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

Filing 142

Opposition (with exhibits) Opposition re: MOTION for Sanctions Fed.R.Civ.P. 11 135 filed by Plaintiffs Asia Economic Institute, Iliana Llaneras, Raymond Mobrez. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Borodkin, Lisa)

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

Doc. 142 Att. 2

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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. Case No: 2:10-cv-01360-RSWL-PJW MOTION FOR SANCTIONS PURSUANT TO FED.R.CIV.P. 11 Hearing Date: Time: Courtroom:

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Pursuant to Rule 11(c), Fed.R.Civ.P., Defendants XCENTRIC VENTURES, LLC and EDWARD MAGEDSON (collectively, "Defendants") respectfully request that the Court enter an Order sanctioning Plaintiffs Asia Economic Institute, LLC, Raymond Mobrez, and Iliana Llaneras for their violations of Rule 11(b), Fed.R.Civ.P. Plaintiffs have filed with the Court a First Amended Complaint which (1) has been presented for an MOTION FOR SANCTIONS
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improper purpose; (2) contains claims and legal contentions that are not warranted by existing law; and (3) contains factual allegations which have no evidentiary support, each of which is a direct violation of Rule 11(b). Defendants have presented this Motion to Plaintiffs and requested that they withdraw the First Amended Complaint entirely or correct each of the deficiencies identified within this Motion. However, twenty-one days have passed and Plaintiffs have elected to not correct these problems. As a result, sanctions are warranted pursuant to Rule 11(c)(2). I. THEORY UNDERLYING RULE 11 "Filing a complaint in federal court is no trifling undertaking. An attorney's signature on a complaint is tantamount to a warranty that the complaint is well grounded in fact ...." Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir.2002). "[T]he central purpose of Rule 11 is to deter baseless filings in district court and thus, consistent with the Rules Enabling Act's grant of authority, streamline the administration and procedure of the federal courts." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S. Ct.

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2447, 2454, 110 L. Ed. 2d 359 (1990) (citing Advisory Committee Note on Rule 11, 28 U.S.C.App., p. 576). "Rule 11 imposes a duty on attorneys to certify that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well grounded in fact, legally tenable, and `not interposed for any improper purpose.'" Id. As the Notes of the Advisory Committee on Rules point out, the language of Rule 11 "stresses the need for some prefiling inquiry into both the facts and the law to satisfy the affirmative duty imposed by the rule. The standard is one of reasonableness under the circumstances.... This standard is more stringent than the original good-faith formula and thus it is expected that a greater range of circumstances will trigger its violation." Fed.R.Civ.P. 11, Notes of Advisory Committee, 28 U.S.C.A. Rules of Civil Procedure (Supp.1988); see Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1508 (9th Cir.1987) (counsel has affirmative duty of investigation into law and fact before filing). Under Rule MOTION FOR SANCTIONS
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11(b), an attorney has a "nondelegable responsibility" to "personally ... validate the truth and legal reasonableness of the papers filed," Pavelic & LeFlore v. Marvel Entm't Group, 493 U.S. 120, 126, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989), and "to conduct a reasonable factual investigation," Christian, 286 F.3d at 1127. To determine whether the inquiry actually conducted was adequate, the court applies a standard of "objective reasonableness under the circumstances." Hudson v. Moore Business Forms, Inc., 836 F.2d 1156, 1159 (9th Cir.1987). II. PROCEDURAL HISTORY OF THIS LITIGATION Plaintiffs and their counsel have had plenty of opportunities to adequately investigate their claims against Defendants, yet, as is made clear by the recent filing of the First Amended Complaint, have either chosen not to do so, or otherwise ignored the facts which they have been provided. This lawsuit was first initiated on or around January 27, 2010. Defendants

immediately filed a Special Motion to Strike the Complaint under the anti-SLAPP statute, explaining that each of the defamation-related causes of action failed as a matter of law. On April 20, 2010, the Court denied Defendants' request, finding that the statements posted on the Rip-Off Report website do not implicate matters of public interest. See Doc. No. 23 at p. 19. As the case progressed forward, it was proven that the individual Plaintiffs (Mr. Mobrez and Ms. Llaneras) committed perjury in this case by manufacturing and presenting sworn false testimony accusing Mr. Magedson of demanding $5,000 in order to make negative information disappear from the Rip-Off Report website. It was further apparent that Plaintiffs could not establish the necessary predicate acts to prove their RICO claims. Counsel for Defendants consistently communicated with counsel for

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Plaintiffs, explaining that there was no good faith basis upon which they could base their RICO or extortion claims. Counsel for Defendants also consistently requested that

Plaintiffs withdraw their claims, since there was no evidence or legal theory which could MOTION FOR SANCTIONS
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support them; however, counsel for Plaintiffs refused to withdraw the Complaint against Defendants. At an initial case status conference, the Court bifurcated the trial in this case, and allowed Plaintiffs to only litigate the issue of liability on their RICO claims as the first matter to proceed to trial. Plaintiffs then filed a motion before Magistrate Judge Walsh to bifurcate discovery so as to limit discovery prior to the trial to the RICO and extortion claims only. This motion was granted. See Doc No. 82. Under these guidelines,

