were fired by the LeapSource board–would

they continue as co-adventurers in the joint

venture?

It appears that LeapSource was intended to be the

vehicle through which the joint venture was to be

carried out. FAC ¶ 171 (“LeapSource was formed as

an instrumentality of the Kirk-GTCR Joint Venture,

to provide [BPO services] to clients”); ¶ 175

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(LeapSource agreements entered in order to

implement GTCR’s funding commitment and to launch

the operations of the company under Kirk); see

also ¶ 467-69. As a result, the court is unclear

how the employees could have equal management

responsibilities under the joint venture

agreement, but not under the LeapSource

agreements--especially when LeapSource was formed

as the instrumentality for carrying out the joint

venture agreement. 

Id. However, the Court, finding that it could not sufficiently

evaluate the issue at that time, denied the dismissal of

Plaintiffs' joint venture-related claims on this basis. Id. at 23.

In its current motion, GTCR argues that the evidence regarding

the alleged Kirk-GTCR Joint Venture is now in and shows that the

parties did not hold the requisite equal right of control. Motion

(doc. 239) at 20. First, GTCR cites Kirk's deposition testimony,

noting that she points to GTCR as the controller of the joint

venture. Id. In addition, GTCR notes that Plaintiff Gupta,

Hartmann, and McCollum all testified that they had no control over

the alleged joint venture. Id. at 21. 

Second, GTCR asserts that the SOU, that Kirk contends embodied

some of the terms of the joint venture agreement, relates solely to

the corporation created from the alleged joint venture. Id.

Moreover, GTCR notes that the SOU "did not provide plaintiffs with

an equal right of control." Id.

All corporate "financial and operating objectives"

were to be decided by the corporation's Board of

Directors, and "GTCR will have the right to

control the Board."

Motion (doc. 239) at 21, citing Exbt. 4 (doc. 240) at 1-2. 

In contrast, Plaintiffs assert that they have satisfied this

element required to establish the existence of a joint venture. 

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Resp. (doc. 253) at 16-19. They argue that the law does not

require that the parties actually exercise equal control over the

affairs of the joint venture. Id. at 17. "[T]hey are free by

their agreement to allow each of the parties to play a different

role in the business venture, with more or less or no control over

the operations of the venture." Id. In support of their argument,

Plaintiffs cite Ellingson v. Sloan, 22 Ariz. App. 383 (1974). 

In Ellingson, the court considered whether a joint venture

existed between three parties involved in a real estate development

project. Id. at 385. One of the three parties, Ellingson, refused

to execute a promissory note to another party, Sloan, arguing that

no enforceable contract existed between them. Id. at 386.

Specifically, Ellingson contended that the arrangement between the

parties could not be characterized as a joint venture, because it

did not provide for Sloan's participation in any losses nor for

mutual control of the enterprise. Id. The court did not agree. 

Id.

On the issue of equal control, the court found that Sloan did

have an equal right of control over the affairs of the parties. 

Ellingson, 22 Ariz. App. at 387. Listed among the acts that Sloan

conducted in relation to the real estate venture, the court noted

that Sloan had: (1) changed architects; (2) engaged a new building

contractor; (3) established that the site was suitable for a

library; (4) obtained on and off ramps to the freeway; (5)

negotiated with the City of Tempe concerning the construction of

cluster type apartments; (6) worked as manager of the joint

venture; (7) met weekly with the First National Bank over a period

of eighteen months to report on the joint venture's activities and

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prevent foreclosure of the delinquent mortgage; and (8) eventually

found the ultimate purchaser of the property. Id. at 385-86. 

"Indeed, he was the most active participant in managing both the

direction and course of the joint venture." Id.

The requisite of equality in joint control does

not render impossible the delegation of the duties

of management to one of the participants in a

joint venture. The rights of the parties with

respect to the management and control of the

enterprise may be fixed by agreement so as to

effectively place control in the hands of one of

the joint venturers, and, once having been fixed,

may be changed by agreement.

Id. at 387, n. 1. 

Thus, Plaintiffs assert that GTCR's citation of sections of

some of the individual Plaintiffs' deposition testimony does not

establish that Plaintiffs had no control or right of control over

the joint venture under the standard defined in Ellingson. Resp.

(doc. 253) at 17. "[T]he fact that (as GTCR points out in its

Motion) GTCR had the right to control the board of LeapSource...,

and the fact that GTCR in fact had substantial control over the

fate of the venture because of its control of the purse strings, do

not preclude the finding that a joint venture existed." Id.

Furthermore, Plaintiffs seem to assert that individual Plaintiffs

Kirk and Hartmann exhibited the necessary equal control, because

they were given the duties of assembling a management team to

implement the business plan, and help build a leading practice BPO

company, respectively. Id. at 18.

In addition, Plaintiffs assert that the SOU did not embody all

of the terms of the joint venture. Id. at 18. According to

Plaintiffs, the SOU was merely the only document that Kirk could

recall at her deposition as an example of one of the written

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documents that contained some of the alleged joint venture terms. 

Id. at 19. They note that her interrogatory responses, made under

oath six months earlier, provided additional detail of the joint

venture terms. Id.

In determining whether the parties held an equal right of

control, "[t]he test is whether there is a right of mutual control

over the subject matter of the venture, that is, the means by which

the parties intend to obtain their objective." Ellingson, 22 Ariz.

