Xcentric Ventures, LLC, et al., v. Richeson

Filing 31

MEMORANDUM on Amount in Controversy to Establish Diversity Jurisdiction by Plaintiffs Jaburg & Wilk, P.C., Xcentric Ventures LLC. (Kunz, Adam)

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Xcentric Ventures, LLC, et al., v. Richeson Doc. 31 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 Maria Crimi Speth (012574) Adam S. Kunz (018827) JABURG & WILK, P.C. 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 mcs@jaburgwilk.com ask@jaburgwilk.com (602) 248-1000 David S. Gingras (021097) Gingras Law Office, PLLC 4072 E Mountain Vista Dr. Phoenix, AZ 85048 Tel.: (480) 668-3623 David.Gingras@webmail.azbar.org Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA XCENTRIC VENTURES, LLC, an Arizona limited liability company, and JABURG & WILK, P.C., a professional corporation,, Plaintiff, v. SHAWN RICHESON, Defendant. Plaintiffs Xcentric Ventures, LLC ("Xcentric") and Jaburg & Wilk, P.C. ("Jaburg & Wilk") (collectively "Plaintiffs"), hereby submit the following Memorandum pursuant to the Court's request to demonstrate that there are sufficient damages in this matter to satisfy the amount in controversy requirement to establish diversity jurisdiction in this court. MEMORANDUM I. PRELIMINARY STATEMENT The record will reflect that Plaintiffs filed an emergency application for a temporary restraining order without notice and an application for order to show cause why 10297-73/MCS/VEA/831867_v2 Case No. 2:10-CV-01931-PHX-NVW MEMORANDUM ON AMOUNT IN CONTROVERSY TO ESTABLISH DIVERSITY JURISDICTION (Assigned to Hon. Neil Wake) 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Dockets.Justia.com 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 a preliminary injunction should not issue on September 9, 2010. Oral argument on that matter was held on September 21, 2010. Defendant Richeson stipulated to the entry of the requested preliminary injunction. Following argument, the court asked for additional briefing on the issue of Plaintiffs' claimed damages in order to support the amount in controversy requirement to establish diversity jurisdiction. This is that brief. II. ARGUMENT Federal district courts are empowered to adjudicate claims between "citizens of different States" where the amount in controversy "exceeds the sum or value of $75,000." 28 U.S.C. 1332(a)(1) (emphasis added). The fact that the Plaintiffs and Defendant Shawn Richeson ("Richeson") are citizens of different states is not in dispute. The only matter requiring attention is the sufficiency of a claim for damages. In order to satisfy the amount in controversy requirement for diversity jurisdiction, plaintiffs may aggregate all claims against a defendant. Fed. R. Civ. P. 18; 28 U.S.C. 1332; Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 585, 125 S.Ct. 2611, 2635 (2005). Generally, the amount in controversy alleged in the complaint will satisfy the requirement unless it appears to a legal certainty that the Plaintiff cannot claim the jurisdictional amount in good faith. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398 (9th Cir. 1996); Rexford Rand Corp. v. Ancel, 58 F.3d 1215 (7th Cir 1995); Larkin v. Brown, 41 f. 3d 387 (8th Cir. 1994); Klepper v. First American Bank, 916 F.2d 337 (6th Cir. 1990). In this brief, Plaintiffs' assert damages in the amount in excess of $75,000. Those damages include claims for presumed damages, the value of injunctive relief; and punitive damages; all of which may be aggregated to satisfy the amount in controversy requirement. See Exxon, 545 U.S. at 585, 125 S.Ct. at 2635. A. Per Se Defamation Results in Presumed Damages 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 In Arizona, a publication that impeaches the honesty, integrity, or reputation of a person, or which is damaging to his professional reputation, is libelous per se and presumptive damages shall be awarded without proof of special damages. Peagler v. 2 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 Phoenix Newspapers, Inc., 114 Ariz. 309, 316, 560 P.2d 1216, 1223 (1977); McClinton v. Rice, 76 Ariz. 358, 364-65, 265 P.2d 425, 429-30 (1953). Generally, even when a plaintiff can show no actual damages, if defamation is shown, plaintiff may recover at least nominal damages. Celle v. Filipino Reporter Enterprises Inc., 209 F.3d 163, 179 (2d Cir. 2000); see alsoVan-Go Transport Co., Inc. v. New York City Bd. of Educ., 971 F.Supp. 90, 100 (E.D.N.Y.1997); see, e.g., Suckenik v. Levitt, 177 A.D.2d 416, 416, 576 N.Y.S.2d 258, 258 (1991) (nominal damages of 1); Buckley v. Littell, 539 F.2d 882, 897 (2d Cir.1976) (nominal damages of $1); cf. Orlowski v. Koroleski, 234 A.D.2d 436, 437, 651 N.Y.S.2d 137, 137 (1996) (awarding nominal damages in slander per se case where plaintiff failed to prove any injury). This commonly recognized principle is expressly recognized in Arizona. See Horn v. Ruess, 72 Ariz. 132, 134-35, 231 P.2d 756, 758 (1951) (recognizing that per se defamation entitles the party against whom the defamation was aimed to damages in some amount without necessity of either alleging or proving special damages). In this case, there can be no doubt that numerous statements made by Defendant Richeson about Xcentric and Jaburg & Wilk are defamatory per se. See e.g., Document 8 - Decl. of Maria Crimi Speth, September 