Opposition Brief — Aura Systems, Inc. v. Frankston

Supreme Court, U.S,

8) FILED

‘

No. 95-318 SEP Be 15

es ca ppeiaan

Supreme Court of the United States

o

October Term, 1995

AURA SYSTEMS, INC., et al.,

Petitioners,

vs.

MICHAEL J. FRANKSTON,

Respondent.

On Petition for Writ of Certiorari to the United States Court

of Appeals for the Ninth Circuit

RESPONDENT’S BRIEF IN OPPOSITION

JOSHUA TROPPER

Counsel of Record

KEVIN J. TULLY

GREENE, CHAUVEL, DESCALSO

& TULLY

Attorneys for Respondent

901 Mariner’s Island Boulevard

Suite 400

San Mateo, California 94044-1594

(415) 573-9500

(800) 3 APPEAL + (800) 5 APPEAL « (800) BRIEF 21

ervices, inc.

(>

i

QUESTIONS PRESENTED

1. Whether this Court should review a District Court’s denial

of petitioners’ motion to dismiss for improper venue, when

petitioners did not appeal the ruling and have falsely stated to this

Court that there was no such ruling?

2. Whether this Court should review the dismissal of

petitioners’ counterclaim when petitioners did not appeal that

dismissal?

3. Whether this Court should review the correct application

of the choice-of-law rules in effect in Massachusetts at the time

this action was filed, although four years later the highest court of

Massachusetts announced that it would apply a different choice-

of-law rule “for the future”?

4. Whether this Court should review a choice-of-law issue in

light of the finding by the Court of Appeals that the District Court’s

order of summary judgment would have been reversed in light of

material issues of disputed fact even if a different state’s law were

applicable?

ii

TABLE OF CONTENTS

Page

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1. Inthe District of Massachusetts ........... 2

2. Inthe Central District of California ........ 3

3. IntheCourtofAppeals ......cccvcccccce 3

Reasons for Denying the Writ .. ee 5

I. Correctness of venue in Massachusetts is a sham

SOND. cccccectvuvecddevacseueeheexeeeeeees 5

II. Itis not necessary that every claim in an action be

governed by the law of the same state. .......... 6

III. The district court was bound to apply the law in

effect in Massachusetts when the action was filed. 7

ii

Contents

Page

IV. Adifferent choice-of-law rule would still bring the

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TABLE OF CITATIONS

Cases Cited:

Clark v. Pierce, 215 Mass. 552, 102 N.E. 1094(1913) ... 3

Cosme v. Whitin Machine Works, Inc., 417 Mass. 643, 632

RE REIS ane 8

Dimidowich v. Bell & Howell, 803 F.2d 1473 (9th Cir.

1986), reh’g denied, op. modified, 810 F.2d 1517 (1987)

IE EE 7

Erie R. Co.v. Tompkins, 304 U.S. 64, 58 S. Ct. 817,21 L.

GE AE ee 3

Ferens v. John Deere Co., 494 U.S. 516, 110 S. Ct. 1274,

108 L. Ed. 2d 443(1990) ........ io bww kde euele en 1,3

Hemric v. Reed and Prince Manufacturing Co., 739 F.2d 1

SS ea A ae 3,8

In re Kirkland, 915 F.2d 1236 (9th Cir.1990) .......... 7

New England Telephone & Telegraph Co. v. Gourdeau

Construction Co.,419 Mass. 658, 647 N.E. 2d 42 (1995)

iv

Contents

Sun Oil Co. v. Wortman, 486 U.S. 717, 108S. Ct. 2117, 100

hn A PUP UEPEED 6 vcvscnvinendecvacceeneeess

Wilcox v. Riverside Park Enterprises, 21 Mass. App. 419,

487 N.E. 2d 860 (Mass. App. 1986), rev’d on other

grounds, 399 Mass. 533 (1987) ............0e00ee-

Statute Cited:

SOE UTED bv eneheatsedprreesertsiseeces

APPENDIX

Appendix A — Defendants’ Motion to Dismiss Filed

POUT, BUEE erase tne nc euedseeseetwes st ees

Appendix B — Excerpts of Transcript of Hearing .......

Appendix C — Counterclaim for Damages; Demand for

Jury Trial Filed February 19,1992 ..............4..

Appendix D — Defendants’ Statement of Uncontroverted

Facts and Conclusions of Law .................05:

Page

7,8

4a

8a

]

STATEMENT OF JURISDICTION

Petitioners’ Statement of Jurisdiction includes an incorrect

Statement of the issue, along with a correct statement of

jurisdiction. The issue in this action was not the choice-of-law

rules announced by this Court in Ferens v. John Deere Co., 494

U.S. 516, 110 S. Ct. 1274, 108 L. Ed. 2d 443 (1990); it appears

that petitioners have acknowledged that the District Court below

was obliged to apply the choice-of-law rules of Massachusetts, as

required by Ferens.

