Encompass Holdings Inc. v. Daly et al

Filing 245

ORDER RULING ON OBJECTIONS. Signed by Magistrate Judge Bernard Zimmerman on 10/21/2011. (bzsec, COURT STAFF) (Filed on 10/21/2011)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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ENCOMPASS HOLDINGS, INC.,

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Plaintiff(s),
v.
CAREY F. DALY II, et al.,

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Defendant(s).
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No. C09-1816 BZ
ORDER RULING ON OBJECTIONS

The court makes the following rulings on Defendants’

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objections to the Declarations of Scott Webber and Kirk

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Hurford.

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As to the objections to the Declaration of Scott Webber,
the court rules as follows:

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Page/
Line

Statement(s) to
Which Objection is
Made

Defendants’
Ground for
Objection

2:12-13

I was told Daly had
a buyer by the time
I first heard of
Daly

Hearsay; No
foundation

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Ruling

Sustained

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2:15-17

Goldenberg was
trying to work a
purchase deal with
Daly, behind my
back

Hearsay; No
foundation;
statement of
opinion

Overruled.
See Fed. R.
Civ. Proc.
801(d)(2).

3:3-6

One of the
principal reasons
that I entered the
December Agreement
and the reason I
advised Encompass
to do so was
because Daly and
Lanham represented
to me and others at
Encompass that they
had a viable plan
to obtain funding
for Nacio’s future
operations

Parol
Evidence
Rule;
Irrelevant;
Statement of
opinion;
Only fact at
issue is
whether
Webber and
others at
Encompass
that they
had a viable
plan to
obtain
funding for
Nacio’s
future
operations

Overruled

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3:8-15

Daly had written a
letter that
indicated that he
was considering
filing a
shareholder
derivative action
against a number of
people associated
with Encompass. I
viewed Daly’s
threat to be an
idle one and I
viewed it be
totally without
merit. The
threatened
shareholder case
was not a factor in
my decision
regarding the
December Agreement
other than the fact
that since Daly was
making such claims
I wanted to be sure
that in the
agreement Daly
completely released
Encompass and its
officers and
directors from any
such frivolous
actions

Parol
Evidence
Rule; Best
Evidence
Rule;
Statement of
opinion;
Irrelevant

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Overruled, to
the extent the
testimony goes
to Webber’s
state of mind.

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3:16-21

Daly then sent only
me the Complaint he
mocked up. He made
claims like he’d
own my house if I
didn’t give Nacio
$200,000 of NIR
borrowed funds.
Attorney Paul
Steiner’s name was
on that Complaint.
Steiner represented
Encompass at the
time in the
NIR/Condiotti
matters so I knew
it was not likely
that Mr. Steiner
prepared the
complaint because
of his obvious
conflict of
interest

Irrelevant;
Best
Evidence
Rule;
Statement of
opinion;
Speculative

Overruled

3:22-23

I just told Daly I
couldn’t wait until
Monday to see what
he filed

Irrelevant

Overruled

3:23-24

I called Steiner
about the Complaint
and he said he
didn’t write it

Hearsay;
Irrelevant

Overruled

3:24-25

I signed the
December Agreement
in order to follow
prior BOD
directives and to
pay NIR debt

Irrelevant

Overruled

4:1-2

The December
Agreement did not
separate Nacio from
Encompass. Under
the agreement
Encompass remained
the sole
shareholder of
Nacio, retained all
its voting rights

Parol
Evidence
Rule; Best
Evidence
Rule;
Statement of
opinion

Overruled.
However, the
court attaches
little weight
to Webber’s
legal
conclusions and
statements of
opinions.

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4:8-9

Under the terms of
the December
Agreement Lanham,
at the request of
his attorney Paul
Steiner, requested
that he be given
the share
certificate of
Nacio shares owned
by Encompass

No
foundation;
Hearsay

Sustained.
Inconsistent
with admission
on page 3,
lines 16-21.

4:10-11

Mr. Laskowski
presented a draft
share certificate
to Lanham as
“trustee”

Best
Evidence
Rule; No
foundation;
Hearsay

Overruled. See
Miller Decl.
Ex. 15.

4:11-14

I understood that
Lanham was an
integral part of
the December
Agreement in that
he was to hold the
shares and ensure
that no party
exercised
unauthorized or
unpermitted
dominion and
control over the
share certificate

Parol
Evidence
Rule; No
foundation;
Irrelevant;
Statement of
opinion

Overruled.
However, the
court attaches
little weight
to Webber’s
legal
conclusions and
statements of
opinions.