Defendants took the deposition of Plaintiff Mobrez, while Plaintiffs ­ twice ­ took the deposition of Defendant Ed Magedson, once in his individual capacity, and once on behalf of Defendant Xcentric. The parties also engaged in written discovery. On or around May 24, 2010, Defendants filed a Motion for Partial Summary Judgment, asserting that no material facts were in dispute and that Plaintiffs were unable to prevail on their claims for RICO and extortion as a matter of law. See Doc. No. 40. This Motion was supported by six declarations, as well as numerous other exhibits. Id. On July 12, 2010, the Court granted Defendants' Motion, finding that no unlawful threats were made by Defendants to Plaintiffs, and therefore no predicate acts had occurred which would give rise to Plaintiffs' causes of action for RICO with extortion as the predicate act. See Doc. No. 94. At that same hearing, the Court raised the issue of whether the Plaintiffs' Complaint was sufficient to state a plausible claim for RICO violations based on the alleged predicate acts of wire fraud. Defendants argued that the Complaint was not sufficient, and made an oral motion to dismiss those claims for failure to plead the alleged acts of wire fraud with particularity. See Doc No. 94. Plaintiffs requested leave of the Court, based on "newly discovered evidence," to file an amended complaint to allow them to assert essentially the same causes of action which had just been dismissed. The Court gave Plaintiffs the opportunity to file an amended complaint; however, in doing so, it

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reminded Plaintiffs of their obligations under Rule 11 and suggested that appropriate investigations be undertaking before any filings were made. Id. Disturbingly, on July 27, 2010, Plaintiffs filed their eighty-four page First Amended Complaint ("FAC"), alleging a variety of causes of action including, claims for RICO violations. See Doc. No. 96. In filing this FAC, Plaintiffs violated a number of provisions of Rule 11, since the FAC (1) has been presented for an improper purpose; (2) contains claims and legal contentions that are not warranted by existing law; and (3) contains factual allegations which have no evidentiary support. III. PLAINTIFFS HAVE VIOLATED RULE 11(B)(3) Rule 11(b)(3) explains that by filing a pleading with the Court, the attorney certifies that: to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances...the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery. Fed.R.Civ.P. Rule 11(b)(3). The FAC is rife with factual contentions that are wholly lacking in any evidentiary support. Moreover, as to most of these false allegations, Plaintiffs and their counsel had actual knowledge that the allegations which they are presenting are false. Even if Plaintiffs only "chose to state as a fact what was at the best a guess and a hope, [they] engaged in misrepresentation." In re Curl, 803 F.2d 1004, 1006 (9th Cir.1986), overruled on other grounds, Partington v. Gedan, 923 F.2d 686 (9th Cir.1991) (en banc). Due to the size of the FAC (84 pages and 371 paragraphs) and the quantity of factual contentions made by Plaintiffs that are devoid of evidentiary support, for the ease of the Court, Defendants have created a chart (see below) pointing out each allegation made by Plaintiffs which is in violation of Rule 11(b)(3)1:

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1

This chart does not include all allegations within the FAC which Defendants deny. It only contains those allegations which violate Rule 11.

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¶

False Allegation by Plaintiffs

Why Allegation Lacks Evidentiary Support

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AEI has its principal place of Plaintiff Mobrez has testified under oath business at 11766 Wilshire Blvd. that AEI is no longer in business. Entire paragraph The elements of this conclusory, summarizing paragraph are addressed separately later. The elements of this conclusory, summarizing paragraph are addressed separately later. There is no evidence that Xcentric solicits reports for the RipOff Report website. Additionally, individuals and companies are invited, and, indeed, encouraged, to submit positive information to the website. Furthermore, Plaintiffs are aware that few courts, if any, have adjudicated a report on the RipOff Report website to be false. There are an abundance of declarations that are publicly available regarding the extent to which Xcentric redacts information from reports, including information on the RipOff Report website itself. Redactions are not done to change the character of any report. Plaintiffs took the deposition of Ed Magedson, wherein he made it clear that Xcentric will not suppress reports from publication for a fee. There have been no empirical studies done which reach this conclusion. Indeed, Google has stated on numerous occasions that there is nothing an individual website can do which will enhance its placement in search results. Further, Google itself encourages the posting of rebuttals as a reputation management tool. http://googlewebmastercentral.blogspot.com /2009/10/managing-your-reputationthrough-search.html

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Entire paragraph

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The Ripoff Report enterprise solicits purely negative...and in many instances, judicially recognized as defamatory ­ content.

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[Xcentric] sometimes redact[s] or disclaim[s] portions of the content, at times in a manner that significantly changes its meaning

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in certain cases (often under a financial arrangement) [Xcentric], for a fee, suppresses the Reports from publication altogether. Unbeknownst to the victims, the "free" rebuttals come at a cost. A rebuttal is likely to make the negative content in a Report go up in page rank in search engine queries, while doing nothing to alter the snippets of negative content that appear in search results.

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The Ripoff Report enterprise does not disclose its own financial selfinterest in having victims file rebuttals ­ fresh content and page visits that make the ROR Website more attractive to search engines and online advertisers.

Xcentric does not have a financial interest in the filing of reports on the RipOff Report website. It is not possible to generate revenue from search engines. Xcentric has specifically defined advertising standards, meaning that it chooses its advertisers, not the other way around. See http://www.ripoffreport.com/ConsumersSay ThankYou/AdvertisingStandards.aspx

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The Ripoff Report enterprise does Plaintiffs know that Reports do not come not disclose that some Reports do down. Plaintiffs believed that they found two exceptions to this policy, but learned come down... the truth before signing this pleading. the Ripoff Report enterprise insists, falsely, that the case of Mobilisa v. Doe requires that holders of a subpoena for author information "MUST post a notice as a rebuttal to each report for which you are seeking the author's information," as the only acceptable way of informing the anonymous author of the discovery request. Rebuttals on the ROR website lack certain important properties that Reports have, such as an automatic sharing, emailing button, and printing button. In fact, rebuttals are nearly impossible to print without taking the intermediate step of making a screen shot. This is an accurate interpretation of Mobilisa, and a number of Arizona courts have agreed with Xcentric on this interpretation. No Arizona court, or any other court dealing with the request for information from Xcentric, has interpreted this case as Plaintiffs are asserting.