The real issue was proper application of the Massachusetts

choice-of-law rules in determining which statute of limitations

governed respondent’s claims in the action. Petitioners’

suggestions that Ferens was wrongly decided, or should be

subject to a limiting construction, were not raised at any stage

below, and are therefore not properly included within the Court’s

jurisdiction on this petition.

STATEMENT OF THE CASE

A. Statement of Facts

This was an action by respondent, Michael J. Frankston

(“Frankston”), to collect debts owed to him by the corporate

petitioners (collectively “Aura”) for loans and for services

rendered. Aura has either pleaded or otherwise stipulated that

Frankston was at all relevant times a resident of the

Commonwealth of Massachusetts, that most of the loans in issue

were negotiated by telephone from Aura’s offices in California to

Frankston’s home in Massachusetts, and that Frankston

performed substantial services for Aura at his home office in

Massachusetts.'

1. Petitioners’ assertion that “All relevant material acts occurred in

California” is false. See Petitioners’ Counterclaim for Damages, { 2 (10a);

(Cont'd)

2

Aura was a high technology start-up company, of which

Frankston was among the founding shareholders and directors,

and it had been agreed that payment would not be due to

Frankston until Aura had sufficient assets to make payment.”

B. Proceedings Below

1. Inthe District of Massachusetts

In March 1991, plaintiff filed this action in the United States

District Court for the District of Massachusetts. Respondents

moved to dismiss for improper venue or, in the alternative, to

transfer the action to the Central District of California as a matter

of convenience pursuant to 28 U.S.C. § 1404(a).° The District

Court in Massachusetts denied petitioners’ motion to dismiss,‘

but granted the alternative motion to transfer for convenience.

(Cont'd)

Defendants’ Statement of Uncontroverted Facts and Conclusions of Law, {7 6,

7, 12 (14a). The Appendix includes only those portions of documents which

were included in the Excerpts of Record submitted to the Court of Appeals.

2. Defendants’ Statement of Uncontroverted Facts and Conclusions of

Law, { 20 (16a).

3. Petitioners’ characterization of this motion as to dismiss or to

“transfer to the proper venue” is misleading. See Motion to Dismiss for

Improper Forum, or In the Alterative, Motion to Transfer to Another District

(la).

4. Petitioners’ assertion that the Massachusetts Court did not pass on the

venue question is false. See transcript of hearing (5a, 6a).

3

2. Inthe Central District of California

In February 1992, after the transfer to the Central District of

California had been effected, petitioners answered and filed

counterclaims which specifically relied on California law.

One of petitioners’ counterclaims was dismissed on

summary judgment, a ruling petitioners did not appeal.

Petitioners’ other counterclaims were dismissed by stipulation.

Petitioners sought and obtained summary judgment

dismissing all of Frankston’s claims on the ground that they were

barred by California’s two-year statute of limitation for breach of

oral contract. The District Court held that it had discretion to

choose whether or not to apply the statute of limitations of the

state in which the action had been filed.

3. In the Court of Appeals

Frankston appealed the grant of summary judgment on the

following grounds, which had been asserted to the District Court:

1. In a diversity action transferred for convenience,

the transferee court is obliged to apply the law, including

the choice-of-law rules, that would have been applied by

the transferor court (Ferens v. John Deere Co., supra, 494

U.S. at 524-25); the transferor court was obliged to apply

the law of the state in which it sits (Erie R. Co. vy.

Tompkins, 304 U.S. 64, 58 S. Ct. 817, 21 L. Ed. 1188

(1938)); and binding precedents by both the

Massachusetts Supreme Judicial Court (Clark v. Pierce,

215 Mass. 552, 553, 102 N.E. 1094 (1913)) and the

United States Court of Appeals for the First Circuit

(Hemric v. Reed and Prince Manufacturing Co.,739 F.2d

1 (1st Cir. 1984)) would have required the transferor court

4

in this action to apply Massachusetts’ six-year statute of

limitations to Frankston’s claims.

2. Even if California’s statutes of limitation could

properly be applied to Frankston’s complaint, the

undisputed facts showed that at least some of Frankston’s

claims had been timely filed even under California law,

and that summary judgment for petitioners on the

remaining claims was precluded by genuine disputes as to

matezial facts.

A few weeks before the hearing in the Court of Appeals, the

Supreme Judicial Court of Massachusetts announced that, “for

the future,” Massachusetts courts should no longer automatically

apply Massachusetts’ own statutes of limitation, but should

engage in analysis of various factors to determine which statute

of limitation to apply. New England Telephone & Telegraph Co. v.

