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Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 1 of 12

JOHN W. SPIEGEL (Pro Hac Vice)
John. [email protected]
GREGORY J. WEINGART (Pro Hac Vice)
Gregory. W eingart(al,mto .eom
MUNGER. TOLLE'S & OLSON LLP
355 South Grand Avenue
Thirty-Fifth Floor
Los Angeles, CA 90071-1560
(213) 683-9100
Telephone:
Faesimile:
(213) 687-3702

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Attorneys for Defendant

7 Maynard L. Jenkins

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,

v.

MA YNARD L. JENKINS,

Defendant.

CASE NO. CV-09-01510-PHX-GMS

SUPPLEMENTAL OPPOSITION 0 F
DEFENDANT MAYNARD L. JENKINS
TO PLAINTIFF'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

[Declaration of James B. Riley and
Supplemental Declaration of Gregory J.
Weingart Filed Concurrently Herewith J

Courtroom: 602
(Hon. G. Murray Snow)

12984274.1

DEFENDANT JENKINS' sUPP. OPP. TO P'S MOTION
FOR PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 2 of 12

TABLE OF CONTENTS

Page

INTRODUCTION AND SUMMARY OF SUPPLEMENTAL OPPOSITION ................. 1
ARGUMENT ...................................................................................................................... 2
A.

Mr. Jenkins' "Adoptive Admission" Does Not Support As An Undisputed
Fact That There Was Accounting "Misconduct" At CSK. Instead, The
Meaning And Effect To Be Given To That "Admission" And Whether
There Was "Misconduct" At CSK Are Triable Questions For The Jury ................ 2
The Riley Declaration Confirms There Are Triable Questions On The
Meaning Of The Term "Irregularities" As Used In The Second
Restatement And On The Issue of Accounting "Misconduct" And
Demonstrates The Nature Of The Additional Evidence Mr. Jenkins
Believes Will Be Elicited Through Depositions ..................................................... 5
CONCLUSION ................................................................................................................... 6

B.

I.
II.

III.

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12984274.1

v.

DEFENDANT JENKINS' SUPP. OPP. TO P'S
MOTION FOR PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 3 of 12

TABLE OF AUTHORITIES

FEDERAL CASES

Page(s)

Bruce v. McClure,

220 F.2d 330 (5th Cir. ] 955) ..................................................................................................... 4

Bushey & Sons v. WE. Hedger & Co.,

40 F.2d 417 (2nd Cir. 1930) ...................................................................................................... 3

Cooper v. Brown,

126 F.2d 874 (3rd Cir. 1942) .................................................................................................... 4

Keller v. US.,

58 F.3d 1194 (7th Cir. 1995) ..................................................................................................... 3

Martinez v. Bally's Louisiana, Inc.,

244 F.3d 474 (5th Cir. 2001) ..................................................................................................... 3

Morgan v. Us.,

169 F. 242 (8th Cir. 1909) ......................................................................................................... 4

State Farm lv/ut. Auto Ins. Co. v. Porter,

186 F.2d 834 (9th Cir. 1951) ..................................................................................................... 3

Technitrol, Inc., v. Us.,

440 F.2d 1362 (Ct. Cl. 1971) .................................................................................................... 4

US. ex reI. Leong v. 0 'Rourke,

] 25 F.Supp. 769 (D. Mo. 1954) ................................................................................................ 4

STATE CASES

Gangi v. Fradus,

227 N.Y. 452 (1920) ................................................................................................................. 4

STATUTES AND RULES

Rule 56(f) ........................................................................................................................................ 5
Rule 801 (d)(2) ................................................................................................................................. 3

OTHER AUTHORITIES

3 Handbook of Federal Evidence §801.26 (6th ed. 2006) .............................................................. 3

12984274.1

ii

V . • /<;flIU".).

DEFENDANT JENKINS' SUPP. OPP. TO P'S
MOTION FOR PARTIAL SUMMARY JUDGMENT

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Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 4 of 12

I.

INTRODUCTION AND SUMMARY OF SUPPLEMENTAL OPPOSITION.

