Case: 2:11-cv-00450-JLG-MRA Doc #: 36 Filed: 01/08/13 Page: 1 of 3 PAGEID #: 413
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
Steven R. Isaac,
and Richard Freeman,
Civil Action 2:11-cv-0450
Magistrate Judge Abel
Discovery Dispute Conference Order
On December 20, 2012, counsel for the parties appeared for a discovery dispute
conference with the Magistrate Judge. During the conference, the following rulings were
Background. In late September 2009, plaintiffs Steven R. Isaac, Earl Gallegos, and
Richard Freeman sold all the outstanding capital stock of Peak Performance Solutions, Inc.
to Ebix. Peak developed and sold software to insurance companies and self-insured
entities to process workers’ compensation claims. The contract of sale provided that if
Peak’s billed revenues for 2010 were $6 million to $6.5 million, then there would be an
additional payment of $1 million. If gross revenues exceeded $6.5 million, the additional
payment would be $1.5 million. If gross revenues were below $6 million, there would be
no additional payment. The amended complaint pleads that during 2009, Peak’s gross
revenue from software sales was in the neighborhood of $6 million. However, Ebix
calculated that Peak’s 2010 gross revenues from the sale of its software were about
Case: 2:11-cv-00450-JLG-MRA Doc #: 36 Filed: 01/08/13 Page: 2 of 3 PAGEID #: 414
Plaintiffs argue that Ebix interfered with Peak’s ability to generate revenues by
diverting customers to other Ebix entities and that Ebix’s accounting practices reduced
Peaks gross revenues. For example, plaintiffs argue that Ebix took assignment of Peak's
intellectual property, then allowed other Ebix entities to use that intellectual property.
Further, Ebix told Peak sales people they couldn’t call on certain clients/customers.
Auditor’s work papers. Ebix agreed to produce Cherry Bekaert & Holland’s
complete set of work papers for its 2010 audit of Peak. The production is without prej-
udice to plaintiffs’ right to seek additional, relevant work papers not included in that
Very briefly, plaintiffs argue that the auditor’s work papers for their audit of Ebix
and all of Ebix’s entities, including Peak, are relevant to the allegation that Ebix’s account-
ing practices reduced Peaks’ revenues. Plaintiffs assert that the Ebix entities filed a consoli-
dated tax return and that there was a consolidated audit. Ebix counters that Peak’s 2010
revenues were just 3.4% (or, perhaps, 4.8%) of Ebix’s total revenues. Ebix maintains there
was no consolidated audit for Peak. Only the audit of Peak is relevant to whether Ebix’s
accounting practices depressed Peak’s revenues.
Ebix's counsel further represented that their client had provided plaintiffs with
revenue by customer for 2009 and 2010; and Ebix will provide its sales for those years to
I make no ruling on whether the auditor’s work papers for Ebix and its other
entities are relevant to contested material factual issues in this lawsuit.
Case: 2:11-cv-00450-JLG-MRA Doc #: 36 Filed: 01/08/13 Page: 3 of 3 PAGEID #: 415
Document Request No. 40. Plaintiffs seek 16 employees' files. Ebix agreed to
produce those portions of those employees' personnel files that set out the reason(s) for
their terminations from employment. If plaintiffs believe that the production is
insufficient, counsel should meet and confer in an attempt to resolve the dispute. Failing
to do so, they should call my office (614.719.3370) to schedule another discovery dispute
conference. Before the conference, counsel should provide me with the communications
between them regarding the dispute.
Document Requests Nos. 18-20. Plaintiffs seek documents relevant to whether Ebix
has engaged in similar practices in the past that enabled it to avoid contractual obligations
to pay an Earn-Out. Ebix argues that each contract having an Earn-Out provision is
unique. However, the evidentiary issue is not whether all contractual terms were the same
but whether these documents would be "some evidence" of Ebix's intent in adopting the
practices it did when calculating plaintiffs' Earn-Out. I believe it could be, depending on
the contractual terms and the practices engaged in. However, this issue is not yet ripe for
decision. Counsel should continue their meet and confer to attempt to resolve this dispute.
s/Mark R. Abel
United States Magistrate Judge