App. at 386-87. "Either expressly or impliedly, the agreement must

indicate that 'each of the parties to such a joint adventure has

authority to act for all in respect to the control of the means or

agencies employed to execute such a common purpose.'" Estate of

Hernandez, 187 Ariz. at 509, citing West v. Soto, 85 Ariz. 255, 262

(1959). Each party to the joint venture must have an "equal right

to direct and govern the movements and conduct of each other with

respect thereto. Each must have some voice and right to be heard in

its control or management." Estate of Hernandez, 187 Ariz. at 509,

citing Maloy v. Taylor, 86 Ariz. 356, 359 (1959). 

In the case at bar, Plaintiffs assert that there were two

independent business activities that occurred between the parties;

the Kirk-GTCR Joint Venture and LeapSource. Plaintiffs argue that

the Kirk-GTCR Joint Venture was created between all the parties on

August 30, 1999 and continued on after LeapSource was incorporated

on September 16, 1999. However, upon review of the parties'

arguments and evidence, the Court does not agree.

Plaintiffs have not sufficiently shown that each of them held

an equal right of control over the alleged joint venture. Although

Plaintiffs are correct in their assertion that Ellingson allows

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joint venturers to delegate the duties of management to one

participant, such facts are not clearly on par with those in this

case. Plaintiffs, in response to GTCR's motion for summary

judgment, assert that the fact that GTCR had the right to control

the board of LeapSource, and had substantial control of the purse

strings, do not preclude the finding that a joint venture existed. 

This conclusory statement is not enough to establish the existence

of an equal right of control, and survive summary judgment. 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 Anderson, 477 U.S. at 250. 

Plaintiffs attempt to show such evidence by noting that

individual Plaintiffs Kirk and Hartmann exhibited equal control

when they were given the duties of "assembling a management team"

and "helping build a leading BPO company," respectively. Such

evidence may call into question whether Kirk held an equal right of

control over the alleged venture, as "assembling a management team"

is a precise, tangible service she could provide. Without a

management team, it is arguable that the alleged joint venture

would not continue. In addition, Kirk clearly acted at the

forefront of all negotiations with GTCR. For example, the record

indicates that she was the main individual Plaintiff that

participated in negotiations with GTCR. DSOF (doc. 240) at ¶¶ 1, 2,

4, 5, 7, 9; PSOF (doc. 271) at ¶¶ 1, 2, 4, 5, 7, 9. Moreover, Kirk

indicated her influence upon the joint venture when, in early

September 1999, she threatened to withdraw from the negotiations

with GTCR if their commitment to fund the future BPO was not

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clarified. FAC (doc. 121) at ¶ 155. Providing such services that

would likely determine the future of the alleged joint venture

seems to fall within the context of Ellingson and its idea of

"mutual control." 22 Ariz. App. at 386-87.

On the other hand, Hartmann's claimed duty of "helping build a

leading BPO company" is not as tangible and does not establish that

Hartmann had a right of "mutual control" or "management" over the

subject matter of the venture. Moreover, Plaintiffs do not point

to any evidence in the record that indicates that Hartmann provided

this service to any entity other than LeapSource. Plaintiffs

provide no evidence that any of the other individual Plaintiffs

provided any service or management to the alleged joint venture

that would equate to an equal right of control. 

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). 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). Here,

the Court finds that Plaintiffs have failed to make a showing

sufficient to establish that the individual Plaintiffs, except

possibly Kirk, held an equal right of control in the alleged KirkGTCR Joint Venture. Accordingly, the Court concludes that only

Kirk's equal right of control in the alleged Kirk-GTCR Joint

Venture remains a genuine issue of material fact.

. . .

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3. Participation in Profits and Losses

GTCR further argues that the sharing of profits or losses was

never contemplated nor did it occur within the alleged joint

venture. Motion (doc. 239) at 22. Again, GTCR cites statements

made by the individual Plaintiffs indicating that the alleged joint

venture had no profits or losses of which they could share, nor did

they consider themselves as sharing in any such profits or losses. 

Id., citing Exbt. 19 (doc. 240) at 122; Exbt. 21 (doc. 240) at 96;

Exbt. 23 (doc. 240) at 298; Exbt. 24 (doc. 240) at 124.

Again, Plaintiffs respond to this argument by asserting that

GTCR has misinterpreted this element of a joint venture. Resp.

(doc. 253) at 19. Plaintiffs contend that under both the current

and prior versions of the Uniform Partnership Act, the division of

profits and losses does not require equal sharing of monetary

profits and losses. Id. Instead, Plaintiffs assert that the

contribution of services by one or more of the parties is

sufficient to satisfy the requirement of "participation" in profits

and losses of the venture. Id.

The term 'losses' is not limited to monetary

losses, but includes time expenditures and out-ofpocket expenses, especially where one party in a

joint venture furnishes property and the other

only services.

Id., citing Ellingson, 22 Ariz. App. at 386. In Ellingson, the

court concluded that "[b]y agreeing to an exchange of services for

a share of the profits to be derived from the joint venture, the

parties provided for Sloan's participation in any losses." 22

Ariz. App. at 386. 