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Rebuttals can be printed an emailed. The "automatic sharing" button referenced by Plaintiffs allows the entire page ­ including the report and any rebuttals ­ to be sent as a link via various programs. This fact is readily ascertainable by use of the website. It is readily ascertainable from a quick test on the website that when a Report is printed, the rebuttal is printed with it. Reports and rebuttals are all part of the same listing.

Proper notice under Mobilisa would No court has ever held this to be true and it thus be posting of a new Report. is contrary to court authority. It would be far more difficult for the author to receive the requisite notice if it were not appended to the Report. by misinforming the public that Mobilisa requires a rebuttal as a precondition to proper notice, the Ripoff Report enterprise finds still another way to "feed the troll" that is, its content database. All courts have agreed that the filing of a rebuttal is the proper method to provide notice under Mobilisa. Moreover, filing a new Report would generate as much new content on the database as filing a rebuttal. Indeed, a new Report would create a new page, and even more visibility for the website. 2:10-cv-01360-RSWL-PJW

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The victims have sat on their rights, business has evaporated, houses have gone into foreclosure, and the Reports have been pushed so far up in page rankings that it takes significant additional money and time to post alternative, positive content about themselves to the Web to undo the damage to their online reputations.

This presumes a number of facts which Plaintiffs have not and cannot prove. First and foremost, it assumes that the reports are false. Since all authors are required to avow to the truth of their reports, this cannot be assumed. Second, Plaintiffs are stating as fact that, as a result of postings on the RipOff Report website, people have (a) lost their business and (b) had their homes be foreclosed. Given that Plaintiffs are speaking in generalities, there can be no evidence that supports this assertion. Third, this presumes, without basis, that money must be expended to "repair" online reputations. Plaintiffs are aware that Xcentric has no control or influence over the results of any Google search, or the results from any other search engine. Plaintiffs are aware that there are no "other financial arrangements" wherein individuals can partake in the same program offerings as CAP. Indeed, the recordings reveal that Plaintiffs attempted to lure Ripoff Report into making some other financial arrangement and had no success. Additionally, Plaintiffs are aware that Xcentric has no control or influence over the content of Google search results. Information regarding how Google generates its search results can be found at http://www.google.com/support/webmasters /bin/answer.py?hl=en&answer=35264 Google's search algorithms are highly protected and continuous evolving trade secrets which no one outside of Google, including Plaintiffs and Xcentric, is privy to. Further, Google has publicized, since September, 2009, that it does not utilize keywords meta tag in web rankings. http://googlewebmastercentral.blogspot.com /2009/09/google-does-not-use-keywordsmeta-tag.html

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for a price, the Ripoff Report enterprise will sell something even more valuable ­ the opportunity to change a negative Google search engine result into a positive. By joining CAP or otherwise making financial arrangements with the Ripoff Report enterprise, a subject can buy the privilege of essentially writing (or approving) her own Google search result.

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Because Google's search algorithms are generally influenced to select text that "matches," between both a web page and the corresponding HTML (that is, identical text that is present in both), putting the positive content in the strategic location in the HTML, a long with a matching block of test [sic] in the Report effectively negates the harmful effect of the Report with the Google search engine, while allowing Defendants to continue claiming (falsely) that they "never remove reports."

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In order to preserve the fiction that they "never lose a case" and that plaintiffs pay all their attorneys' fees, the Ripoff Report enterprise sometimes settles difficult cases by channeling the plaintiffs into CAP or similar arrangements.

Plaintiffs have no support for their allegation that it is a "fiction" that Xcentric has never lost a case. Indeed, with one exception (a default judgment in the West Indies that was never domesticated and eventually deemed satisfied) the operators of Ripoff Report have never lost a case. Plaintiffs allegations that a settlement is a loss are without any evidentiary support where Plaintiffs do not know the terms of the settlement.

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The Ripoff Report enterprise earns Plaintiffs are aware that neither Xcentric nor revenues from the sale of goods Magedson sells any goods through the RipOff Report website. Plaintiffs are aware, and public records reflect, that the "Do-itYourself Guide: How to get Rip-off Revenge" book is sold by a third-party company. The book is advertised on the Rip-Off Report website, but is not sold by Xcentric. For each web page comprising the ROR Website, there is an accompanying page of Hypertext Markup Language code ("HTML"). Plaintiffs are implying that a website consists of two separate areas of content ­ the web page itself, which a user sees if they go to the URL, and the "behind the scenes" HTML code. That is not how a website works. Instead, it is the HTML code that generates what an internet user sees when they go to a web page. In essence, the HTML and the web page are simply different translations of the same thing.

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The Ripoff Report Plaintiffs are aware there is no such concept enterprise...exploits the gap as a "gap between web pages and their between web pages and their respective HTML." respective HTML. In addition to selling twodimensional advertisements on its static web pages, Ripoff Report also sells links to paid advertisements in the body of the "rebuttals" that users post to its web pages. As Plaintiffs should be aware (in that it is clear from a cursory visit to the Ripoff Report website), Xcentric utilizes the services of a company called Kontera, which provides in-text advertising. These ads appear not only in rebuttals, but in reports as well. The advertisements are placed solely by Kontera, a third-party corporation, after it performs a dynamic analysis of the content of the page and chooses relevant key words from that content in which to place advertisements.