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Pursuant to the Court's statements at the January 21,2011 Scheduling Conference,

3 Defendant Maynard L. Jenkins submits this Supplemental Opposition to the SEC's

4 Motion for Partial Summary Judgment.

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As the Court knows, and as the SEC confirmed at the Scheduling Conference, the

principal basis of the SEC's Motion is its claim that (a) Mr. Jenkins' signing ofCSK's

Second Restatement constitutes an "adoptive admission" by Mr. Jenkins of the content of

that document and (b) the statements in the Second Restatement that there were

"irregularities" in CSK's accounting for vendor allowances establish as an undisputed fact

that there was accounting "misconduct" at CSK within the meaning of Section 304. See

1121111 Tr. at 10:6-11-5. There are, at the least, triable issues of material fact on whether

there was accounting "misconduct" at CSK and on the meaning of the term

"irregularities" as used in the Second Restatement that require that the SEC's motion be

denied.

Initially, settled law establishes that Mr. Jenkins' "adoptive admission" of

statements in the Second Restatement is only some "evidence" and does not establish an

undisputed fact or foreclose Mr. Jenkins from submitting other evidence (and taking

discovery to develop additional evidence) that raises a triable issue on the question of

"misconduct." With his initial Opposition and now in this Supplemental Opposition, Mr.

Jenkins has presented admissible evidence controverting and explaining his purported

"admission" based on the Second Restatement's use of the word "irregularities."

22 Accordingly, the "weight and effect" to be given to Mr. Jenkins' "admission," and the

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determination of whether there was "misconduct" at CSK, cannot be determined on

summary judgment but are for the trier of fact to decide.

Moreover, the Declaration of James B. Riley submitted with this Supplemental

26 Opposition further confirms that use of "irregularities" in the Second Restatement does

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not establish as an undisputed fact that there was accounting "misconduct" at CSK.I Mr.

1 Mr. Jenkins submits Mr. Riley's Declaration in further support of his Opposition to the
SEC v. Jenkins, CV 09-151 O-PHX -0 MS
DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

12984274.1

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Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 5 of 12

Riley was the Chief Financial Officer of CSK beginning in October 2005 and, like Mr.

Jenkins, signed a Certification to CSK's Form 10-K filed with the SEC on May 1,2007

for CSK's fiscal year ending January 29, 2006 (the document the SEC refers to as the

"Second Restatement"). Mr. Riley states in his Declaration that when he signed the

Second Restatement he did not understand that accounting fraud had been identified at

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6 CSK, and he did not understand that use of the term "irregularities" in the Second

7 Restatement was intended to communicate that accounting fraud had been identified at

8 CSK. Riley Declaration ~~ 4, 5. Accordingly, in addition to the evidence that Mr. Jenkins

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has already submitted, Mr. Riley's Declaration, and the additional evidence like Mr.

10 Riley's Declaration that Mr. Jenkins believes will be developed through additional

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depositions, demonstrate that, at the least, there is a triable issue of material fact on the

12 meaning of the term "irregularities" as used in the Second Restatement and whether use of

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that term establishes accounting "misconduct" at CSK.

II.

ARGUMENT.
A. Mr. Jenkins' "Adoptive Admission" Does Not Support As An

Undisputed Fact That There Was Accounting "Misconduct" At CSK. Instead, The

Meaning And Effect To Be Given To That "Admission" And Whether There Was

"Misconduct" At CSK Are Triable Questions For The Jury.

In his Opposition filed October 29,2010, to the SEC's Motion for Partial Summary

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Judgment, Mr. Jenkins argues that the Motion should be denied on several different

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grounds, including: (1) use of the term "irregularities" in the Second Restatement does

not mean intentional or reckless accounting misconduct but includes accounting mistakes

and inadvertence; (2) even if "irregularities" had the meaning argued by the SEC, the

Second Restatement does not connect the alleged "irregularities" to the accounting for

vendor allowances which gave rise to the restatements; and (3) regardless ofMr. Jenkins'

signing ofthe Second Restatement, the Second Restatement's statements of what the CSK

SEC's Motion and as an "offer of proof' to show the type of additional evidence that Mr.
Jenkins believes he will be able to develop through addItional depositions.