Here, Plaintiffs compare the facts in Ellingson with those in

the case at bar. "[T]he plaintiffs who resigned from Arthur

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Andersen to join GTCR in building an industry-leading BPO generally

provided services to the joint venture, although some of them also

paid expenses of creating the new business venture, while GTCR

committed to provide the money required[.]" Resp. (doc. 253) at 20.

As previously stated, Kirk provided services to the alleged

Kirk-GTCR Joint Venture. Specifically, Kirk agreed to assemble a

management team and acted as the main negotiator with GTCR

regarding the future BPO. The Court believes that such an

agreement may fall within the context of the rule defined in

Ellingson. Thus, the Court concludes that Plaintiffs have

established that Kirk's participation in the profits and losses of

the alleged Kirk-GTCR Joint Venture remains a genuine issue of

material fact.

4. Effect of the Creation of LeapSource on the Alleged 

Joint Venture

Next, GTCR argues that the joint venture ended when LeapSource

was incorporated and the alleged joint venture did nothing after

such date of incorporation. Motion (doc. 239) at 22. First, GTCR

argues that under Arizona law, "a joint venture agreement

terminates when 'the purposes of the agreement have been

accomplished.'" Id., citing Marmis v. Solot Co., 117 Ariz. 499,

503-04 (1978). They also cite an opinion issued by the

Pennsylvania Supreme Court holding that "where the 'sole business'

of the parties was carried on by the corporation, and where '[n]o

such business was previously carried on by...the stockholders

acting as individuals or as partners,' the employee could not

sustain his claims that the parties were concurrently operating as

partners.'" Id. at 23, citing Schuster v. Largman, 162 A. 305,

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305-06 (Pa. 1932). Thus, GTCR contends that once LeapSource was

formed and the written agreements dated September 27, 1999 were

executed, any joint venture based on the terms of the SOU would

have terminated. Motion (doc. 239) at 22.

Second, GTCR cites two cases, both of which are based on New

York law, which hold that incorporation of a business is

fundamentally inconsistent with continuing to do business as a

joint venture. Motion (doc. 239) at 23, citing WMW Mach. v.

Werkzeugmaschinenhandel GmbH IM Aufbau, 960 F.Supp. 734, 746

(S.D.N.Y. 1997) (fiduciary obligations of co-adventurers cease when

they agree to conduct business as a corporation); Sanders v.

Boelke, 172 A.D.2d 1014, 1015 (N.Y. 1991). 

GTCR asserted this same argument in its motion to dismiss. 

Mot. to Dismiss (doc. 16). At that time, the Court concluded that

dismissal on this basis was inappropriate. Order (doc. 72) at 23-

24.

Despite the clear law in New York, cases in

California, Florida, Illinois, Maryland,

Massachusetts, Michigan, Montana, North Carolina,

and Wisconsin hold the opposite. 8 FLETCHER

CYCLOPEDIA CORPORATIONS §3997.10, n. 1 (2001 Rev.)

at 302. Since Arizona has not squarely addressed

this issue, in light of the overwhelming weight of

authority which allows a pre-incorporation joint

venture to survive incorporation, this court

predicts that Arizona will follow this trend. 

However, the court notes that while these states

hold that a joint venture can survive

incorporation, this does not mean that the venture

necessarily does survive. In MacDonald v.

MacDonald, 192 N.W.2d 903 (Wis. 1972), for

example, the court held that survival of the

venture was a question of the parties’ intent. 

Since it is impossible at this stage to

determine whether the parties intended the joint

venture to continue after the incorporation of

LeapSource, the survival issue cannot be

determined at this time. The court has noted that

survival would present some rather odd results if

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the terms of the joint venture and the LeapSource

governing documents were inconsistent; however,

that is not an issue appropriate for resolution at

this time. The parties may argue the effects of

the joint venture agreement on the LeapSource

governing documents (and vice versa) at a later

time if it can be shown that the venture was

intended to survive incorporation.

Id.

As they did in their response to GTCR's prior motion to

dismiss, Plaintiffs argue that a joint venture and a corporation

can co-exist. Resp. (doc. 253) at 20-23. In addition to the case

law they cited in their previous briefs, Plaintiffs also cite

Holmes v. Lerner, 74 Cal. App. 4th 442, 445 (1999), to support

their argument. "[I]nterpreting the Uniform Partnership Act,...

[the court found] the existence of a joint venture where the

parties' very first discussions about the business venture

contemplated the formation of a corporation[.]" Resp. (doc. 253)

at 22, citing Holmes, 74 Cal. App. 4th at 453-57.

As stated above, the Court, in its prior order, concluded

that, although Arizona has not yet squarely addressed this issue,

it will likely follow the overwhelming weight of authority which

allows a pre-incorporation joint venture to survive incorporation. 

Order (doc. 72) at 23. However, the Court noted that although a

joint venture can survive incorporation, that does not mean that it

necessarily does survive. Id. Survival depends on the parties'

intent. Id. at 24. Plaintiffs now assert that questions of intent

are inappropriate for summary judgement, thus, GTCR's motion on

this issue should be denied. Resp. (doc. 253) at 23.