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Ripoff Report does much more, This summary and conclusory allegation behind the scenes, that destroys lacks any factual or evidentiary support. livelihoods, reputations and businesses. Ripoff Report takes ownership of This is a misstatement of what the transfer the copyright and content of every of rights grants to Xcentric. Xcentric is not the owner of the copyright; it is the Report, rebuttal and user comment exclusive licensee of the content. The author of the report still retains the ownership of the copyrighted works themselves. unlike community websites such as Each of the websites identified by Plaintiffs Facebook, Craigslist, and requires users to be bound by their Roommates.com, Ripoff Report respective Terms of Service. makes it mandatory for a user wishing to contribute content to the ROR Website to register and accept the ROR Website's Terms of Service Ripoff Report also has designed the The rebuttals are as accessible and easy to ROR Website with various technical memorialize as the Reports. restrictions that make it much more difficult to reproduce, memorialize or share the rebuttal and comment sections purportedly attached to the Reports. Many members of the public influenced by a Rip-off Report do not locate it by navigating to the ROR Website by a domain name ­ ripoffreport.com ­ and then searching the ROR Website for a company or a person. Instead, many ­ if not most ­ discover Rip-off Reports by searching for that company or person on the Web generally Among other things, a web page's HTML influences (1) the order in which a search engine query returns and displays results for a particular web page ("page rank") and (2) how the description of the web page returned by the search query appears ("search result"). Plaintiffs have performed no survey or investigation to support this theory. Yet, Plaintiffs present this as a fact instead of a theory.

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Plaintiffs have performed no survey or investigation to support this theory. Yet, Plaintiffs present this as a fact instead of a theory. Google publishes articles regarding helping website owners ensure that Google finds, indexes, and ranks websites. This information can be found at http://www.google.com/support/webmasters /bin/answer.py?answer=35769.

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The order of prominence in which This is an incorrect definition of "page the search results appear are known rank." According to Google, "When a user as "page rank" or "page rankings." enters a query, our machines search the index for matching pages and return the results we believe are the most relevant to the user. Relevancy is determined by over 200 factors, one of which is the PageRank for a given page. PageRank is the measure of the importance of a page based on the incoming links from other pages. In simple terms, each link to a page on your site from another site adds to your site's PageRank." http://www.google.com/support/webmasters /bin/answer.py?answer=70897&hl=en Defendants improperly assassinate This is a baseless allegation. Defendants the goodwill of the subject in search host a forum. The authors and submitters of content write the content. results. They do this for their own direct Plaintiffs have no basis for their assertion of pecuniary gain, either (1) in the why Defendants operate the website. form of sales of goods and services, or (2) in the form of increased Web traffic to its ROR Website, which drives up the statistics in web analytics that partially determines the amount of advertising revenue they receive from online advertisements. Search engines do not utilize the concept of "authority;" instead, they return search results based on how relevant they deem them to be to the user. http://www.google.com/support/webmasters /bin/answer.py?answer=70897&hl=en Google outlines guidelines for a website to follow so that it appears in Google search results. The website's domain name and URL are not included in Google's identified criteria. http://www.google.com/support/webmasters /bin/answer.py?answer=35769

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103 Having high "authority" means a website's individual web pages rank consistently highly in search query page rankings.

106 One of the factors that influence a particular web page's rankings in responses to Google search engine queries is the domain name and URL assigned to it.

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110 This inclusion of the subject's personal or business name in the unique URL for a Report, always combined with the "ripoffreport.com" domain names for Rip-off Report web pages influences Google's search engine to give higher page rankings to Reports than web pages located at URLs that do not include such business or personal names in the URL. 111 This URL visibly incorporates the words "ripoff," "ripoffreport," ""work," "work at home," "home," "jobsformoms," and "jobsformoms.com" and would result in a higher page ranking for the web page hosting Report 621543 in search queries for those words than a web page located at a URL that did not include those words in the URL itself.

Google uses more than 200 signals, including its PageRank algorithm, to determine relevancy for its search results. The PageRank algorithm itself considers more than 500 million variables and 2 billion terms. http://www.google.com/corporate/tech.html

By claiming that the words "ripoff" and "ripoffreport" are two separate searchable words from the URL, this paragraph misrepresents the content of the URL by including more words than it does. Additionally, Plaintiffs are implying that if someone searched for the word "work," the URL they referenced would appear in the search results because of the content of the URL, as opposed to the content of the website itself.

114 For example, Defendants published Defendants do not publish the reports and, to the Web pursuant to federal law, can not be deemed a publisher. 117 The Ripoff Report enterprise has The URL reflects (1) the name of the since "optimized" it for search business being reported, and (2) the title of engines. the report itself (or a portion thereof). Xcentric does not author or choose either of these subjects for inclusion in the URL. The author of the report provides Xcentric with the content, which is used to create the URL. 118 Defendants updated Report number Plaintiffs are aware that Defendants did not 417493 on or about May 21, 2010 at author the report about Plaintiffs. An explanation as to what the word "update" 3:30 p.m. Pacific Standard Time. means for the purpose of the Rip-Off Report website has been provided to Plaintiffs. Defendants did not "update" or otherwise change any content within the report about Plaintiffs at any time, including on May 21, 2010. There is no indication from the report itself that it was "updated" or modified in any way.