12984274.1

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SEC v. Jenkins, CV 09-151 O-PHX-GMS
DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 6 of 12

Audit Committee "concluded" and what the Second Restatement says that the Audit

Committee "found" and its investigation "revealed" are inadmissible hearsay and are not

within Mr. Jenkins' own personal knowledge. The Court stated at the January 21,2011

Scheduling Conference that it would examine and decide the parties' arguments on these

issues. For the reasons set out below, even if the Court were to decide these issues against

Mr. Jenkins, the SEC still would not be entitled to partial summary judgment on the issue

of "misconduct." Settled law establishes that the SEC's reliance on an "admission" by

Mr. Jenkins of statements in the Second Restatement does not establish an undisputed fact

and foreclose other evidence that raises a triable issue on the question of "misconduct."

Admissions by a party "are in no sense conclusive; they may be explained away or

contradicted." State Farm Mut. Auto Ins. Co. v. Porter, 186 F.2d 834,843 (9th Cir.

1951). As stated in 3 Handbook of Federal Evidence §80 1.26 (6th ed. 2006):

"Judicial admissions must be distinguished from ordinary evidentiary
admissions. A judicial admission is binding upon the party making
it; it may not be controverted at trial or on appeal of the same case.
Judicial admissions are not evidence at all but rather have the effect
of withdrawing a fact from contention .. " Ordinary evidentiary
admissions, on the other hand, may be controverted or explained by
the party. Within this category fall the pleadings in another case,
superseded or withdrawn pleadings in the same case, judicial
admissions in another case, stipulations as to admissibility, as well as
other statements admissible under Rule 801 (d) (2)." [Footnotes
omitted. Emphasis added.]

Accord, Martinez v. Bally's Louisiana, Inc., 244 F.3d 474,476-77 (5th Cir. 2001) ("[A]n

ordinary evidentiary admission is merely a statement of concession made for some

independent purpose, and it may be controverted or explained by a party who made it."
[internal quotations and citation omitted.]); Keller v. u.s., 58 F .3d 1194, 1199 n.8 (7th
Cir. 1995) (Same); Bushey & Sons v. WE. Hedger & Co., 40 F.2d 417,418 (2nd Cir.

1930) ("An admission, except when formally made at trial, even ifby a party in propria

persona, is at most only evidentiary matter which may be rendered nugatory by other

evidence in the case.")

Because an admission by a party is only "evidentiary," "[t]he party against whom

the admission is offered may ... explain it away, ... by showing that it was said with a
SECv. Jenkins, CV 09-1S10-PHX-GMS
DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

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Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 7 of 12

ditTerent intent or meaning, or without personal knowledge, or the like." Morgan v. Us.,

169 F. 242, 251 (8th Cir. 1909). As the Court stated in Us. ex reI. Leong v. O'Rourke,

125 F.Supp. 769, 774 (D. Mo. 1954), "other evidence in a case may render an admission

against interest wholly insufficient to establish the fact for which it is offered in

evidence." The Court explained:

"Whether an admission against interest should be held conclusive
depends on the facts and circumstances surrounding the making
thereof and facts which are revealed as being its premise. lfit IS
revealed that the admission is premised in hearsay, received by the
party making it, and that there are other probative facts which show
the premise to be doubtful or untrue, then a reasonable man would
not, we think, consider the admission serious enough to warrant
reliance thereon as substantive evidence of the fact as to which it is
otTered." Id.
Therefore, when a party charged with an admission presents evidence

controverting or explaining the information admitted, the "weight and effect" of the

admission are matters "for the triers of fact to resolve." Cooper v. Brown, 126 F.2d 874,

878-79 (3rd Cir. 1942). Accord, Technitrol, Inc., v. Us., 440 F.2d 1362, 1370 (Ct. Cl.

1971) ("The trier of fact can rightly take into account of such [party] admissions, although

they are not, of course, conclusive if there is opposing evidence."). Similarly, in Bruce v.