Gourdeau Construction Co., 419 Mass. 658, 664, 647 N.E. 2d 42

(1995). Petitioners urged the Court of Appeals to ignore the

explicitly prospective nature of this change in Massachusetts’

choice-of-law rules, and to apply the new rule retroactively to this

action.

The Court of Appeals rejected petitioners’ argument,

correctly holding that “the District Court was required to apply

the law in effect at the time the action arose.” See Petition at 5a.

The Court of Appeals also noted that “summary judgment may

have been inappropriate” even under California law, because

there “appear to be material issues of disputed fact”; elaboration

of that point was not necessary in light of the resolution of the

choice-of-law question. /d. at n. 3. Petitioners do not challenge

this finding, so issuance of certiorari in this case could not change

the result.

5

The Court of Appeals denied petitioners’ subsequent request

for a rehearing, without discussion.

REASONS FOR DENYING THE WRIT

There are no special or important reasons for certiorari in

this case. The decision of the United States Court of Appeals for

the Ninth Circuit is fully in accord with the decisions of this

Court, and does not appear to conflict with decisions of any other

Court of Appeals. The only federal question presented below is a

procedural matter which could not arise in the state courts. Nor is

there any possible suggestion that the Court of Appeals here has

departed from the accepted and usual course of judicial

proceedings; indeed, it had been the District Court in this action

which strayed from established law, and the Court of Appeals

corrected that error.

I.

CORRECTNESS OF VENUE IN MASSACHUSETTS

IS ASHAM ISSUE.

Petitioners base their entire argument on the assertion that

venue was not proper in the District of Massachusetts in the first

place, and that the District Court for the District of Massachusetts

erred by declining to decide petitioners’ motion to dismiss on that

ground (Petition, p. 2). Both components of this premise are

mistaken.

First, the District Court did expressly deny petitioners’

motion to dismiss for improper venue. That denial was not

incorporated into a formal written order, but the transcript is

unambiguous (Sa, 6a). Petitioners did not challenge that ruling in

the Court of Appeals, so they should not be permitted to challenge

it this Court.

6

Second, the District Court’s denial of petitioners’ venue

motion was correct because venue was proper in Massachusetts.

Petitioners’ counterclaim affirmatively alleges that respondent

was at all times a resident of Massachusetts (10a), and

petitioners’ own statement of “Uncontroverted Facts” in support

of their summary judgment motion acknowledged that many of

the contracts at issue in the litigation were entered into in

telephone conversations between petitioners in California and

respondent in Massachusetts (14a), and that a substantial portion

of respondent’s performance of the contracts was completed in

Massachusetts (id.). Since venue could properly be founded on

those contacts, the denial of petitioners’ venue motion was

correct, and petitioners’ choice not to appeal it was sensible.

Il.

IT IS NOT NECESSARY THAT EVERY CLAIM IN

AN ACTION BE GOVERNED BY THE LAW OF THE

SAME STATE.

One recurrent theme in the petition is that it seems unfair that

the timeliness of the complaint, which was filed in Massachusetts

by a Massachusetts resident relying on Massachusetts law, be

governed by Massachusetts law, while California law was

applied to the counterclaim filed in California by California

residents affirmatively relying on California law. Again,

petitioners did not appeal the dismissal of their counterclaim, so

that issue is not properly before this Court.

Moreover, it has been established by this Court that the laws

of different states could govern procedural and substantive

aspects of a single claim. Sun Oil Co. v. Wortman, 486 U.S. 717,

108 S. Ct. 2117, 100 L. Ed. 2d 743 (1988). A suggestion that all

aspects of all claims must be governed by the laws of the same

state, regardless of either traditional or modern choice-of-

7

law principles, would turn decades of diversity jurisprudence

inside out.

Moreover, petitioners note that California’s statute of

limitations would be applied to bar the counterclaim under either

California or Massachusetts choice-of-law rules, so there is no

federal question here (see Petition at p. 5,n. 8).

III.

THE DISTRICT COURT WAS BOUND TO APPLY

THE LAW IN EFFECT IN MASSACHUSETTS WHEN

THE ACTION WAS FILED.

Four years after this action was filed, Massachusetts adopted

a new choice-of-law rule, “for the future.” New England

Telephone & Telegraph Co. v. Gourdeau Construction Co., 419

Mass. 658, 647 N.E. 2d 42 ( 1995). Petitioners seize upon this as

the basis for arguing that the Court of Appeals erred by reversing

a “correct prediction” of this change of law.