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118 Defendants continuously publish Plaintiffs are implying that Defendants Report number 417493 to the Web. affirmatively take action to ensure the report about Plaintiffs is published on the Rip-Off Report website, instead of it being a static item which was published to the Rip-Off Report website on a single occasion, on January 28, 2009, when the author of the report published it. 119 Entire paragraph Defendants did not cause those specific terms to be included in the report. The author of the report provides Xcentric with the content, including the term "Asia Economic Institute," which is used to create the "header" and the URL. There is no empirical evidence to support this assertion. In fact, recent articles indicate that the internet is running out of IP addresses, a clear indication that the vast majority of people and businesses are, in fact, creating websites. http://www.cnn.com/2010/TECH/innovatio n/07/23/internet.addresses/index.html In 2009, the word "google" was added to the World English Dictionary as a verb, meaning "to search for (something on the internet) by using a search engine." http://dictionary.reference.com/browse/Goo gle. Defendants are not encouraging anyone to specifically use the Google search engine, but merely, to do their own research. Mr. Magedson did not testify that he or Xcentric does business with Google. Mr. Magedson testified that an anonymous individual threatened to file phony reports about Google or "anybody [the individual] could find out that I was doing business with." He further testified that the individual retaliated against Xcentric for its refusal to remove a report about the individual, by publishing a false report about Google and its co-founder, Sergey Brin, because Google refused to cease indexing the Rip-Off Report about that individual.

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121 Ripoff Report actively and deliberately encourages users to prefer Google as a search engine above others, invoking Google frequently by name.

135 Entire paragraph

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136 Therefore, Defendants added the additional material in Report number 607436 and changed the names in Reports.

This mischaracterizes the testimony of Mr. Magedson. There is no testimony by Mr. Magedson regarding Report No. 607436. That report has no relevance to this lawsuit, nor is it even tangentially related to the preceding sentence of this paragraph regarding Sergey Brin.

139 There are at least two ways to CAP is a program offered by Xcentric. become a member of Defendants' There is only one way to become a member, which is to apply and be accepted into the Corporate Advocacy Program. program by Xcentric. 169 A second, "unofficial" way to get Filing a lawsuit is not a "way to get into into CAP is to file a lawsuit against CAP." In the past certain Plaintiffs in lawsuits chose to become CAP members Defendants. and joined the program as part or contemporaneously with a settlement. In the past, when a Plaintiff joined CAP, the company was still required to meet all the criteria of any other business wishing to join CAP, pay the fees, and be bound by the same terms and conditions of CAP as any other CAP member. 171 Among Defendants' most striking Plaintiffs know that Defendants do have a 172 false representations, both on the policy against removing reports and that the ROR Website on both June 26, 2009 statements by Defendant were true. and October 27, 2009, and in emails to individuals seeking information about Rip-off Reports, is that "WE DO NOT Remove any Rip-off Reports" and never removes reports for money. 173 This is absolutely false. Ripoff Report has taken down at least two reports after litigation, and for a sum of over $100,000, in October 2009 and December 2009. Plaintiffs are aware this is a false statement and that reports were not removed as a result of litigation or for payment of any sum of money, including $100,000.

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174 The true facts are that Ripoff Report Plaintiffs are aware this is a false statement has removed Rip-off Reports, and and that reports were not removed for for substantial amounts of money. payment of any sum of money. 174 For substantial amounts of money, Plaintiffs are aware this is a false statement Rip-off Report...has taken down and that reports were not removed for Rip-off Reports. payment of any sum of money.

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175 Entire paragraph

Plaintiffs are aware this is a misrepresentation (by omitting material portions) of the content of the Settlement Agreement entered into between Xcentric and Magesdon, as the plaintiffs of that litigation, and QED Media Group, LLC and Robert Russo, as the defendants. Plaintiffs claim that filing a rebuttal which explains the company's side of the story "aggravates their injuries" is baseless and frivolous. Likewise, the claim that the ability to file a rebuttal deters companies from exercising their rights is ridiculous. Plaintiffs are also aware, as public records reflect, that Defendants do not mislead anyone regarding their success record in litigation. Defendants have never lost a case on the merits. Plaintiffs are aware that there is no empirical evidence to substantiate the claim that filing a rebuttal increases the relevancy of a report with a search engine. The declaration which Plaintiffs use to support this statement neglects to inform the Court that websites cannot control the frequency of indexing of the website. http://www.google.com/support/webmasters /bin/answer.py?hl=en&answer=182072 Defendants have previously explained that filing a rebuttal (a) is not tied to an increase in visitor traffic; and (b) cannot "strengthen the overall authority" of the RipOff Report website, because the relevancy of a website is something which is determined by a Google algorithm. As explained previously, Xcentric contracts with a company called Kontera for the placement of link ads throughout the RipOff Report website. This is evident from even the briefest viewing of the website.

176 Entire paragraph

178 filing a rebuttal is likely to increase the prominence of the negative statements, and does so in a way that only the negative appears in search results, not the positive

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179 Entire paragraph

180 ROR also does not tell those to whom it advocates filing a rebuttal that ROR then sells advertising links from the rebuttals

181 ROR claims that you can always file All rebuttals are free. There have been no a free rebuttal. This is false. instances when Xcentric charged someone to file a rebuttal.