McClure, 220 F .2d 330, 336 (5th Cir. 1955), the Court of Appeals approved the rule stated

in Gangi v. Fradus, 227 N.Y. 452, 457 (1920), that the weight and etTect to be given to

party admissions when there is contradictory or explanatory evidence "is for the

determination of the jury:"

"'The jury shall determine whether or not they were made; if made,
the conditions and circumstances under which they were made and
the effect thereof, and their probative weight and value, which may
range from the lowest, or none at all, to conclusiveness.'"

Under these rules, the SEC's reliance on an "adoptive admission" by Mr. Jenkins

of statements in the Second Restatement does not establish as an undisputed fact that there

was accounting "misconduct" - as opposed to accounting mistakes or inadvertence - at

CSK. Instead, such an admission by Mr. Jenkins at most constitutes only some evidence

on the issue.

12984274.1

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SECv. Jenkins, CV 09-1SlO-PHX-GMS
DEFENDANT JENKINS' SUPP. 01'1'. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

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Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 8 of 12

The additional evidence that Mr. Jenkins submitted with its initial Opposition-

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based on the sworn testimony of CSK employees, Board members and outside auditors at

PwC, the Declaration ofMr. Jenkins' expert forensic accountant Peter Salomon, and Mr.

Jenkins' own sworn testimony on his lack of personal knowledge - and the additional

evidence of Mr. Watson's deposition testimony cited in Attachment A to this
Supplemental Opposition2 are also admissible and controvert and explain the statements

in the Second Restatement. This evidence shows non-culpable explanations for CSK's

8 misstated financial results and establishes genuine disputes of material fact on the issue of

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"misconduct." Under the settled case authority cited above, the "weight and effect" to be

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given to Mr. Jenkins' "admission," and the determination of whether there was

"misconduct" at CSK, are therefore for the trier of fact to decide, and the SEC's Motion

for Partial Summary Judgment should be denied.

B.

The Riley Declaration Confirms There Are Triable Questions On The

Meaning Of The Term "Irregularities" As Used In The Second Restatement And On

The Issue of Accounting "Misconduct" And Demonstrates The Nature Of The

Additional Evidence Mr. Jenkins Believes Will Be Elicited Through Depositions.

In paragraphs 11 through 18 ofMr. Weingart's Declaration filed October 29,2010

in support ofMr. Jenkins' Opposition to the SEC's Motion for Partial Summary Judgment

and Motion and request that, at the least, the Court deny or continue the Motion under

Rule 56(t) so that Mr. Jenkins can take discovery, his counsel identified additional

individuals whom Mr. Jenkins seeks an opportunity to depose before the motion is

decided. These individuals include James B. Riley, who was the Chief Financial Officer

ofCSK beginning in October 2005 and who, like Mr. Jenkins, signed a Certification to

CSK's Form lO-K filed with the SEC on May 1,2007 for CSK's fiscal year ending

2 Attachment A identifies paragraph numbers from Mr. Jenkins' "Statement Of Additional
Facts That Establish Genuine Issues Of Material Fact" in his Responding Separate
Statement filed October 29,2010 and then sets forth citations to the transcript ofMr.
Watson's deposition testimony that provide further support for these facts. These
deposition transcript pages are attached to the Supplemental Declaration of Gregory J.
Weingart ("Supplemental Weingart Declaration") submitted herewith.

12984274.1

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V, '),"II/Uft."

DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 9 of 12

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January 29, 2006 (the document the SEC refers to as the "Second Restatement"). The

SEC did not take sworn testimony from Mr. Riley as part of its pre-filing investigation.

3 Weingart Dec larati on ~ 18.

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Mr. Jenkins submits Mr. Riley's Declaration with this Supplemental Opposition in

further support ofMr. Jenkins' opposition to the SEC's motion and as an "offer of proof"

to show the type of additional evidence that Mr. Jenkins believes he will be able to

develop through additional depositions (which he has only recently begun to have the

opportunity to take). Mr. Riley states that when he signed the Second Restatement, he did

not understand that accounting fraud had been identified at CSK, and he did not

understand that use of the term "irregularities" in the Second Restatement was intended to

communicate that accounting fraud had been identified at CSK. Riley Declaration ~~ 4, 5.

