Asia Economic Institute et al v. Xcentric Ventures LLC et al

Filing 108

OPPOSITION to EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Protective Order for Preventing Interference with Witnesses EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) EX PARTE APPLICATION for Order for Temporary Restraining Order for Preservation of Electronically Stored Information (ESI) 101 filed by Defendants Edward Magedson, Xcentric Ventures LLC. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Gingras, David)

Asia Economic Institute et al v. Xcentric Ventures LLC et al

Doc. 108

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

Maria Crimi Speth, (Admitted Pro Hac Vice) [e-mail] JABURG & WILK, P.C. 3200 North Central Avenue, Suite 2000 Phoenix, Arizona 85012 [phone] David S. Gingras, CSB #218793 [e-mail] Gingras Law Office, PLLC 4072 E Mountain Vista Dr. Phoenix, AZ 85048 Tel.: [phone] Fax: [phone] [e-mail] Attorneys for Defendants Xcentric Ventures, LLC and Edward Magedson UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA ASIA ECONOMIC INSTITUTE, LLC, et al., Plaintiffs, v. XCENTRIC VENTURES, LLC, et al., Defendants. I. INTRODUCTION Case No: 2:10-cv-01360-RSWL-PJW [DISCOVERY MATTER] DEFENDANTS' OPPOSITION TO PLAINTIFFS' EX PARTE TRO APPLICATION

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Unfortunately, despite this court's admonitions, this case continues tumbling deeper and deeper down the proverbial rabbit hole. As explained briefly herein, the current matter before the court (Plaintiffs' Ex Parte TRO Application) is factually and legally groundless and it should be denied in its entirety. DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

Plaintiffs' Ex Parte Application violates the motion practice rules of this Court because there is no urgency justifying proceeding Ex Parte. Indeed, Plaintiffs' pleading reflects that the parties have been discussing the ESI issue for months. Also, because there is no urgency whatsoever as to any matter raised in the application, Defendants respectfully request that the court delay any consideration of Plaintiffs' application for at least 21 days from today in order to permit Plaintiffs an opportunity to withdraw the pleading following the Motion for Rule 11 Sanctions that was served today but not filed. II. ARGUMENT

Before discussing the specific points in Plaintiffs' application, Defendants note that despite requesting a temporary restraining order, Plaintiffs have completely failed to address or discuss the legal standards for such relief; "The traditional equitable criteria for granting preliminary injunctive relief are (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases)." Johnson v. California State Bd. Of Accountancy, 72 F.3d 1427, 1430 (9th Cir 1995) (quoting Dollar Rent A Car v. Travelers Indem. Co., 774 F.2d 1371, 1374 (9th Cir. 1985). "Alternatively, a court may issue a preliminary injunction if the moving party demonstrates `either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor.' " Martin v. Int'l Olympic Comm., 740 F.2d 670, 675 (9th Cir. 1984) (quoting William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86, 88 (9th Cir. 1975)). Here, Plaintiffs' application contains no discussion whatsoever of the crucial question--whether their newly-repleaded wire fraud claim has a strong likelihood of success. The omission of this analysis is hardly surprising given the breathtaking lack of merit in this case. For instance, Plaintiffs' FAC accuses Defendants of engaging in wire DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

fraud by, inter alia, designing the Ripoff Report website in such a way that certain pages are hard to print. See FAC (Doc. #96) ¶¶ 56­58. This is not a serious or valid claim. Neither does the TRO application show that "serious questions are raised and the balance of hardships tips sharply in [Plaintiffs'] favor." This is so as to the three areas covered by Plaintiffs' application as explained herein. a. Plaintiffs Are Not Entitled To A TRO re: ESI At least four reasons exist for denying Plaintiffs' TRO request as it related to electronically stored information. First, the law already imposes a duty on all parties to preserve relevant evidence, including ESI. See generally Keithley v. HomeStore.com, Inc., 2008 WL 3833384 , *2 (N.D.Cal. 2008) (awarding $148,269.50 in fees and costs after litigant failed to effect "litigation hold" on relevant information). The current TRO requested by Plaintiffs is wholly duplicative of duties which already are imposed on both Plaintiffs and Defendants. As such, the requested relief is completely unnecessary. Second, Plaintiffs fail to recall that on June 24, 2010, they asked for and received (over Defendants' objection) an order from this court staying discovery in this matter as to all issues except for their extortion claim which has, of course, been resolved in favor of Defendants on summary judgment. The reason Plaintiffs requested this order was