However, the District Court in this diversity action had no

privilege to predict changes in state law. It was required to apply

the law in effect at the time the action was filed. E.g., In re:

Kirkland, 915 F.2d 1236, 1238 (9th Cir. 1990); Dimidowich y.

Beli & Howell, 803 F.2d 1473, 1482 (9th Cir. 1986), reh’g denied,

op. modified, 810 F.2d 1517 (1987).

Petitioners try to evade this sensible and practical rule by

arguing that silence from the highest court in Massachusetts since

1913 should be construed as an indication that there simply was

no law in effect in Massachusetts when this action was filed.

However, the lower courts in Massachusetts have consistently

applied the rule set forth by the Massachusetts Supreme Judicial

Court in 1913. See, e.g., Wilcox v. Riverside Park Enterprises, 21

8

Mass. App. 419, 421, 487 N.E. 2d 860, 861 (Mass. App. 1986),

rev'd on other grounds, 399 Mass. 533 (1987). Silence from the

Supreme Judicial Court meant no more than that the law was

firmly settled.

Moreover, the federal district court in Massachusetts would

have been bound by the holdings of the United States Court of

Appeals for the First Circuit, which had specifically disapproved

a prediction that Massachusetts might change its law and

instructed the Massachusetts district court to continue applying

the law as it was. Hemric v. Reed and Prince Manufacturing Co.,

739 F.2d 1 (1st Cir. 1984). —

Perhaps most significant, the “prediction” of a change of

Massachusetts’ law in this action was premature, because the

Massachusetts Supreme Judicial Court did have occasion to

confirm that the traditional rule was still the law in

Massachusetts, as recently as 1994 (several months after the

District Court in California made its erroneous “prediction”).

Cosme v. Whitin Machine Works, Inc., 417 Mass. 643, 645, 632

N.E. 2d 832, 834 (1994).

IV.

A DIFFERENT CHOICE-OF-LAW RULE WOULD

STILL BRING THE SAME RESULT.

The Court of Appeals acknowledged that, even if

California’s statute of limitations were applied to this case, the

summary judgment order would still have been reversed (Petition

at 5a, n. 3). As petitioners have not challenged that finding,

certiorari would merely delay, but not change, the result.

9

CONCLUSION

Shorn of its misrepresentations of the factual and procedural

record below, the petition has nothing left of substance. It should

be denied.

Respectfully submitted,

JOSHUA TROPPER

Counsel of Record

KEVIN J. TULLY

GREENE, CHAUVEL, DESCALSO

& TULLY

Attorneys for Respondent

901 Mariners’ Island Blvd.,

Suite 400

San Mateo, CA 94044-1594

(415) 573-9500

la

APPENDIX A — DEFENDANTS’ MOTION TO DISMISS

FILED NOVEMBER 15, 1991

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

[Filed by clerk 11/15/91]

No. 91-10806C

Docketed: 91

6232HLH (CTx)

MICHAEL FRANKSTON,

Plaintiff,

AURA SYSTEMS, INC.; CYPHER MASTER, _INC.;

INNOVATIVE INFORMATION SYSTEMS; and ZVI

KURTZMAN,

Defendants.

MOTION TO DISMISS FOR IMPROPER

FORUM, OR, IN THE ALTERNATIVE,

MOTION TO TRANSFER TO ANOTHER DISTRICT

Pursuant to Fed. R. Civ. P. 12(b)(3), defendants Aura

Systems, Inc., Cypher Master, Inc., Innovative Information

Systems, and Zvi Kurtzman move this Court to dismiss Plaintiff's

Complaint for improper venue. In the alternative, defendants

move this Court to transfer the action to a more convenient forum

pursuant to 28 U.S.C. Section 1404.

2a

Appendix A

The grounds for this action are set forth in defendants’

Memorandum of Law and the Declarations of Zvi Kurtzman and

Matthew P. Todd filed herewith.

Respectfully submitted,

AURA SYSTEMS, INC., CYPHER

MASTER, INC., INNOVATIVE

INFORMATION SYSTEMS, and ZVI

KURTZMAN,

By their attorneys,

s/ Alan D. Rose

Alan D. Rose (BBO #427280)

Sarah Beckerman (BBO #553028)

NUTTER, McCLENNEN & FISH

One International Place

Boston, MA02110

(617) 439-2000

s/ Matthew P. Todd

Matthew P. Todd (BBO #133023)

LAW OFFICES OF MATTHEW P. TODD

1640 South Sepulveda Boulevard

Penthouse

Los Angeles, CA 90025-3512

(213) 478-8684

Dated: July 12, 1991

3a

Appendix A

CERTIFICATE OF SERVICE

I hereby certify that I have this day served the within

document by hand upon all counsel of record.

s/ Barbara E. Chernoff

Barbara E. Chernoff

July 12, 1991

4a

APPENDIX B — EXCERPTS OF TRANSCRIPT

OF HEARING

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CIVILACTION

No. 91-10806-C

MICHAEL FRANKSTON,

Plaintiff,

Vv.