Although the Court, in its prior order, stated that the

continuation of any joint venture after incorporation of LeapSource

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is dependent upon the parties' intentions, the issue of intent need

not be reached on this motion. Truly, it is unclear to the Court

whether Plaintiffs assert that the Kirk-GTCR Joint Venture survived

after the incorporation of LeapSource as a separate entity. Beyond

asserting that such a situation could occur, Plaintiffs provide the

Court with nothing to indicate that such a situation did occur

here. Other than their claim that GTCR promised to "be [Kirk's]

'partner for life,'" Plaintiffs produce no arguments or evidence

indicating that any of the elements of a joint venture existed

after the parties effectuated the LeapSource agreements. Resp.

(doc. 253) at 12. Moreover, the alleged terms of the Kirk-GTCR

Joint Venture that Kirk listed in her interrogatory responses refer

only to "the" new venture, not multiple new ventures. PSOF (doc.

271) at Exbt. 2. Thus, without further evidence indicating that

the parties contemplated the creation of multiple businesses, it is

logical to conclude that "the new venture" was LeapSource. 

Plaintiffs have submitted no arguments or evidence showing that the

elements of a separate joint venture were manifested and satisfied

in another capacity. 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). Thus, the Court finds

that no genuine issue of material fact remains in regard to this

issue. 

5. Parole Evidence Rule

GTCR argues that Plaintiffs' Counts 11, 12, 14 and 15 fail for

the additional reason that the alleged Kirk-GTCR Joint Venture

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contradicts the terms of the parties' integrated written agreements

and thus violates the Parol Evidence Rule. Motion (doc. 239) at

24. In support of their argument, GTCR cites case law from

Illinois that explains the Four Corners rule for written contracts. 

Id. GTCR argues that these cases establish that if the terms of a

contract are clear and unambiguous, the court may not refer to any

other evidence or allegations outside the contract itself. Id.

Moreover, GTCR contends that "Illinois law is clear that 'where

parties formally include an integration clause in their contract,

they are explicitly manifesting their intention to protect

themselves against misinterpretations which might arise from

extrinsic evidence." Id. at 24, citing Air Safety, Inc. v.

Teachers Realty Corp., 706 N.E.2d 882, 885 (Ill. 1999).

In this case, on September 27, 1999, Kirk, GTCR and the

corporation they created, Kirkco, entered into a series of

agreements, which included integration clauses. Id. at 25. GTCR

cites language from the Kirk SMA, asserting that full integration

of these agreements was intended to include all aspects of their

relationship. Id. at 26.

Complete Agreement. This Agreement, those

documents expressly referred to herein and other

documents of even date herewith embody the

complete agreement and understanding among the

parties and supersede and preempt any prior

understandings, agreements or representations by

or among the parties, written or oral, which may

have related to the subject matter hereof in any

way.

Id., citing Exbt. 6 (doc. 240) at 17. GTCR argues that the

parties' written agreements dated September 27, 1999, explicitly

supercede and preempt the September 14, 1999 SOU that contains some

of the joint venture terms. Motion (doc. 239) at 26. Thus, they

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assert that Plaintiffs' attempt to establish a separate joint

venture is foreclosed under the Parol Evidence Rule. Id. at 27.

In contrast, Plaintiffs first argue that only one of the

documents executed on September 27, 1999 was signed by all the

parties, and the integration clause in that agreement was selflimiting. Resp. (doc. 253) at 24. Plaintiffs assert that only the

Stockholders Agreement was signed by all of the individual

Plaintiffs and GTCR. Id. Furthermore, Plaintiffs contend that the

integration clause within the Stockholders Agreement was selflimiting, making itself only relevant to the subject of "buying

LeapSource stock" and nothing else. Id.

Entire Agreement. Except as otherwise expressly

set forth herein, this document embodies the

complete agreement and understanding among the

parties hereto with respect to the subject matter

hereof and supercedes and preempts any prior

understandings, agreements or representations by

or among the parties, written or oral, which may

have related to the subject matter in any way.

PSOF (doc. 271) at Exbt. 15. Thus, Plaintiffs argue that any other

representations made by the parties were not integrated into this

written agreement. Resp. (doc. 253) at 25.

Second, with respect to the integration clause that GTCR cites

in its motion and the clauses contained in the SMAs and Employment

Agreements, Plaintiffs argue that such clauses also do not indicate

an integration of all of the parties' representations. Id.

Plaintiffs initially note that the parties to the Employment

Agreements were the individual Plaintiffs and Kirkco or Leap, Inc.,

not GTCR. Id. In addition, Plaintiffs assert that the integration

clauses within these documents were also self-limiting, containing

their relevance to only "the terms of [the parties'] employment by

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LeapSource." Id. at 26. 

Plaintiffs argue that, at most, "GTCR can only attempt to

extend the reach of these integration clauses by arguing that they

are ambiguous." Id. Arguing that the law of Illinois clearly

holds that any ambiguities present in a written contract must be

construed against the preparer of the document, Plaintiffs contend

that the integration clauses here must be construed against GTCR.

Id. However, Plaintiffs assert that if the Court finds the

language of the contract to be susceptible to more than one

meaning, an ambiguity is present and interpretation of such

language is a question of fact. Id. at 27. Moreover, Plaintiffs

contend that parole evidence should be admitted to determine the

intent of the parties with regard to the subject of the ambiguity.

Id.