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obvious--they knew their allegations in this case were 100% factually frivolous, and they knew that Defendants would promptly expose this fact if discovery was not stayed. For that reason, Plaintiffs requested and obtained a discovery stay in order to prevent Defendants from exonerating themselves. Because Plaintiffs have actively sought to avoid discovery, there is no equitable basis to conclude they are now entitled to emergency injunctive relief which has the effect of lifting the very stay which Plaintiffs demanded. Third, there is simply no need of any kind for a TRO or any other relief from this court because all (or substantially all) of the "ESI" Plaintiffs are seeking is freely available DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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to them at any time by merely viewing the Ripoff Report website. Specifically, Plaintiffs allege that their wire fraud claims are based on 58 web pages "referenced in the pleadings" including certain unspecified HTML and "meta tags". Given Plaintiffs'

whack-a-mole litigation strategy (wherein a legal or factual theory advanced by Plaintiffs will be promptly defeated by Defendants and then replaced with a new but equally groundless theory), Defendants are, for the most part, unaware of exactly what 58 specific pages are involved. Nevertheless, the fact remains that Plaintiffs are free to view the Ripoff Report website at any time, capture these 58 pages (including the HTML associated with those pages), and in doing so, they will obviate any need for Defendants to "preserve" these pages. Fourth, Plaintiffs' TRO request is unnecessary because as explained in the Declaration of Justin Crossman submitted herewith, Defendants do keep and maintain all data in the database, even when changes are made. As such, there is no imminent risk that any information will be lost if immediate injunctive relief is denied. b. Plaintiffs Are Not Entitled To A TRO Requiring Defendants To Insert A "NoFollow" Tag Into Reports About Plaintiffs In an effort to "slip one past" the court, Plaintiffs ask the court for an order requiring Defendants to insert certain HTML code into the reports about Plaintiffs including "ROBOTS.txt" and "NoFollow" tags. These tags have the effect of removing the pages from search results. See Crossman Decl. ¶ 17. Although Plaintiffs' application briefly mentions this request, there is no explanation of the legal or factual basis for the request. This is hardly surprising because what Plaintiffs are seeking is nothing less than an unconstitutional prior restraint on speech. As explained in the California Supreme Court's seminal case of Balboa Island Village Inn, Inc. v. Lemen, such prior restraints are presumptively unconstitutional and may only be entered after a trial on the merits in which the speech at issue has been found to be defamatory. See Lemen, 40 Cal.4th 1141, 1157­58 156 P.3d 339, 332­33 (Cal. 2007) DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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(recognizing "The traditional rule of Anglo-American law is that equity has no jurisdiction to enjoin defamation[]" but concluding that a post-trial injunction against defamation was permissible); see also 2 Smolla & Nimmer on Freedom of Speech § 15:57 (discussing Lemen and propriety of pre-trial injunctive relief). c. Plaintiffs Are Not Entitled To A TRO re: "Interference With Witnesses" In keeping with their scheme of making groundless requests solely to increase the costs of this meritless action, Plaintiffs falsely allege that Defendants have improperly "interfered" with a witness named Kenton Hutcherson. extremely simple. Mr. Hutcherson is a Texas-based attorney who currently represents and has in the past represented parties in litigation against Ripoff Report, including one case filed in the U.S. District Court for the District of Arizona styled Xcentric Ventures, LLC v. William Stanley, et al., 2:07-cv-00954-GMS (the "Stanley litigation"). In short, the Stanley The facts of this issue are

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litigation was a case in which Xcentric (as plaintiff) sued several defendants for engaging in a series of illegal cyber-attacks against the Ripoff Report website. In addition to injunctive relief, Xcentric eventually obtained a judgment awarding damages of $479,740.51 against one defendant who was not represented by Mr. Hutcherson. Based on evidence that Mr. Hutcherson's client was involved in these attacks, Xcentric entered into a settlement agreement in which Mr. Hutcherson's client agreed to pay $100,000 in damages to Xcentric. As part of this agreement, which is attached as Exhibit 8 to Plaintiffs' FAC (Doc. #96-8) Xcentric also promised to monitor any new reports about Mr. Hutcherson's client in order to verify that the complaint was created by an actual customer. After entering into this agreement, Xcentric inadvertently allowed two new reports to be posted about Mr. Hutcherson's client without the pre-publication confirmation required by the settlement agreement.