AURA SYSTEMS, ET AL.,

Defendants.

HEARING

BEFORETHE: THEHON.ANDREWA.CAFFREY

SENIOR JUDGE

U.S. DISTRICT COURT

APPEARANCES:

David S. Mackey, Esq.

Goodwin, Procter & Hoar

Exchange Place

Boston, MA 02109

on behalf of the Plaintiff

Matthew P. Todd, Esq.

1640 South Sepulveda Boulevard

Los Angeles, CA 90025

on behalf of the Defendants

Sa

Appendix B

Courtroom No. |

Post Office & Courthouse Bldg.

Boston, Massachusetts 02109

September 18, 1991

Barbara Sakurai

Official Court Reporter

1221 Post Office & Courthouse Building

Boston, Massachusetts 02109

Method of Reporting: Stenotype

(The next page in the record in the Court of Appeals was p. 9 of

the original transcript. ]

the Defendants.

Mr. Frankston lives and works in Massachusetts, and did so

all the times that are relevant to this particular case. And the

Defendants, as Mr. Todd has indicated, reside in California.

Now, the Defendants have filed what is really two motions:

One is a Motion to Dismiss for Improper Venue, and then, in the

alternative, a Motion to Transfer the Case out to California.

THE COURT: I am only interested in the Motion to

Transfer. I will deny the Motion to Dismiss for Improper Venue.

MR. MACKEY: All right. That is fine, your Honor.

I can address the Motion to Transfer very briefly, in one

sentence. This Court has held time and time again in the

Homeowners Funding Corporation case, and in the Berrigan case

6a

Appendix B

that we have discussed in our brief, there is a presumption in favor

of the Plaintiff's choice of forum, and that it is the Defendant who

bears the burden of showing that transfer is warranted.

I believe the statute provides the transfer is warranted where

the interests of justice so require and where it would be more

convenient for the parties and for the witnesses.

[The next page in the record in the Court of Appeals was page 11

of the original transcript.]}

whether or not their testimony is relevant. To say the least, I

would be surprised if he needed to bring seven or eight corporate

officers here to testify in this matter.

The standard under 1404, again, is that the Defendant bears

the burden of proof on the issue. Simply shifting the

inconvenience from one party to another is not sufficient

rationale, and, therefore, Mr. Frankston, the Plaintiff,

respectfully requests that the Defendants’ motion be denied.

THE COURT: Allright. Thank you.

Well, I am going to rule that the Motion to Dismiss for

Improper Venue is denied, and that the Motion for a Transfer

under 1404(a) is allowed, because of the fact that Mr. Todd has

listed eight witnesses he represented to the Court are material to

the preparation of his defense. And, in the interests of justice and

the convenience of the witnesses and parties, 1 am going to

transfer the case to the Central District of California.

MR. TODD: Thank you, your Honor.

7a

Appendix B

I want to make the record clear that I believe there are more

witnesses. I don’t want that list to be an all-inclusive list. Ihave a

good-faith belief that there are more than those eight witnesses.

Those are just the eight that I could name off the top of my head

here today.

THE COURT: All right.

(The remainder of the original transcript was not included in the

record in the Court of Appeals. ]

8a

APPENDIX C — COUNTERCLAIM FOR DAMAGES;

DEMAND FOR JURY TRIAL

FILED FEBRUARY 19, 1992

LAW OFFICES OF MATTHEW P. TODD

MATTHEW P. TODD, ESQ./#133023

1640 South Sepulveda Boulevard

Penthouse

Los Angeles, California 90025-3512

(310) 478-8684

Attorneys for Counterclaimants

AURA SYSTEMS, INC., CYPHER MASTER, INC.,

INNOVATIVE INFORMATION SYSTEMS

and ZVI KURTZMAN

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

[Filed by clerk 2/19/92)

No. CV-91-6232JMI (CTx)

MICHAEL FRANKSTON,

Plaintiff,

vs.

AURA SYSTEMS, INC., CYPHER MASTER, _INC.,

INNOVATIVE INFORMATION SYSTEMS, and ZVI

KURTZMAN,

Defendants.

9a

Appendix C

AURA SYSTEMS, INC., a Delaware corporation, CYPHER

MASTER, INC., INNOVATIVE INFORMATION SYSTEMS,

ZVI KURTZMAN,

Counterclaimants,

vs.

MICHAEL FRANKSTON,

Counterdefendant.

