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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

EASTERN DIVISION

Steven R. Isaac,
Earl Gallegos,
and Richard Freeman,

v.

Ebix, Inc.,

Plaintiffs

Defendant

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Civil Action 2:11-cv-0450

Judge Graham

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

made.

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

$5,300,000.

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

production.

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

identified customers.

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.

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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

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