In reply, GTCR asserts that each of these arguments is

incorrect. First, GTCR contends that common rules of construction

demonstrate that the phrase "among the parties" could not refer to

Kirk and LeapSource alone, because "among" generally refers to more

than two persons. Reply (doc. 265) at 9. Second, GTCR asserts

that the phrase "subject matter hereof" in the Kirk SMA is clear

and unambiguous in its reference to the subject matter of the

"complete agreement." Id. The "complete agreement" includes those

matters addressed in the Purchase Agreement, Stockholders

Agreement, Registration Agreement and Professional Services

Agreement. Id. GTCR argues that if the parties intended to limit

the meaning of the integration clause in the Kirk SMA to only

include the subject matter of the Kirk SMA, they could have

expressly done so. Id. at 10. GTCR contends that the integration

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clause contained in the Professional Services Agreement indicates

that the parties "knew full well how to write an integration clause

with the narrow effect that plaintiffs now assert." Id.

Entire Agreement; Modification. This Agreement (a)

contains the complete and entire understanding and

agreement of GTCR and the Company with respect to

the subject matter hereof; and (b) supersedes all

prior and contemporaneous understandings,

conditions and agreements, oral or written,

express or implied, respecting the engagement of

GTCR in connection with the subject matter hereof.

DSOF (doc. 240) at Exbt. 9.

The integration clauses contained in the Kirk SMA and the

other agreements executed on September 27, 1999, extinguished any

existing Kirk-GTCR Joint Venture. At the outset, despite

Plaintiffs' assertions, it is clear that GTCR was intended as a

party to such agreements. In a section of the Kirk SMA entitled

"General Provisions," the contract states that "[e]ach of the

parties to this Agreement (including the investors) will be

entitled to enforce its rights under this Agreement." Exbt. 6

(doc. 240) at §11(h). Neither party disputes that "the investors"

were GTCR. More specifically, GTCR signed the documents, above

which, in the Kirk SMA, is written "Agreed and Accepted." DSOF

(doc. 240) at Exbts. 6-10. 

Under Illinois law, the "four corners" rule for written

contracts establishes that if the terms of a contract are clear and

unambiguous, the court may not refer to any other evidence or

allegations outside the contract itself. See Bourke v. Dun &

Bradstreet Corp., 159 F.3d 1032, 1036 (7th Cir. 1998); Manor

Healthcare Corp. v. Soiltest, Inc., 549 N.E.2d 719, 724 (Ill. App.

1989); AZL Resources, Inc. v. Bromagen, 398 N.E.2d 292 (Ill. App.

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1979). In such cases, extrinsic evidence will not be considered. 

Berutti v. Dierks Foods, Inc., 496 N.E.2d 350, 352 (Ill. App.

1986). 

In the instant case, the Court does not find the contract

language in the contested agreements to be ambiguous. The parties

agreed in the integration clauses included in the Kirk SMA, the

Stockholders Agreement, and the Professional Services Agreement

that the signed contracts embodied the "complete agreement" and

that they "supersede[d] and preempt[ed] any prior understandings,

agreements or representations by or among the parties, written or

oral, which may have related to the subject matter hereof in any

way." DSOF (doc. 240) at Exbts. 6, 7, 9. The parties do not

dispute that, in the eyes of the law, the five agreements executed

on September 27, 1999, are seen as one contract. See Labor World,

Inc. v. Just Parts, Inc., 735 N.E.2d 149, 152 (Ill. App. Ct. 2000)

("The general rule is that in the absence of evidence of a contrary

intention, where two or more instruments are executed by the same

contracting parties in the course of the same transaction, the

instruments will be considered together and construed with

reference to one another because they are, in the eyes of the law,

one contract."). Consequently, the integration clauses apply to

the entire agreement. Therefore, the Court may not review any

other evidence or allegations, outside the contracts, concerning an

alleged separate agreement, and Plaintiffs' Counts 11, 12, 14 and

15 fail as a matter of law.

B. Counts 11, 12, 14, 15 and 22

Count 11 of Plaintiffs' FAC alleges a breach of fiduciary duty

claim against GTCR. See FAC (doc. 121) at 87. Count 12 alleges

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aiding and abetting breaches of fiduciary duty claims against the

GTCR entities, Nolan, Rauner, Makings, Yih, Donnini, Canfield,

Eaton, AEG Partners and K&E. Id. at 89. Count 14 contains a claim

for tortious interference with prospective economic advantage

against the GTCR entities, Nolan, Rauner, Makings, Yih, Eaton, AEG

Partners, and K&E. Id. an 90. Count 15 alleges a breach of the

joint venture agreement against GTCR. Id. at 92. Finally, in

Count 22, individual Plaintiffs claim that GTCR breached the

Purchase Agreement and duty of good faith and fair dealing arising

from the Purchase Agreement. Id. at 102. On this claim,

Plaintiffs assert that, through the joint venture, they were made

third party beneficiaries to the Purchase Agreement. FAC (doc.

121) at ¶ 476. Thus, Count 22 exclusively relies on the existence

of a joint venture between the parties. 

In its motion for summary judgment, GTCR argues that each of

these claims arise out of the alleged joint venture and, thus, must

fail as no joint venture existed. Motion (doc. 239). The Court

has determined that Plaintiffs failed to sufficiently establish

that each of the individual Plaintiffs, except possibly Kirk, had

an equal right of control over the alleged joint venture. In

addition, the Court concluded that Plaintiffs have failed to

produce any evidence that indicates that any joint venture

continued after the incorporation of LeapSource. Finally, due to

the parole evidence rule, the Court concluded that the integration

clauses contained within the Kirk SMA and other LeapSource

documents extinguished any previously existing Kirk-GTCR Joint

Venture agreement. Accordingly, the Court shall grant summary

judgment in favor of GTCR on Counts 11, 12, 14, 15 and 22.

