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Case 2:09-cv-01510-GMS Document 112 Filed 01/21/11 Page 1 of 7




GIBSON, DUNN & CRUTCHER LLP
Douglas M. Fuchs (CA Bar # 196371) (Pro Hac Vice)
[email protected]
David S. Han (CA Bar # 247789) (Pro Hac Vice)
[email protected]
333 S. Grand Ave.
Los Angeles, CA 90071
Telephone: (213) 229-7000
Attorneys for CSK Auto Corporation


IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA







Plaintiff,

SECURITIES AND EXCHANGE
COMMISSION,



vs.

DON W. WATSON, et al.,


SECURITIES AND EXCHANGE
COMMISSION,



vs.

MAYNARD L. JENKINS,



Defendants.

Defendant.

Plaintiff,













Case No. CV-09-0443-GMS
THIRD-PARTY CSK AUTO
CORPORATION’S REPLY IN
SUPPORT OF ITS MOTION TO
INTERVENE AND STAY
PROCEEDINGS OR LIMIT
DISCOVERY
(Oral Argument Requested)

Case No. CV-09-01510-PHX-GMS
THIRD-PARTY CSK AUTO
CORPORATION’S REPLY IN
SUPPORT OF MOTION TO
INTERVENE AND STAY
PROCEEDINGS OR LIMIT
DISCOVERY
(Oral Argument Requested)

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Case 2:09-cv-01510-GMS Document 112 Filed 01/21/11 Page 2 of 7





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I.

INTRODUCTION

CSK Auto Corporation explained in its motion papers why its intervention
is warranted and furthermore why the Court should stay or limit discovery. CSK’s
position is measured, fully respectful of the rights of Watson and Jenkins, and
focuses on the timing of the massive discovery effort Watson and Jenkins are just
now embarking on. While the company recognizes its obligations to advance fees
to Jenkins and Watson—indeed, nearly $8 million in fees and costs have been
incurred to date for these former executives—additional costly discovery is not
necessary until the impending Watson-Criminal trial is concluded. That trial is
sure to sharpen and streamline, if not eliminate the need for, remaining discovery
in the pending SEC cases, especially as to the misconduct issue at the center of
Jenkins discovery pursuits.

Jenkins has opposed CSK’s motion without explaining with any specificity

why, given the absence of any scheduling order in his SEC case, a short stay or
temporary limitation on discovery would harm him, particularly given his recent
suggestion of trial date not until January 2012 and his agreement that discovery
cannot be completed until after the impending Watson-Criminal trial concludes.

Contrary to Jenkins’ position, the law is not so indifferent to concerns about

the cost attendant to decisions about the timing of discovery to sideline the party
ultimately responsible for those costs. CSK has sought to intervene to bring those
cost considerations to the Court’s attention. For the reasons stated in its motion,
Rule 24(a)(2) authorizes intervention here and, in any event, it is well within the
Court’s discretion to permit the intervention and to enter the requested stay.

A.

II.

ARGUMENT
CSK Recognizes Its Obligations To Jenkins
In opposing CSK’s motion to intervene and stay or limit discovery, Jenkins

repeatedly states that CSK is attempting to “avoid the costs associated with the
indemnification obligations” owed Jenkins. (Jenkins Am. Opp. Br. at 1; see also

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id. at 6 (“CSK’s desire to avoid defense costs”); id. at 9 (same); id. at 12 (CSK’s
interest is “to avoid paying Mr. Jenkins’ and others’ defense costs”)). This is
incorrect. At no time has CSK ever told lawyers for Jenkins (or Watson) that the
company would not continue to advance reasonable expenses. To the contrary,
CSK fully recognizes its advancement obligations, as demonstrated by its
incurrence of over $1.9 million in fees and costs to date for Jenkins. The
company’s position is simply that it does not want additional discovery costs to be
incurred—and available insurance coverage reduced—if those costs are not now
necessary and may never be necessary.
B.

Jenkins’ Request For A January 2012 Trial Contradicts His
Position That Time Is Of The Essence With Additional
Discovery
Jenkins opposes CSK’s motion by stating that time is of the essence to

allow him to plan his financial affairs. At no point in sounding this alarm, though,
does Jenkins remind the Court that the case has been pending since July 2009, or
that he recently requested that trial not be scheduled until January 2012. (Joint
Case Management Statement (Doc. #94) at 14). By requesting this 2012 trial date,
Jenkins has acknowledged that discovery here cannot be completed until after the
Watson-Criminal trial—which will be entirely focused on whether misconduct (in
the form of securities and other fraud) occurred during his tenure as CSK’s CEO.
Jenkins cannot have it both ways. He cannot insist on continued and costly

discovery and simultaneously maintain that he needs to await Ed O’Brien and
Gary Opper becoming available after the Watson-Criminal trial before responding
to the SEC’s summary judgment motion. Jenkins, in short, has proposed a
schedule that sees this case proceeding well into the future and well beyond the
impending Watson-Criminal trial.