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182 ROR [] makes a number of Any statements regarding the liability of exaggerated claims concerning its Xcentric (or lack thereof) for the statements own legal liability. posted on the RipOff Report website are supported by the case law, which is referenced directly on the website. 182 It claims never to have lost a case, This isn't a claim; this is a true statement. and that people who sue will pay their legal fees. 182 This intimidates subjects and potential lawyers from exercising their rights through overly exaggerated misrepresentations of the proper standards of law, amount to fraud under the circumstances. Xcentric provides case citations to support all legal theories it presents on the website. Moreover, each of Xcentric's lawsuits are a matter of public record, and anyone who is wishing to sue Xcentric is free to review the court record for those cases. Xcentric does not hold itself out to be acting as legal counsel for anyone who visits the RipOff Report website, and everyone is free to seek their own legal advice and conduct their own legal research. The only purported "victim" in this lawsuit is AEI, which never had any business to disintegrate. Tens of thousands of businesses have been the subject of Ripoff Reports and continue to prosper. Plaintiffs are aware that Defendants are not obligated to make the types of disclosures which they are intimating must be made. Plaintiffs are also aware that there is clear information on the RipOff Report website regarding CAP members and CAP statements by Xcentric, as well as what qualifies an advertiser as "verified safe." Xcentric has a set of standards which it utilizes to certify a business as a CAP member of as a "verified safe" business. Those standards are readily available to users of the RipOff Report website.

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182 their victims' businesses quickly disintegrate, leaving them desperate, and if they followed ROR's advice to post rebuttals, ultimately without true recourse except to join CAP or pay an SEO consultant. 183 Defendants fail to make material disclosures that would affect consumer's perception of Defendant's endorsement of such programs as paid advertisements and are not neutral and objective.

184 They will endorse and verify safe anyone that pays them, even when the federal authorities have found the endorsed business to be corrupt.

185 ROR has altered content concerning Plaintiffs are aware there is no evidence that Google to maintain its good favor. the RipOff Report website is in "good favor" with Google or has any other relationship with Google apart from that of being one website among the billions of other websites which Google indexes and includes in its search results.

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188 Desperate, the subjects of Reports This is rhetoric, not an allegation of fact or are overwhelmed in the aftermath of law, and in unsupportable by any facts having a report go up about them. currently available or potentially available to Plaintiffs. 189 The distress of a subject is well known among a business sector of consultants who purport to have knowledge as to how to address the existence of a Report. This is rhetoric, not an allegation of fact or law, and in unsupportable by any facts currently available or potentially available to Plaintiffs.

190 Victims are deluged with calls, e- Plaintiff has admitted that Plaintiff received mails and faxes from services only one telephone call from a third party soliciting fees to "repair" online service. It is false to call this a "deluge." reputation caused by the ROR. 191 Entire paragraph Plaintiffs are aware that Defendants did not know of the existence of Plaintiffs until they initiated communications with Mr. Magedson after the report about Plaintiffs had been filed by the third-party author. Thus, Plaintiffs are aware that Defendants did not use the RipOff Report website to try to obtain money from Plaintiffs. The Plaintiffs are also aware that Defendants do not acquire, nor distribute, the content on the RipOff Report website. Plaintiffs are aware from the RipOff Report website that make no promises of media monetary compensation to reports. face of the Defendants attention or authors of

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192 Promising media attention and monetary compensation via class action lawsuits, Defendants solicit purely negative content

193 Defendants then label these business Defendants do not provide any labeling or or individuals a "Ripoff" content for the reports. The author of the report, by filing a report on the RipOff Report website, has labeled the business to be a "ripoff." 198 Defendants statements about not Plaintiffs are aware that Defendants adhere to their policy of never taking reports down 201 removing reports are false. from the RipOff Report website. 204 205 The true facts are that Reports do, in Plaintiffs are aware this is a false statement, fact, come down, for substantial that reports do not get removed, either for sums of money, and after a lawsuit money, or as part of a settlement agreement after a lawsuit.

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205 Defendants' Counsel has admitted that Reports have, on occasion, been removed from the ROR Web site, including pursuant to the QED Agreement, and that Russo owed significant sums of money to the Ripoff Report enterprise under the agreement providing for such removal.

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Plaintiffs are aware and have been informed repeatedly that this is a false statement. This is an inaccurate representation of the Settlement Agreement between Xcentric and QED Media/Robert Russo. Plaintiffs' counsel are mischaracterizing communications between themselves and Defendants' counsel. Counsel for Defendants has explained to counsel for Plaintiffs that on two separate occasions, reports regarding QED Media were erroneously missed as part of the monitoring process which QED Media was entitled to through its Settlement Agreement, and erroneously posted to the RipOff Report website prior to the confirmation of the authorship of those reports, as required by the Settlement Agreement between those parties. Those two reports were then removed from the RipOff Report website pending authentication of the report from the author, to cure a default under the Settlement Agreement. Further, money was paid by QED Media/Russo to RipOff Report in settlement of the more than $450,000 in damages that QED caused to Xcentric which were the subject of the lawsuit. The payment of money had nothing to do with removal of reports. Plaintiffs' counsel had extensive communications with counsel for QED and knew or should have known that the money paid under the agreement was a compromise of Xcentric's claim for damages. On July 14, 2010, David Gingras sent an email to counsel for Plaintiffs explaining the circumstances behind the email referenced in this Paragraph. This Paragraph is intentionally misleading in that it appears to imply Xcentric removed a report for Jan Smith. That is a false implication. Mr. Gingras provided counsel for Plaintiffs with the exact emails relating to this circumstance, which clearly show that Xcentric did not agree to remove the report; it only agreed to remove the name of a sixteen-year-old girl from it.

206 On January 15, 2010 at 2:02 (EST), Defense Counsel for ROR, David Gingras, sent an email to Jan Smith stating that ROR was asked to take down a report and said "YES."