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C. Promissory Estoppel: Count 16

Count 16 alleges a promissory estoppel claim against GTCR. 

FAC (doc. 121) at 94. The FAC claims that GTCR, Nolan and Rauner

made certain promises to individual Plaintiffs Kirk, Hartmann and

McCollum between July and September 1999, which these parties

relied upon to their detriment. Id. at ¶¶ 431-440. 

In order to establish a claim for promissory estoppel,

Plaintiffs must show that GTCR made a promise and should have

reasonably foreseen that Plaintiffs would rely on that promise, and

that Plaintiffs actually relied to their detriment. See

Higginbottom v. State, 203 Ariz. 139, 144 (App. 2002). A plaintiff

must additionally show that he or she had a “justifiable right to

rely” on the promise. Id. However, as the Supreme Court of

Arizona has clarified, “[t]here can be no implied contract where

there is an express contract between the parties in reference to

the same subject matter.” Chanay v. Chittenden, 115 Ariz. 32, 35

(1977); see also Sutter Home Winery, Inc. v. Vintage Selections,

Ltd., 971 F.2d 401, 408-09 (9th Cir. 1992).

GTCR first challenged the viability of this claim in its

motion to dismiss. Mot. to Dismiss (doc. 16). In its Order of

September 30, 2003, the Court declined to dismiss this claim until

discovery illuminated the status of the alleged joint venture. 

Order (doc. 72) at 29. GTCR now offers the same challenges again,

asserting that discovery on the matter is closed and the evidence

indicates that the promissory estoppel claim must fail. Motion

(doc. 239) at 27. 

First, GTCR argues that Plaintiffs' promissory estoppel claim

fails because the same subject matter is addressed by an express

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contract between the parties. GTCR defines the express contracts

as "the fully integrated agreements executed on September 27, 1999,

plus the various employment agreements executed thereafter." 

Motion (doc. 239) at 28. In their motion, GTCR notes that "every

promise underlying the promissory estoppel claim is addressed in

one or more of the parties' subsequent written agreements." Id.

(listing "Funding," "Management," and "Employment" as the three

topics involved in Plaintiffs' promissory estoppel claim and citing

sections of the parties' written contracts that address such

agreements). 

Second, GTCR asserts that the Parole Evidence Rule and the

integration clause bar Plaintiffs' promissory estoppel claim. Id.

at 29. Again, GTCR argues that due to the integration clauses

included in the September 27, 1999 agreements, the agreements were

fully integrated and expressly provided that they superseded all

prior promises or representations "which may have related to the

subject matter hereof in any way." Motion (doc. 239) at 29, citing

DSOF (doc. 240) at Exbt. 6. GTCR asserts that "[t]he alleged

promises (which pertain to funding, management and employment) all

'relate' to the subject matter of the parties' written agreements,"

and, consequently, foreclose Plaintiffs from making claims based on

such alleged promises. Id.

Third, GTCR contends that Plaintiffs could not have

justifiably relied on any of the aforementioned promises since they

later entered into various written agreements which directly

contradicted such promises. Motion (doc. 239) at 29-30. For

example, GTCR argues that any unqualified oral promise to fund the

company was directly contradicted by the LeapSource Purchase

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Agreement. Id. Any promise as to the manner in which GTCR would

be involved in the company’s management is contradicted by the Kirk

SMA and the Stockholders Agreement. Id. In addition, GTCR

contends that any promises as to Andersen-related compensation and

severance payments were expressly contradicted in Plaintiffs' SMAs. 

Id. Finally, GTCR asserts that the claimed promises regarding

funding, management and employment are also inconsistent with the

SOU of September 14, 1999. Id. at 30. As a result, having entered

into these agreements, GTCR contends that Plaintiffs could not

justifiably rely on the oral promises. 

Fourth, GTCR asserts that Plaintiffs' claim must fail because

the alleged promises involved in Plaintiffs' promissory estoppel

claim were merely negotiations. "[T]he promissory estoppel

doctrine is inapplicable where the alleged promises were bargained

for during negotiation of a written agreement and the acts taken in

reliance on those promises were part of the consideration

supporting the written agreement." Motion (doc. 239) at 30. In

support of this argument, GTCR cites Walker v. KFC Corp., 728 F.2d

1215 (9th Cir. 1984), claiming that it is on all fours with the

case at bar. 

In Walker, the plaintiff was a KFC franchisee who claimed to

have leased space and otherwise prepared to operate franchised

restaurants in reliance on promises made prior to the parties

entering into their written franchise agreement. 728 F.2d at 1219.

The court found that the parties obligations were established in

their negotiated written contracts and not the "promises made

outside the written agreements." Id. at 1220.

In sum, either [the franchisor] was in breach of

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the contract or it was not. ...Promissory estoppel

is not a doctrine designed to give a party to a

negotiated commercial bargain a second bite at the

apple in the event it fails to prove a breach of

contract.

Id. 