In addition to the evidence that Mr. Jenkins has already submitted, Mr. Riley's

13 Declaration, and the additional evidence like Mr. Riley's Declaration that Mr. Jenkins

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believes will be developed through additional depositions, demonstrate that, at the least,

there is a triable issue on the meaning of the term "irregularities" as used in the Second

16 Restatement and whether use of that term establishes accounting "misconduct" at CSK.

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III. CONCLUSION.

For the reasons set forth in Mr. Jenkins' initial Opposition and above, the SEC's

19 Motion for Partial Summary Judgment should be denied.

Dated: February 10,2011

MUNGER, TOLLES & OLSON LLP

lsi Gregory J. Weingart
John W. Spiegel
Gregory J. Weingart
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071
Telephone: (213) 683-9100
FacsImile: (213) 687-3702

Attorneys for Defendant Maynard L. Jenkins

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12984274.1

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SEC v. Jenkins, CV 09-ISI0-PHX-GMS
DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 10 of 12

2 Mr. Jenkins' Responding Separate Statement ~57: "There were misunderstandings

ATTACHMENT A

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and disputes between CSK and vendors over entitlement to vendor allowances and related

debit memos, which had to be negotiated with vendors and often were not resolved until a

year or more after the vendor allowance program year at issue had ended and financial

results had been reported."

Watson Deposition Transcript at 186:23-187:12,195:20-196:6,198:23-199:20,

200:19-201:24,255:8-256:16.

9 Mr. Jenkins' Responding Separate Statement ~61: "Payments for vendor allowance

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earned in a previous program year were sometimes collected and processed in a

subsequent program year and then credited to the previous program year in which the

allowance was earned."

Watson Deposition Transcript at 186:23-187:12, 195:20-196:6, 198:23-199:20,

200: 19-201 :24, 255:8-256: 16.

15 Mr. Jenkins' Responding Separate Statement ~62: "Vendor allowance payments were

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sometimes being collected and processed for as many as three different vendor allowance

program years at the same time."

Watson Deposition Transcript at 107:5-18,112:16-115:6

19 Mr. Jenkins' Responding Separate Statement ~63: "Inadequate communication

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between CSK's merchandising department (who negotiated contracts with vendors) and

its finance department (who processed the collection of vendor allowances under the

contracts) sometimes resulted in erroneous debit memos and misapplication of vendor

allowance payments."

Watson Deposition Transcript at 98:5-99:8,329:24-330:9.

25 Mr. Jenkins' Responding Separate Statement ~69: "CSK lacked sufficient knowledge

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of and experience with GAAP."

Watson Deposition Transcript at 57: 17-58:4,196:17-197:21, 198:8-22, 505: 15-

506:9, 530: 15-531 :8.

12984274.1

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DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 11 of 12

Mr. Jenkins' Responding Separate Statement ~72: "CSK made a payback to a vendor

2 when it collected or inadvertently processed a debit memo for more than it was entitled to

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under the vendor contract."

Watson Deposition Transcript at 329:24-330:9.

5 Mr. Jenkins' Responding Separate Statement ~73: "The proper accounting treatment

for a payback depended on circumstances unique to each vendor relationship and

contract."

Watson Deposition Transcript at 326:18-327:2,327:18-328:15,329:24-330:9,

341:9-342:1,492:2-14.

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12984274. I

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V . . lVrtI""S.

DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Case 2:09-cv-01510-GMS Document 116 Filed 02/10/11 Page 12 of 12

CERTIFICATE OF SERVICE

I hereby eertify that on February 10, 2011, I electronically filed the foregoing with the

Clerk of Court using the CM/ECF system and I served a copy of the foregoing pleading on all

counsel for all parties, via the CM/ECF system andlor mailing same by United States Mail,

properly addressed, and first class postage prepaid, to all counsel of record in this matter,

lsi Gregory Weingart

12984274.1

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v.

DEFENDANT JENKINS' SUPP. OPP. TO P'S MOTION FOR
PARTIAL SUMMARY JUDGMENT

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