COUNTERCLAIM FOR DAMAGES;

DEMAND FOR JURY TRIAL

Counterclaimants AURA SYSTEMS, INC., a Delaware

corporation, (hereinafter “AURA”), CYPHER MASTER, INC.,

(hereinafter “CMI”"), INNOVATIVE INFORMATION

SYSTEMS (hereinafter “IIS”) and ZVI KURTZMAN, allege as

follows:

PRELIMINARY ALLEGATIONS

1. Counterclaimants: AURA is now and at all times herein

relevant was, a corporation duly organized under the laws of the

State of Delaware and authorized to do business and doing

business in the County of Los Angeles, State of California. In

1988, AURA purchased a corporation known as CYPHER

MASTER INC., (hereinafter “CMI”) and has operated a

company known as INNOVATIVE INFORMATION SYSTEMS

(hereinafter “IIS”) as a subsidiary. ZVI KURTZMAN was and is

a resident of the County of Los Angeles, State of California and at

all relevant times herein, was an officer and director or AURA,

CMI and IIS.

10a

Appendix C

2. Counterdefendant: Michael Frankston (hereinafter

“FRANKSTON”) is now and at all times herein relevant was, a

resident of the State of Massachusetts. From 1986 through

January, 1987, FRANKSTON served as the chief financial

officer of CMI. From 1986 through February, 1987,

FRANKSTON served on the board of directors of IIS. From

February, 1987 through January, 1989, FRANKSTON served on

the board of directors of AURA. In 1986, when FRANKSTON

first became involved with the AURA, CMI and IIS,

FRANKSTON was a wealthy investor who professed

[The remainder of the original document was not included in the

record in the Court of Appeals. ]

lla

APPENDIX D — DEFENDANTS’ STATEMENT OF

UNCONTROVERTED FACTS AND

CONCLUSIONS OF LAW

ALIOTO & ALIOTO

JOHN I. ALIOTO (107722)

LINDA M. ALIOTO (88545)

MARGARET MULLIN WEEMS (164030)

505 Montgomery Street, 16th Floor

San Francisco, California 94111

Telephone: (415) 434-4433

Attorneys for Defendants and Counterclaimants Aura Systems,

Inc., Cypher Master, Inc., Innovative Information Systems and

Zvi Kurtzman

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

No. CV91-6232LGB(CTx)

MICHAEL FRANKSTON,

Plaintiff,

Vv.

AURA SYSTEMS, INC., CYPHER MASTER, INC.,

INNOVATIVE INFORMATION SYSTEMS and ZVI

KURTZMAN,

Defendants.

AND RELATED COUNTERCLAIMS

12a

Appendix D

DEFENDANTS’ STATEMENT OF UNCONTROVERTED

FACTS AND CONCLUSIONS OF LAW

[Central District

Local Rule 7.14.1]

Date: 9/13/93

Time: 9:00 am

Dept:

Hon. Lourdes Baird

Accompanying papers: Notice

of Motion and Motion,

Memorandum of Points and

Authorities, Declaration of Frank

T. Phelan, Declaration of

Margaret Mullin Weems in

Support of Defendants’ Motion

for Summary Judgment and

Proposed Order.

Pursuant to the Federal Rules of Civil Procedure, Rule 56

and Local Rule 7.14.1, defendants Aura Systems, Inc. (“Aura”),

Cypher Master Inc. (“CMI”), Innovative Information Systems

(“IIS”), and Zvi Kurtzman (“Kurtzman”) (collectively,

“defendants”) serve the following Statement of Unconverted

Faets-and Conclusions of Law in support of defendants’ motion

for summary judgment.

UNCONTROVERTED FACTS

1. Federal jurisdiction is based on diversity of citizenship of

the parties.

[Pre-trial Conference Order at 2:17-27, Declaration of

Margaret Mullin Weems (“Weems Decl.”) at Exhibit “G”.]

13a

Appendix D

2. Defendant Aura Systems, Inc. (“Aura”) has its principal

place of business in E] Segundo, California.

[Complaint and Jury Demand (“Complaint”) at 2, 7 5,

Weems Decl. at Exhibit “A”.]

3. Defendant Cypher Master, Inc. (“CMI”) has its principal

place of business in El] Segundo, California.

[Complaint at 2,] 6, Weems Decl. at Exhibit “A”.]

4. Defendant Innovative Information Systems, Inc. (“IIS”)

is a California corporation which has its principal place of

business in El] Segundo, California.

[Complaint at 2,4 7, Weems Decl. at Exhibit “A”.]