Here, GTCR argues that Plaintiffs' promissory estoppel claim

relies on alleged promises similar to those discussed in Walker.

Although the Ninth Circuit applied California promissory estoppel

principles in Walker, GTCR contends that such principles are the

same under Arizona law and should be analyzed in the same manner. 

Motion (doc. 239) at 31. Thus, GTCR asserts that Plaintiffs'

alleged reliance on such promises was simply "the deal" and that

they cannot now use promissory estoppel to take a "second bite at

the apple" when their breach of contract claim fails. Id. at 31-

32, citing Walker, 728 F.2d at 1220.

Plaintiffs respond directly with three arguments. First, they

contend that the LeapSource agreements were entered into by

Plaintiffs after they agreed to form the joint venture and after

they left their existing positions at Andersen. Resp. (doc. 253)

at 28. As a result, they claim that the later inconsistent

agreements were entered after the parties had already relied to

their detriment. Id. "Whether it was reasonable for the

plaintiffs to rely on the promises and representations made by GTCR

in agreeing to leave Andersen must be determined as of the time

that the plaintiffs acted in reliance on those promises and

representations." Id.

Second, Plaintiffs assert that, overall, the written

agreements signed by the parties do not contradict the promises

upon which Plaintiffs base their promissory estoppel claim. Id. at

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28-29. Plaintiffs argue that there is no "fully integrated

agreement" that purports to extinguish all previous understandings

between the parties. Id. Regarding the promise that GTCR would

take a "hands-off" approach with respect to the management of the

company, Plaintiffs assert that this understanding was not

contradicted by the Stockholders Agreement, which granted GTCR the

majority of seats on the LeapSource Board of Directors. Resp.

(doc. 253) at 29. "[T]hat provision does not protect GTCR from

liability for interference with management of the company as

alleged in the Fourth Amended Complaint[.]" Id. Moreover, in

regard to the alleged promises to make plaintiffs whole with

respect to anticipated Andersen-related compensation and severance

payments, Plaintiffs assert that such promises are not inconsistent

with the promises made in the SMAs. Id.

Third, Plaintiffs argue that Walker is not at all instructive

in this case. Id. at 29-30. As previously stated, the court in

Walker applied California law. In addition, Plaintiffs assert that

the Walker court also applied a particular provision of California

law that limits the promissory estoppel doctrine "to cases where no

benefit flows to the promisor." Id. at 29, citing Walker, 728 F.2d

at 1220. Citing a case from the District of Delaware, Plaintiffs

argue that Walker has been distinguished as recently as this year

precisely for the reason that it was no guide to the applicability

of promissory estoppel under Arizona law. Id., citing J-Squared

Technologies, Inc. v. Motorola, Inc., 364 F. Supp.2d 449, 453 (D.

Del. 2005).

...Walker v. KFC Corp., 728 F.2d 1215, 1220 (9th

Cir.1984), cited by defendant in support of its

argument, applies California contract law to a

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claim of promissory estoppel; therefore, it is

hardly instructive on Arizona contract law.

J-Squared Technologies, Inc., 364 F. Supp.2d at 453. In its reply,

GTCR challenges this argument on the fact that the J-Squared

Technologies, Inc. decision is a Rule 12(b)(6) dismissal case.

Reply (doc. 265) at 22.

In their Fourth Amended Complaint, Plaintiffs claim that GTCR

made the following promises to them:

432. GTCR, Nolan, and Rauner promised that GTCR

would fully fund the new outsourcing company

during its startup period with $65 million.

433. GTCR, Nolan, and Rauner promised that GTCR

would fund the new outsourcing company during the

startup period when the Company was expected to

incur cash losses between $10 million to $20

million and operate with negative EBITDA.

434. GTCR, Nolan, and Rauner promised that GTCR

would fund the new outsourcing company and allow

it to generate a profit or positive EBITDA.

435. GTCR, Nolan, and Rauner promised that GTCR

would take a "hands-off" role in management by

permitting Kirk, as CEO, to operate the Company.

436. GTCR, Nolan, and Rauner promised that GTCR

would make each of them whole on any bonus or

capital distribution withheld by Andersen or cash

payments due to the spin-off of Andersen

Consulting.

437. GTCR, Nolan, and Rauner promised that GTCR

would pay each of them one-year's severance if

terminated without cause.

FAC (doc. 121) at 94. Plaintiffs assert that they detrimentally

relied on these promises when they "[withdrew] from positions as

partners, senior managers, and managers from Andersen,...[founded]

and [joined] LeapSource as officers, directors, or employees, and

[purchased] common stock in the Company." Id. at ¶ 439. However,

the Court finds that Plaintiffs cannot show that their reliance on

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the alleged oral promises was justifiable since the contracts they

effectuated on September 27, 1999, and the employment agreements

executed thereafter, included integration clauses and contemplated

the same subject matters as those discussed in the promises. For

example, the LeapSource Purchase Agreement outlines GTCR's funding

responsibility to LeapSource. DSOF (doc. 240) at Exbt. 10; see

also Order (doc. 72) at 5-11. In addition, the Kirk SMA and the

Stockholders Agreement contemplate how LeapSource would be

controlled and operated. DSOF (doc. 240) at Exbts. 6, 7. Finally,

the Kirk, Hartmann and McCollum SMAs contemplate their compensation

and any severance payments. Id. at Exbts. 6, 11, 12. “There can

be no implied contract where there is an express contract between

the parties in reference to the same subject matter.” Chanay, 115

Ariz. at 35; see also Sutter Home Winery, Inc., 971 F.2d at 408-09. 