8, 2010, 8, 14, 15, 34, 35 and Exhibits referenced thereto. Consequently, some amount of damages must be awarded under the doctrine of presumed damage. See Horn, 72 Ariz. at 134-35, 231 P.2d at 758. Although it may be argued that presumed damages are speculative, they will be upheld in whatever amount awarded when reasonable. All that is necessary is "an estimate, however rough, of the probable extent of actual loss a person had suffered and would suffer in the future, even though the loss could not be identified in terms of advantageous relationships lost, either from a monetary or enjoyment-of-life standpoint." Brown & Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119, 1138 (7th Cir. 1987) (quoting Prosser and Keeton on Torts, 116A at 843). In Brown & Williamson the plaintiffs introduced testimony intended to show that it has suffered harm to its reputation based on the defendant's statement; none of the 3 10297-73/MCS/VEA/831867_v2 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 testimony was supported with evidence of direct monetary value. 827 F.2d 1119, 1138-39. Instead, the plaintiffs offered the following in support of their defamation claims: First, Brown & Williamson's general counsel testified that after the broadcast there were calls from the field sales force indicating that their contacts were asking "how in the world could Brown & Williamson have done such a thing." Second, a department sales manager for Brown & Williamson testified that sales managers in the Chicago area had received negative comments from distributors, retailers, and consumers. The reports he received indicated that the sales staff had been disrupted in their normal activities by questions from retailers and consumers about the broadcast. Third, the former Vice President of Marketing for Brown & Williamson testified that the company had a reputation it cared about and that he believed that Viceroy's customers care about the reputation of the company from which they buy cigarettes. He also testified that the company's reputation among governmental entities was important because the cigarette industry is such a closely regulated industry. Fourth, the company introduced evidence that the Perspective1 (including its rebroadcasts) was seen by over 2.5 million people in the Chicago area. In addition, over two million people read a 1984 article in the Saturday Evening Post which repeated some of the most damaging portions of the Perspective. Brown & Williamson also argued that the Perspective was especially devastating because Chicago area viewers believe that Jacobson's Perspective are reliable. Brown & Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119, 1138-39 (7th Cir. 1987). Based on these assertions, Brown & Williamson sought $7,000,000 in 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 compensatory damages. Id. The jury awarded $3,000.000. Id. The district court reduced the damage award to $1.00 stating that Brown & Williamson had failed to prove any pecuniary damages. Id. The Seventh Circuit reinstated the original $3,000,000 award, reasoning that: district court incorrectly relied on Brown & Williamson's failure to prove any actual damages such as lost sales. . . Brown & Williamson could choose, as it did, to forego any proof of special damages and seek to recover compensatory damages under the doctrine of presumed damages. Brown & Williamson is entitled in this case to recover under the doctrine of presumed damages because [the publication] was libelous per se. Jacobson's Perspective is a popular news segment the ten o'clock news in Chicago. 4 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 Brown & Williamson, 827 F.2d at 1139. Because courts accept a party's good faith allegation of the amount in controversy, good faith assertions of damages was all that was necessary to support the claim.2 Lauchheimer v. Gulf Oil, 6 F. Supp. 2d 339, 343 (D.N.J. 1998); see also Palmer v. Kelly, 54 Ariz. 466, 468, 97 P.2d 209, 209-10 (1939) (relying on the "opinion and judgment of a reasonable man" to assess presumed damages). Importantly, "actual injury is not limited to out-of-pocket loss." Boswell v. Phoenix Newspapers, Inc., 152 Ariz. 9, 19-20, 730 P.2d 186, 196-97 (1986) Instead, the more common types of harm inflicted by defamatory statements are recognized, including damage to reputation and standing in the community, personal humiliation, and mental anguish and suffering. Id.; see generally Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749, 105 S.Ct. 2939 (1985). B. The Value of Injunctive Relief The value of injunctive relief may also be included in calculating the amount in controversy for the purpose of determining jurisdiction. Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 347, 97 S.Ct. 2434, 2443 (1977). It is well established that in actions seeking injunctive relief the amount in controversy is measured by the value of the right to be protected. Id.; Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002); Jackson v. American Bar Assoc'n, 583 F.2d 829, 831 (9th Cir. 1976). The right to conduct business free from interference, and avoidance of the potential losses that will flow from such interference, is a protectable right. Hunt, 432 U.S. at 347, 97 S.Ct. at 2443. Accordingly, when a person seeks an injunction or other form of specific relief, it is the value to the plaintiff of conducting his business or personal affairs free from the activity sought to be enjoined that is the yardstick for measuring whether the amount in controversy requirement has been satisfied. C. Wright, A. Miller, & E. Cooper, Federal Practice & Procedure 3708 (1976). 