4:15-16

Encompass retained
all voting rights
to the shares.
Neither Daly nor
Lanham had any
voting rights with
regard to the Nacio
shares

Parol
Evidence
Rule; Best
Evidence
Rule;
Statement of
opinion

Overruled.
However, the
court attaches
little weight
to Webber’s
legal
conclusions and
statements of
opinions.

4:16-17

Was that stated
somewhere? I hope
that’s the case as
Steiner still had a
fiduciary
responsibility to
Encompass

Irrelevant;
Statement of
opinion; No
foundation

Sustained as
unintelligible.

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5:10-13

Daly and Lanham
refused to comply
with the request of
Encompass’ attorney
and continued to
manage the
business, control
the bank accounts
handle tax payments
and other
obligations of
Nacio

Hearsay; No
foundation

Sustained as to
whether Daly
and Lanham
refused to
comply with the
request of
Encompass’
attorney and
overruled as to
whether Lanham
and Daly
continued to
manage Nacio’s
business
affairs.

5:16-17

In the fall of 2007
Daly was acting as
the executive vice
president of Nacio
and was managing
the income and
expenses of the
company, including
responsibility to
the 941 trust fund
taxes due to the
IRS. As executive
vice president it
was Daly’s
responsibility to
keep the books and
records current and
to make sure
provisions were
made to pay the
company’s
obligations

No
foundation;
Statement of
opinion

Overruled.
However, the
court attaches
little weight
to Webber’s
legal
conclusions and
statements of
opinions.

5:19-22

In fact, after the
sale of the Nacio
assets through the
bankruptcy court, I
learned from a
review of the
records that Daly
had not made
arrangements to pay
the 941 taxes, nor
had have made the
payment for the
rent on the space
occupied by Nacio

Hearsay;
Best
Evidence
Rule;
Statement of
opinion

Overruled

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5:22-24

As a result of the
later the business,
after the asset
sale, was almost
immediately force
to vacate its
business premises

No
foundation;
Statement of
opinion

Overruled

5:25-26

Daly and Lanham
increased Daly’s
salary to $20,000
per month plus car
allowance and huge
entertainment
expense

No
foundation;
Irrelevant

Sustained

5:266:2

Without the
financial
information
controlled by Daly
and withheld from
Encompass by Daly,
Encompass was
unable to make the
required filing
with the SEC for
2007

No
foundation;
Statement of
opinion

Overruled

6:10-12

I had learned that
despite
representations by
Daly and Lanham
that they had
financing in place,
Daly and Lanham did
not have the
funding

Hearsay; No
foundation

Sustained

6:11-14

I had contacted a
person who was
identified as an
“attorney
representing an
investor” only to
be told that the
negotiations for an
investment in Nacio
had terminated

Hearsay; No
foundation

Sustained

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6:16-18

I called the
attorney named in
the document as the
Gallant attorney,
Randolph Katz. I
asked him about the
letter of intent
and was told by Mr.
Katz that they no
longer had any
interest in buying
Nacio.

Hearsay; No
foundation

Sustained as to
Katz statement.

6:25-26

Lanham had failed
to provide adequate
assurances to
Encompass

No
foundation;
Statement of
opinion

Overruled

6:267:2

I had also learned
from the bankruptcy
filing that under
the Third Amended
Plain submitted by
Daly and Lanham
that holders of
pre-petition equity
(i.e., Encompass)
would receive no
distribution and
that all shares
would be cancelled

Best
Evidence
Rule;
Statement of
opinion; No
foundation

Overruled.
However, the
court attaches
little weight
to Webber’s
legal
conclusions and
statements of
opinions.

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As to the objections to the Declaration of Kirk Hurford,
the court rules as follows:
Page/
Line

Statement(s) to
Which Objection is
Made

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Defendants’ Ground
for Objection

At the time I was
working with
Nacio the firm
had in place a
functioning and
staffed sales
department and
was actively
collecting its
receivables.

Ruling

Hearsay; No
Overruled
foundation. The
Declaration does not
establish that
Hurford was
“occasionally”
working at Nacio in
December 2007 and
thereafter; the
Declaration does not
establish Hurford’s
function at Nacio,
that he had personal
knowledge of the
existence and
function of the
sales staff, or that
he had personal
knowledge of the
process and activity
of the department
responsible for
collecting
receivables.

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Dated: October 21, 2011

Bernard Zimmerman
United States Magistrate Judge

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