Moreover, many of the alleged promises were also directly

considered in the SOU. The matter of GTCR's funding

responsibility, the basis of Plaintiffs' first three alleged

promises, was clearly contemplated in the SOU. Exbt. 4 (doc. 240)

at §II(A). 

GTCR will commit to invest up to $65.0 million of

equity capital in NewCo. $15 million of the equity

capital will be intended to support the company's

initial capital requirements related to starting

the business, and up to $50 million of capital

will be used to fund Company acquisitions and

contract acquisition costs, both as approved by

the Board.

Id. In addition, the matters of Kirk running the company and her

compensation, the bases of the Plaintiffs' fourth and fifth alleged

promises, as it relates to Kirk, were clearly contemplated in the

SOU. Exbt. 4 (doc. 240) at §IV(A). 

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Kirk will be the Chief Executive Officer of NewCo.

The CEO's initial compensation will consist of a

base salary of $400,000 per year...The CEO will be

eligible for an annual bonus of up to 50% of base

salary, based on the attainment of financial and

operating objectives to be approved by the

Board...As CEO, Kirk will be responsible for all

aspects of the daily operation of the business,

the completion and integration of acquisitions,

and the pricing and structuring of outsourcing

contracts.

Id. 

Finally, the parties agreed in the integration clauses

included in the Kirk SMA, the Hartmann SMA, the McCollum SMA, the

Stockholders Agreement, and the Professional Services Agreement

that the signed contracts embodied the "complete" or the "entire"

agreement and that they "supersede[d] and preempt[ed] any prior

understandings, agreements or representations by or among the

parties, written or oral, which may have related to the subject

matter hereof in any way." DSOF (doc. 240) at Exbts. 6, 7, 9, 11,

12. Thus, the Court may not review any other evidence or

allegations, outside the contracts, concerning any alleged

promises.

The Court finds it difficult to believe that over a course of

negotiation lasting over five months, and in light of Plaintiffs'

own lawyers directing that the LeapSource Agreements not be

prepared until after the individual Plaintiffs' withdrew from

Andersen, the parties had not reached an agreement on the date of

such withdrawal that eventually led to the LeapSource Agreements

that included the integration clauses. Regardless, the Court

concludes that Plaintiffs cannot establish that they justifiably

relied on the alleged promises due to the express contracts between

the parties referencing the same subject matters and the

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integration clauses contained therein. Consequently, the Court

shall grant summary judgment on Count 16.

IV. K&E's Motion for Entry of Judgment on Counts 12 and 14

On August 23, 2005, K&E filed and served a motion for summary

judgment regarding Plaintiffs' joint venture-related claims and a

joinder in GTCR's motion for summary judgement. K&E Joinder and

Motion (doc. 242). Plaintiffs failed to file a response to K&E's

motion. Thus, on October 18, 2005, K&E filed a Notice of

Plaintiffs' Failure to Respond and Motion for Entry of Judgment Re

Joint Venture-Related Claims. Mot. Entry of Judg. (doc. 269) at 1.

Pursuant to Federal Rule of Civil Procedure 56(e) and Rule 7.2(i)

of the Rules of Practice of the United States District Court for

the District of Arizona (hereinafter "Local Rules"), K&E moves for

entry of judgment on Counts 12 and 14 of the FAC. Id.

On August 23, 2005, K&E joined GTCR's motion for summary

judgment, asserting that there is no evidence to establish that a

joint venture existed between Plaintiffs and GTCR. K&E Joinder and

Motion (doc. 242) at 2. In addition, in its own motion for summary

judgment, K&E argued that it was separately entitled to summary

judgment on the joint venture-related claims because there is no

evidence that K&E knew about the existence of the purported joint

venture. Id. Plaintiffs did not respond to K&E's motion. 

Under Rule 56(e) of the Federal Rules of Civil Procedure, a

non-moving party must respond to a properly supported motion for

summary judgment by setting forth "specific facts showing that

there is a genuine issue for trial." "If the adverse party does

not so respond, summary judgment, if appropriate, shall be entered

against the adverse party." Id. Furthermore, Local Rule 7.2(i)

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provides that, “if the opposing party does not serve and file the

required answering memoranda . . . such non-compliance may be

deemed a consent to the denial or granting of the motion and the

Court may dispose of the motion summarily.” The Ninth Circuit

requires that such motions be facially meritorious. See Henry v.

Gill Indus., 983 F.2d 943, 950 (9th Cir. 1993). 

In light of the fact that over five months have passed since 

K&E filed its motion, and K&E's motion is facially meritorious, the

Court shall grant K&E's motion for summary judgment.

 Therefore, 

IT IS ORDERED that GTCR's motion for summary judgment on the

joint venture-related claims (Counts 11, 12, 14, 15, 16, and 22)

(doc. 239) is GRANTED. 

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

on Counts 12 and 13 (doc. 242) is GRANTED. 

IT IS FINALLY ORDERED that K&E's motion for entry of judgment

(doc. 269) is GRANTED.

DATED this 28th day of March, 2006.

Copies to counsel of record.

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