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207 Likewise, Gingras stated that he may be able to remove Ms. Smith's Reports per Edward Magedson's approval.

Plaintiffs are aware this falsely implies that Xcentric previously removed a report. Plaintiffs, who had possession of the email in question, also know that Mr. Gingras did not offer to remove Ms. Smith's report, but, instead, that Xcentric may be willing to redact a single unique word or name. There has never been a category called Suspicious Activities. Plaintiffs failed to investigate this baseless allegation and if they had done so, they would have confirmed that no such category every existed. Plaintiffs have demonstrated a familiarity with webarchive.org which they could have used to investigate this allegation before making it. Plaintiffs are aware this is a false statement. In his July 14, 2010 email to counsel for Plaintiffs, Mr. Gingras fully explained his conversations with Jan Smith. His emails to Jan Smith make it clear that reports were not removed, but instead, the girl's name was redacted. Plaintiffs are aware that the declaration of Kenton Hutcherson is false and misleading. The declaration infers that as a result of the settlement between his clients, the defendants in a lawsuit with Xcentric (the plaintiff), he simply demanded that RipOff Report remove reports and it complied. As is made clear in the Settlement Agreement, Xcentric agreed to monitor reports which were submitted to the RipOff Report website for publication about QED. Pursuant to that settlement agreement, Xcentric would hold reports about QED pending confirmation from the author of the report that they were an actual customer of QED. If such confirmation could not be provided by the report's author, the report would not be published on the RipOff Report website. As Plaintiffs are aware, the only reason the posting was removed was because it was inadvertently permitted without the requisite verification. Mr. Hutcherson's declaration fails to disclose that the removal became necessary to cure a default of the Settlement Agreement by Xcentric. 2:10-cv-01360-RSWL-PJW

208 On information and belief, reports previously categorized under "Suspicious Activities" no longer appear on Defendants' Web site...By April 3, 2009, the entire category of Reports under "Suspicious Activities" was deleted.

209 In a telephone conversation that took place on April 12, 2010, counsel for Defendants, David Gingras, falsely told or implied to Jan Smith that he had "removed a report" for a 16 year old girl. 210 Entire paragraph

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211 On July 20, 2010, during a conference between both parties, counsel for Defendants, Maria Speth, confirmed that two reports concerning Mr. Hutcherson's former client, QED Media Group, LLC, were removed on two separate occasions.

This conversation took place during the Court-ordered confidential settlement conference and therefore all aspects of this conversation were intended to remain privileged, confidential, and not to be used in any manner outside of settlement discussions. Plaintiffs are aware that the statements made in this Paragraph are false, because Ms. Speth explained, in full detail, the circumstances surrounding the Settlement Agreement between Xcentric and QED Media, and the resultant monitoring of reports. Ms. Speth also explained that the only reason Xcentric agreed to monitor postings about QED was because QED insisted on such provision out of (unfounded) fear that Xcentric would create postings about QED to retaliate for the substantial damages that QED had caused to Xcentric. This Paragraph ignores entirely all such explanation. There is no causal relationship between any statements made by Defendants and the reputational harm that a company may incur as a result of a third party posting a report.

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212 These false statements lead those victimized to believe they have very limited courses of action. If they wish to mitigate the damage caused by these reports, they must either pay Defendants to be in the CAP or pay an information technology ("IT") consultant to publish alternative online content to repair their reputation via search engines. 213 On October 24, 2009, Plaintiffs posted a listing on Craigslist seeking an on site web product developer with SEO skills in order to combat the defamatory reports. Plaintiffs paid $25.00 to post this advertisement.

Plaintiffs are falsely implying that they required the services of an employee to perform SEO services for them and that there was a causal relationship between that and any statements made by Xcentric. They are also falsely asserting that they needed to advertise to obtain such an individual. As alleged elsewhere within the FAC, Plaintiffs claim to have been "deluged" with offers to provide these types of services. Further, as indicated in the subsequent paragraphs of the FAC, Plaintiffs did not actually hire an employee to serve in this capacity, but instead, hired "consultants" to which they paid a flat-fee.

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222 The Ripoff Report Enterprise also Plaintiffs filed a lawsuit and did not sit on makes these false representations their rights or permit the statute of that reports are never removed even limitations to run. if you sue, to intimidate the victims, deflect litigation to the contributors, and reinforce the myth that Defendants are immune, thus causing victims to sit on their rights while the statute of limitations runs 227 Defendants Falsely State That Plaintiffs are aware that anyone may file a 228 Victims Can File A Free Rebuttal rebuttal at no expense to them. Plaintiffs are and That Rebuttals Are Effective also aware that providing the "other side of the story" and a balanced presentation is an and Helpful effective tool to address the content of reports. 228 "you can write a rebuttal explaining Plaintiffs are aware that this is a true your position." statement and that anyone may write a rebuttal, yet they claim it is false. 228 "Rebuttals are 100% free" Plaintiffs are aware that this is a true statement and that rebuttals cost nothing to write and publish, and yet they claim it is false.

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228 "If you think a report is fake and/or Plaintiffs are aware that this is a true written by a competitor, feel free to statement and that anyone can address these say so in your rebuttal." issues in their rebuttal, and yet they claim it is false. 228 "Your rebuttal can also demand that Plaintiffs are aware that this is a true the customer post some form of statement and that a rebuttal can include language requesting proof to support the proof to back up their story." report, yet they claim it is false. 228 "Even if a customer won't submit an update, you can write a rebuttal stating what you have done to make things right." Plaintiffs are aware that this is a true statement and that a rebuttal can contain language from the company regarding how it addressed the customer's complaints, and yet they claim it is false.