5. Defendant Zvi Kurtzman (“Kurtzman”) is a citizen of

California who resides in Los Angeles, California. Kurtzman is

the president and principal executive officer of Aura and is a

member of its board of directors. From 1984 to 1988, Kurtzman

served as president of CMI and was a member of its board of

directors. From 1984 to 1987, Kurtzman was also president of IIS

and a member of its board of directors. At all times relevant to this

Complaint, Kurtzman directed and controlled the operations of

Aura, CMI and IIS.

[Complaint at 3, 8, Weems Decl. at Exhibit “A”.]

6. Plaintiff Michael Frankston (“Frankston”) is a resident of

the Commonwealth of Massachusetts, but through the beginning

of 1988 he was also a resident of the State of California.

l4a

Appendix D

Frankston had his own office at the defendant companies’

facilities in California. From his home office in Massachusetts,

Frankston also performed investing, research and planning for

the defendant, California companies.

[Complaint at 2,44, Weems Decl. at Exhibit “A”; Answer to

Counterclaim for Damages (“Cuunterclaim Answer”) at 2:10-13,

Weems Decl. at Exhibit “F”; Deposition of Michael Frankston

(“Frankston Depo.”) at 7:7-8:4, 12:24-13:6 (15:3-12), 753:18-

22, 754:18-22, Weems Decl. at Exhibit “E”.]

7. From May 1986 through October 1988, Frankston

performed a variety of consulting tasks for Aura, CMI and IIS

related to the development and marketing of Aura’s, CMI’s and

IIS’s new products. From August, 1986 until January 1987,

Frankston was the chief financial officer of CMI. From February

1987 until January 1989, Frankston served on the board of

directors of Aura. From October 1986 until February 1987,

Frankston served on the board of directors of IIS.

[Complaint at 4, J 9, Weems Decl. at Exhibit “A”; Affidavit

of Michael Frankston (“Frankston Affidavit”) at 2, ¢ 3, Weems

Decl. at Exhibit”H”.]

[The next page in the record in the Court of Appeals was page 5 of

the original document.]

12. Beginning in August 1986, through December 1986,

Kurtzman made telephone requests for loans of money to

Frankston. The telephone requests were made by telephone from

the company’s offices in California. Frankston responded to

these requests by delivering funds to the defendant companies’

offices in California.

Sa

Appendix D

[Frankston Affidavit at 6,45, Weems Decl. at Exhibit”H”.]

13. All the contracts at issue were oral.

[Plaintiff’s Contentions of Fact and Law (“Plaintiff’s

Contentions” ) at 3:3, Weems Decl. at Exhibit “J”. ]

14. In May 1986 Kurtzman, CMI, IIS and Frankston agreed

that Frankston would render consulting services to CMI and IIS

and in return CMI and IIS would pay to Frankston $10,000 per

month.

[Complaint at 4-5, ] 17, Weems Decl. at Exhibit “A”.]

15. On or about August 30, 1986, at the specific request of

Kurtzman, Frankston gave $49,000 to CMI to purchase stock in a

company called Instant Software Generation, Inc. (“ISG”).

[Complaint at 3-4, | 11, Weems Decl. at Exhibit “A”;

Declaration of Michael Frankston in Support of Motion for

Partial Summary Judgment at 1:26-2:2, Weems Decl. at Exhibit

eg

16. In October 1986, Frankston was granted options on

49,500 shares of stock of AmCan, the parent company of CMI,

which were exercisable at $5.25 Canadian and were due to expire

on October 27, 1988. Frankston did not exercise his options on

these shares.

{Complaint at 13, 60 and at 149 62, Weems Decl. at Exhibit

“A”; Plaintiff’s Contentions at 8:7-18, Weems Decl. at Exhibit

“Ta

16a

Appendix D

17. On or about November 24, 1986, Frankston loaned

$29,600 to one of the defendants.

[Complaint and Jury Demand at 3-4, { 11, Weems Decl. at

Exhibit “A”.]

18. In late 1986, Frankston loaned Kurtzman and CMI

11,250 shares of AmCan stock. Kurtmzan and CMI promised to

return the shares to Frankston upon demand or, if the shares were

not available at the time of the demand, as soon thereafter as the

shares were available.

[Complaint at 9-10,4 39, Weems Decl. at Exhibit “A”.]

19. On or about December 30, 1986, at the specific request

of Kurtzman, Frankston lent $35,000 to CMI.

(Complaint at 3-4, { 11, Weems Decl. at Exhibit “A”;

Declaration of Michael J. Frankston in Support of Motion for

Partial Summary Judgment at 2:13-15, Weems Decl. at Exhibit

“M”.]

20. Kurtzman, CMI and IIS agreed to repay the loans to

Frankston upon demand, or if the funds were not available at the

time of demand, as soon thereafter as CMI, IIS or Kurtzman had

the funds available.