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The amount in controversy will be determined from an examination of the complaint at the time it was filed. Id. However, if it "appears to a legal certainty that the claim is really for less" based upon the face of the pleadings or other proof, then the allegation of the amount in controversy is open to question. Id. 2 5 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 Here, the amount in controversy is measured by the value to Xcentric and Jaburg & Wilk of conducting its business free from Richeson's defamation and destruction of their reputations, and by the value of costs avoided. Richeson made clear his intent to continue his barrage of defamatory internet posts "for the next 3 years" and to reach his goal of destroying Plaintiffs' businesses. Document 8 - Decl. of Maria Crimi Speth, September 8, 2010, 35 and Exhibits referenced. Three years of continuous, wide-spread, defamatory internet posts would cost the firm and Xcentric in excess of $75,000 just in direct costs to mitigate the damage through increased advertising and search engine optimization. To Jaburg & Wilk alone, increased search engine optimization would likely cost more than $1,000 per month, and increased public relations advice and advertising would likely cost more than an additional $1,000 per month. In addition, absent an injunction, it is likely that Defendant would succeed in diverting some clients from doing business with Plaintiffs. It is likely that the loss of a single client could easily deprive Jaburg & Wilk of more than $10,000 revenue and could deprive Jaburg & Wilk of more than $75,000 in revenue. The loss of several clients would multiply the likely damage. It is reasonable to presume that the value of the injunction to Jaburg & Wilk alone likely exceeds $75,000 by conservatively estimating a savings of $72,000 in increased public relations and SEO costs to mitigate damage from Defendants conduct, and the likely preservation of more than $30,000 in revenue from clients over a three year period. C. Punitive Damages Awardable for Defamation 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Once some damage has been established, punitive damages are awardable pursuant to Arizona Revised Statues ("A.R.S.") section 12-651 ("Recovery in any action shall include all damages for any such tort suffered by the plaintiff in all jurisdictions." (emphasis added)). This is especially true when a defendant has shown ill will, hatred, spite, or desire to injure through his defamatory conduct. Hansen v. Stoll, 130 Ariz. 454, 459 636 P.2d 1236, 1241 (App. 1981).3 Moreover, the reprehensibility of a wrongdoer's 3 Importantly, when a punitive damage award is conditioned upon a showing of promoting a knowing or reckless falsehood, even the First Amendment provides the wrongdoer no protection. U.S. Const. Amend. 1. Selby v. Savard, 134 Ariz. 222, 228, 655 P.2d 342, 348 (1982). 6 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 conduct influences the amount awarded. See Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, 501, 200 P.3d 977, 998 (App. 2008). In determining the reprehensibility of the defendant's conduct, courts consider whether: the harm caused was physical as opposed to economic; the tortious conduct evidenced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident. Sec. Title Agency, Inc., 219 Ariz. at 501, 200 P.3d at 998 (quoting State Farm, 538 U.S. 408, 409, 123 S.Ct. 1513, 1515-16)). It is likewise appropriate to "consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded, as well as the possible harm to other victims that might have resulted if similar future behavior were not deterred." TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 460, 113 S. Ct. 2711, 2721-22 (1993). Here, punitive damages are not only appropriate but necessary. The primary purpose of punitive damages is to punish the wrongdoer and to deter others from emulating his conduct. Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 330, 723 P.2d 675, 679 (1986). It is necessary to deter future similar conduct. Defendant Richeson embarked on a purposeful, extortion-driven campaign to falsely and recklessly defame Plaintiffs on the internet; a medium that is instantly accessible to millions of people worldwide. Even after being confronted with facts 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 showing that the statements he was posting on various internet sites were false, he responded that he "did not care"; his goal was to ensure the firm "couldn't get a client if they [sic] stood on the corner with a sign saying `we sue for food'." See Document 8 Decl. of Maria Crimi Speth, September 8, 2010, at 11-13 and Exhibits referenced thereto. Arizona juries have awarded as much as $350,000 in punitive damages for this kind of purposeful and false smear campaign. Selby, 134 Ariz. At 224, 655 P.2d at 344. A similar or greater award is likely here because unlike in Selby where the false 7 