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In order to cure or avoid a default as a result of the inadvertent failure to verify the author of the posting was a customer, Xcentric decided it would be appropriate to remove the two reports about Mr. Hutcherson's client despite its general policy of never removing reports. Bizarrely, these events (which had no effect whatsoever on Plaintiffs) form a substantial part of Plaintiffs' wire fraud allegations because Plaintiffs allege that Defendants falsely represent that they "do not remove reports" from the Ripoff Report website when, on one occasion, they did so for the reports about Mr. Hutcherson's client based on the unusual circumstances of that mater. On July 27, 2010, Mr. Hutcherson submitted a declaration (Doc. #96-12) describing these issues in support of Plaintiffs' First Amended Complaint. His declaration was misleading in that he did not explain the full circumstances of the matter. Defendants subsequently learned that Mr. Hutcherson also issued a press release on July 28, 2010 (attached hereto as Exhibit A and also available here: http://pdf.pr.com/press-release/pr252020.pdf) in which he boasted about his involvement in this matter and implied-- falsely--that he had successfully negotiated the removal of negative information from the Ripoff Report site for his client as part of the client's settlement agreement with Xcentric. Mr. Hutcherson also made specific false statements about the material elements of the settlement agreement as follows: On May 15, 2009, Kenton Hutcherson resolved a legal dispute between his client and Xcentric Ventures, LLC. As a part of the terms of the settlement agreement, Xcentric Ventures LLC agreed to prevent future submissions related to Hutcherson's client from appearing on the Ripoff Report website. Exhibit A (emphasis added). Based on Mr. Hutcherson's disappointing decision to make false statements about the Stanley litigation settlement, Defendants immediately contacted Mr. Hutcherson and demanded that he withdraw his press release and provide a new declaration to this court which corrected the seriously misleading nature of his first DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

declaration. To date, other than promptly forwarding correspondence from Defendants to Plaintiffs' counsel, Mr. Hutcherson has ignored all communication from Defendants on this issue. No part of Defendants actions vis-à-vis Mr. Hutcherson are improper. Again, it is important to note that the primary basis for Defendants' demands to Mr. Hutcherson was not the declaration submitted to this court, but rather those demands were focused on the false statements contained in a press release created and distributed by Mr. Hutcherson. To the extent any statements in the declaration submitted to this court by Mr. Hutcherson may be protected by litigation privilege, that privilege does not give Mr. Hutcherson license to issue press releases which contain false and misleading statements of fact for the purpose of inducing new clients to hire him to commence new litigation against Xcentric. Such conduct is a direct violation of Mr. Hutcherson's ethical duties as an attorney and may result in Defendants taking legal action against Mr. Hutcherson in the future if appropriate. What is particularly ironic about Plaintiffs request is that they are urging this Court to prevent Defendants from attempting to obtain truthful declarations from Mr. Hutcherson while they are in constant communication from Mr. Hutcherson and are obtaining and using misleading declarations from him. When Plaintiffs seek a declaration from a witness, it is presumably acceptable, but when Defendants seek a declaration from a witness, Plaintiffs argue it is witness tampering. In short, Plaintiffs are not entitled to use this litigation as both a sword in which to solicit and distribute false statements and a shield in which to prevent Defendants from responding to those statements in a lawful manner. In terms of Plaintiffs argument that "Defendants' tactics ... [have] interfered with Plaintiffs' ability to locate potential expert witnesses willing to testify," Mot. At 19:17­ 19, this assertion is unequivocally and demonstrably false. As reflected in Exhibit B

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DEFENDANTS' OPPOSITION TO EX PARTE TRO APPLICATION
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

hereto, Plaintiffs have already retained and disclosed an expert witness named Joe Reed who has prepared a "report" on various issues:

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Mr. Reed also submitted a declaration in support of Plaintiffs' TRO request. See Doc. #102 (Declaration of Joe Reed). As such, it is manifestly false for Plaintiffs to argue, as they expressly do, that Defendants' actions have impaired Plaintiffs' ability to locate a suitable expert. It should cause serious concern to this court for Plaintiffs to continue making such knowingly false representations to the court without any apparent regard for their duty of honesty and candor. Defendants respectfully request that the court admonish Plaintiffs that such practices are unacceptable and enter sanctions accordingly.

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

III.

CONCLUSION

For the reasons stated above, Plaintiffs' Ex Parte TRO Application is entirely without merit and it should be denied. DATED this 4th day of August, 2010. JABURG & WILK, P.C.

/s Maria Crimi Speth Maria Crimi Speth Attorneys for Defendants

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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

CERTIFICATE OF SERVICE I hereby certify that on August 4, 2010 I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing, and for transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Ms. Lisa Borodkin, Esq. Mr. Daniel F. Blackert, Esq. Asia Economic Institute 11766 Wilshire Blvd., Suite 260 Los Angeles, CA 90025 Attorneys for Plaintiffs And a courtesy copy of the foregoing delivered to: Honorable Patrick J. Walsh U.S. Magistrate Judge

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/s/Maria Crimi Speth

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