[Complaint at 4, J 12, Weems Decl. at Exhibit “A”.]

21. In the spring of 1987, $6,318.85 was lost on a stock

investment. The funds were deducted from Frankston’s personal

trading account. Kurtzman agreed that Aura, CMI or IIS would

17a

Appendix D

repay the $6,318.85 on demand, or, if the funds were not available

at the time of demand, as soon thereafter as the funds were

available.

(Complaint at 9, 1] 35-36, Weems Decl. at Exhibit a

22. In September 1988 Frankston travelled to Los Angeles

to meet Kurtzman. Kurtzman reaffirmed the agreement to pay

Frankston his salary. Kurtzman agreed that Frankston would

thereafter perform services on a “half-time” basis for a minimum

of $5,000/month for services rendered after September, 1988,

with payment to be made at the end of every month.

[Complaint at 6, { 22, Weems Decl. at Exhibit op

23. All of the agreements alleged to have been made in the

Complaint and in the Counterclaim were oral.

[Pre Trial Conference Order at 5:23-24, Weems Decl. at

Exhibit “G”.]

24. On September 23, 1988 (the “September Meeting”),

Frankston attended a meeting at the offices of Aura, in Los

Angeles County, to discuss, among other things, stock options

Frankston contemplated offering or had offered to employees of

the company. The options regarded his own shares in Aura.

[Frankston Depo. at 365:8-12, 366:4-20, Weems Decl. at

Exhibit “E”.]

25. At the September 1988 meeting, Frankston stated to

Kurtzman that he estimated the defendants owed him $250,000.

18a

Appendix D

[Frankston Depo. at 350:10-15, Weems Decl. at Exhibit

“E”.)

26. Frankston accepted a check in the amount of $28,990 at

the end of a November 1, 1988 meeting in Los Angeles County.

[Frankston Depo. at 440:15-25, Weems Decl. at Exhibit

“E”.)

27. On November 2, 1988, Frankston met with Kurtzman in

Los Angeles County. They orally agreed to prepare lists of

payments and loans and obligations between each other and the

companies.

[Frankston Depo. at 455:25-456:12, Weems Decl. at Exhibit

“3” .)

28. In December 1988, Frankston had a telephone

conversation with Kurtzman. At that time they discussed items

related to payments and loans and obligations between each other

and the companies.

[Frankston Depo. at 463:21-24, Weems Decl. at Exhibit

Ta

29. The December 1988 telephone conversation did not

result in any agreement between Frankston and Kurtzman.

{Frankston Depo. at 471:9-14, and Exhibit 5 (Frankston’s

handwritten notes), Weems Decl. at Exhibit “E”.]

30. Frankston has not performed any service of any sort for

ak

19a

Appendix D

any of the defendants-counterclaimants since resigning from the

Board of Directors of Aura in January, 1989.

[Plaintiff’s Statement of Unconverted Facts and

Conclusions of Law at 2:21-23, Weems Decl. at Exhibit “O”;

Declaration of Michael J. Frankston at 9, Weems Decl. at

Exhibit “M”.]

31. Defendants could afford to repay the loans to Frankston

at least as of February 28, 1989.

[Declaration of Frank T. Phalen at { 2, Weems Decl. at

Exhibit “L”.]

32. Frankston’s next communication with Kurtzman was to

mail, by certified mail, return receipt requested, a letter dated

March 1, 1989,

(Frankston Depo. at 473:2-5, Weems Decl. at Exhibit “E”.

Weems Decl. at Exhibit “C” (March 1, 1989 letter); Complaint at

Exhibit “A”.}

33. Frankston sent the letter dated March 1, 1989 to

Kurtzman on or around the beginning of March, 1989.

[Frankston Depo. at 473:2-5, Weems Decl. at Exhibit “E”.}

34. The March 1, 1989 letter was delivered on March 14,

1993.

[Weems Decl at Exhibit “C” at 4. (March 1, 1989 letter,

return receipt)]

20a

Appendix D

35. Neither Kurtzman nor any other representative of any of

the defendant companies responded to Frankston’s March 1,

1989 letter.

[Complaint at 12,452, Weems Decl. at Exhibit “A”.]

36. The Complaint in this action was filed March 13, 1991.

[Plaintiff’s Statement of Uncontroverted Facts and

Conclusions of Law at 2:24-25, Weems Decl. at Exhibit “O”;

Declaration of Joshua Tropper at { 2, Weems Decl. at Exhibit

“ean

37. Between November 1, 1988 and the present, Aura did

not pay any amount to Frankston.

[Pre Trial Conference Order at 5:12-13, Weems Decl at

Exhibit “G”.

[The remainder of the original document was not included in the

record in the Court of Appeals.)