In the end, it is impossible to credit Jenkins’ position that a temporary stay

of discovery risks hamstringing his ability to defend himself against the SEC’s

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attempted clawback of the incentive-based compensation he received from CSK.
Nor is it any easier to see the Watson-Criminal trial as anything but a determining
and clarifying event. It is the reason for Jenkins’ proposed 2012 trial date, and it is
certain to have a clarifying effect on the scope of necessary additional discovery in
the Jenkins matter and the Watson-SEC case. The prudent course (and one that
would certainly yield benefits for the Court) is to stay discovery or, at the very
least, to limit it to discrete points about Jenkins’ compensation from CSK.
C.
CSK’s Insurance Does Not Preclude Its Intervention Or Render
Its Views Irrelevant
Jenkins rests much of his opposition to CSK’s motion on comments about

CSK’s Directors’ & Officers’ insurance. He seems to suggest that the mere
existence of insurance coverage—a fact CSK expressly acknowledged in its
motion—means that CSK and its parent O’Reilly should be entirely indifferent to
(if not disinterested in) the timing and amount of legal fees advanced to Jenkins.
He cites no authority for this blank-check position, and CSK knows of none.

Furthermore, Jenkins’ supposition is way off: it is entirely appropriate for
CSK to pay close regard to coverage limitations and costs incurred under policies,
especially where, as here, an opportunity presents itself to minimize costs without
prejudicing Jenkins’ ability to fully and fairly defend himself in the SEC action.
CSK and O’Reilly regard available insurance as a valuable resource that has been
of benefit not only to the companies, but also certainly to Jenkins and Watson. It
is proper that this resource be safeguarded and managed responsibly. Jenkins,
therefore, misses the mark in suggesting that CSK and O’Reilly should remain
indifferent to the amount and timing of costs incurred pursuant to its corporate
indemnification obligations. Intervention and a stay of discovery is fully
warranted in these circumstances. Cf. Southwest Center for Bio. Diversity v. Berg,
268 F.3d 810, 818 (9th Cir. 2001) (explaining that “whether an application for
intervention demonstrates sufficient interest in an action is a practical, threshold

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inquiry,” in which “[n]o specific legal or equitable interest need be established”)
(internal citation and quotation omitted).
C.

Jenkins’ Claims Of Delay And Notice Are Frivolous
The Court should make short work of Jenkins’ suggestion that CSK’s

motion to intervene is untimely. CSK sought to intervene and stay discovery only
after Jenkins, in parallel with Watson, lodged numerous discovery requests and
noticed multiple decisions. And, contrary to Jenkins’ insinuation, at no point did
anyone from O’Reilly or CSK ever promise Jenkins that the companies would
defer to whatever discovery schedule Jenkins thought appropriate, regardless of
considerations of cost.

Jenkins’ suggestion that O’Reilly Auto, which acquired CSK in July 2008,

somehow was on notice at the time of the acquisition of the substantial fees and
costs that would be incurred for Jenkins fares even worse. The SEC did not
commence this action—a first of its kind, in which a clawback of executive
compensation is sought without an allegation that the defendant engaged in
misconduct—until July 2009, a year after the acquisition closed. O'Reilly could
not have reasonably anticipated the SEC’s decision to bring this action.

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Case 2:09-cv-01510-GMS Document 112 Filed 01/21/11 Page 6 of 7





III. CONCLUSION

For these reasons, CSK respectfully requests that the Court grant this

motion to intervene and to stay proceedings or limit discovery pending resolution
of the related criminal action.



DATED this 21st day of January, 2011.



GIBSON, DUNN & CRUTCHER LLP
Douglas M. Fuchs
333 South Grand Avenue
Los Angeles, CA 90071

By:

LEWIS AND ROCCA LLP GIBSON,
Dale Dunneman
40 N. Central Avenue
Phoenix, AZ 85004

By:

s/Douglas M. Fuchs





s/Dale Danneman



Attorneys for CSK Auto Corporation

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Case 2:09-cv-01510-GMS Document 112 Filed 01/21/11 Page 7 of 7





CERTIFICATE OF SERVICE

I hereby certify that on January 21, 2011 I electronically filed the foregoing

with the Clerk of the Court for the United States District Court for the District of
Arizona using the CM/ECF system. Participants who are registered CM/ECF
users will be served by the CM/ECF system.




By/s/ David S. Han _

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