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 statements were made only to local authorities and resulted in an investigation that found all such allegations to be without merit, Id., the defamatory statements here were widespread and impact both current and prospective clients and employees of the Plaintiffs. Richeson himself predicted, referring to the Jaburgandwilksucks.com website, that "by the time you get an emergency TRO filed on Tuesday, this baby will have hit the 10K IP pull range." (Document 8), meaning that more than 10,000 potential clients would view the defamation. That sort of widespread and focused defamation would likely result in many potential clients turning away from Jaburg & Wilk, could easily alarm a number of current clients, and would cause lingering damage to the firm's reputation. Plaintiffs recognize that punitive damages imposed must be reasonable in light of the offense and not grossly disproportionate to the harm inflicted. BMW of N. America, Inc. v. Gore, 517 U.S. 559, 575, 116 S.Ct. 1589, 1599 (1996).4 Nonetheless ratios of 7 to 1 have been upheld in recent years. Zhang v, American Gem Seafoods, Inc., 339 F.3d 1020, 1044 (9th Cir. 2003) (recognizing the need for proportional damage awards and upholding an award with ratio of approximately 7:1 of compensatory damages). At a 7:1 ratio, a presumed damages award of only $10,000 would support a $70,000 punitive damage award, which, aggregated, exceeds the required amount in controversy. In this case, presumed damages approximated at the value of an injunction already exceed the amount in controversy required, and any multiple of that for punitive damages more than satisfies the jurisdictional requirement. In addition, nominal damages can support an award of substantial punitive damages. Punitive damages are generally available even when compensatory damages are only nominal. See e.g., Paul v. Hearst Corp., 261 F.Supp.2d 303, 309 (Pa. 2002) 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (recognizing that punitive damages are available in defamation even when no actual damage proven); Roden v. Empire Printing Co., 16 Alaska 28, 32, 135 F.Supp. 665, 665 4 In recent years, the U.S. Supreme Court and other appellate courts have recognized "single-digit ratio[s]" will usually satisfy due process. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 410, 123 S.Ct. 1513, 1516 (2003). 8 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 (D. Ak. 1955) (finding that punitive damages in defamation case may be recovered even though actual damages found are only nominal); Keehr v. Consolidated Freightways of De., Inc., 825 F.2d 133, 135 (7th Cir. 1987) (upholding punitive damage award of $50,000 even though only compensatory award was for nominal damage of $1.00). To the extent that the ratio between the punitive damages and the nominal damages of one dollar is assessed independently of the compensatory damages, the Second Circuit noted that in some cases when compensatory damages are nominal, the use of a multiplier to assess punitive damages is not the best tool. Patterson v. Balsamico, 440 F.3d 104, 124, n.11 (2d Cir. 2006). In light of the BMW factors, the Second Circuit reduced a $200,000 punitive damage award to $75,000 for a malicious prosecution charge where jury awarded $1 nominal damages. Lee v. Edwards, 101 F.3d 805, 807 (2d Cir. 1996) Similarly, the Eighth Circuit has upheld a jury award of $744,000 for breach of contract and nominal damages for breach of fiduciary duty. It also upheld the 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 corresponding punitive damages in the amount of $45,000 for the breach of contract and nearly $1.25 million for the breach of fiduciary duty reasoning that under the BMW factors the award was acceptable because the court must consider "`whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that has actually occurred." ' AsaBrandt, Inc. v. ADM Investor Services, Inc., 344 F.3d 738, 747 (8th Cir. 2003). III. CONCLUSION All damages incurred by both Plaintiffs, including the value of presumed and punitive damages, as well as the value of injunctive relief may be aggregated to meet the amount in controversy requirements for diversity jurisdiction in federal courts. Here, Plaintiffs' have asserted an amount in controversy which exceeds $75,000 and there is no basis upon which the Court could determine that it appears "to a legal certainty" that the Plaintiff cannot claim the jurisdictional amount in good faith. 9 10297-73/MCS/VEA/831867_v2 1 2 3 4 5 6 7 8 9 10 11 12 13 Jaburg & Wilk, P.C. Attorneys At Law 3200 N. Central Avenue, Suite 2000 Phoenix, Arizona 85012 (602) 248-1000 DATED this 1st day of October, 2010. JABURG & WILK, P.C. /s/ Adam S. Kunz Maria Crimi Speth Adam S. Kunz Attorneys for Plaintiff Certificate of Service I hereby certify that on the 1st day of October, 2010, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing. I have also caused to be delivered to Defendant, who is not registered with the CM/ECF System, a copy of the attached document by First Class Mail and E-Mail: Shawn Richeson 1906 Twilight Drive Killeen, Texas 76543 Shawn@ClickaNerd.com Defendant Pro Per /s/ L. Matlack 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 10297-73/MCS/VEA/831867_v2

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