228 "If you find a complaint has been Plaintiffs are aware that this is an opinion filed against you, the best thing you and not a false statement. can do is to post a rebuttal." 228 "If a company has received one or Plaintiffs are aware that this is a true more Ripoff Reports, that business statement and that a business can choose to always has the option of posting free post a rebuttal at no charge. rebuttals..."

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229 Defendant Edward Magedson sent Plaintiffs are aware that each of the Plaintiff Raymond Mobrez an e-mail statements identified within this Paragraph containing the false statements are true. 229 "Just file a rebuttal...the truth shall Plaintiffs are aware that this is a true set you free." statement and/or an opinion. 229 "You can simply file a rebuttal and Plaintiffs are aware that this is a true explain your side of the story...it's statement, and that Plaintiffs did, indeed free...and you don't have to even filed a free rebuttal. read any further, just log on and file a rebuttal telling your side of the story, best not to be combative or insulting." 229 "You can simply file a rebuttal and Plaintiffs are aware that this is a true explain your side of the story...it's statement, and that Plaintiffs did, indeed filed a free rebuttal. free." 230 The true facts are that the Ripoff Plaintiffs are aware that filing a rebuttal to a Report enterprise...make it much report on the RipOff Report website is a more difficult to file rebuttals. free, simple process. 239 Filing a rebuttal actually hurts those Plaintiffs are aware there is no evidence to victimized on the ROR website and support this statement. in search results more than it helps them. 239 filing a Rebuttal refreshes Google's Plaintiffs are aware that this is a false search indexing statement, and that there is no method to automatically get Google to crawl a website. 239 filing a Rebuttal...raises the page This is an incorrect definition of "page ranking of the negative Report. rank." According to Google, "When a user enters a query, our machines search the index for matching pages and return the results we believe are the most relevant to the user. Relevancy is determined by over 200 factors, one of which is the PageRank for a given page. PageRank is the measure of the importance of a page based on the incoming links from other pages. In simple terms, each link to a page on your site from another site adds to your site's PageRank." http://www.google.com/support/webmasters /bin/answer.py?answer=70897&hl=en 239 filing a rebuttal is likely to drive the Plaintiffs are aware that this is a false negative report up in the search statement for which no evidence exists. rankings creating a vicious circle of attempting to minimize the harm yet, at the same time, giving these Reports more prominence MOTION FOR SANCTIONS
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241 Rebuttals do not appear in Google Plaintiffs are aware this is a false statement. search results, if at all, in an Simple searches on Google prove that intelligible context comparable to rebuttals do show up in search results. the significantly altered Reports published by the Ripoff Report enterprise that are stuffed with positive HTML text about CAP members. 242 wish to exercise their First Plaintiffs are aware this statement contains Amendment right of petition against a false implication about what relief users of the RipOff Report have utilized the court Defendants in the courts. systems for. Moreover, Plaintiffs are aware that there is no such thing as a "First Amendment right of petition." 247 Defendants falsely misrepresent to Plaintiffs are aware that they have no the public that "Ripoff report has evidence to support the allegation that this is never, ever (not now, and not in the a false statement by Xcentric. past) done anything to cause Google to rank our website higher in search results than other sites." 249 Ripoff Report has, in fact, done many things to support itself as a business model and cause Google to rank postings higher by circumventing punitive changes in algorithms. 249 The website gives Google special treatment in reports to maintain their high organic Google search authority and favorable ranking. Plaintiffs are aware that they have no evidence to support this allegation. Plaintiffs are further aware that there is no method through which to circumvent Google's proprietary algorithms. Plaintiffs have no basis for their claim that there is any relationship whatsoever between Xcentric's "treatment" of Google and Google's algorithms.

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250 Both Bing and Yahoo have Plaintiffs have no evidence to support this discredited and penalized allegation. Indeed, if a search is done on Defendants' website in their search Bing or Yahoo for the words rip and off, Defendants' website is the first result. algorithms. 252 "...the illusion that Ripoff Report is Ripoff Report is a legitimate website. a legitimate site if it ranks so highly with common search engines like Google. 252 Defendants place these misleading Plaintiffs are aware that the statements on statements on the "Want to Sue Us" the "Want to Sue Us" page of the RipOff Report website are either true or opinions. page on their website.

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252 [statements on the "Want to Sue Us" Plaintiffs are aware that this is a false page] discourages them from statement. Plaintiffs are further aware that asserting their rights the statements on the "Want to Sue Us" page of the RipOff Report website are intended to discourage users of the website from filing frivolous and baseless claims against Xcentric. [] Defendants Falsely Present Themselves As Authorities In internet And Technology Law With Specialized Knowledge Under Circumstances that Transform Legal Opinions Into Actionable Fraud The statements written by counsel for Defendants were written by attorneys with more than thirty years combined experience and who have handled more than fifty internet related matters. The authors of the statements are authorities in internet and technology law. Plaintiffs are aware this is a false allegation, and that every court which has addressed this issue has found that Xcentric is immune from liability for statements made by third parties pursuant to the CDA. Plaintiffs are further aware that Xcentric has never lost a case against it which was properly served. Plaintiffs are aware that each statement identified within this Paragraph is true. It should be specifically pointed out that Plaintiff actually alleges that the statement in paragraph 255(x) that Rule 11 generally requires that all pleadings including complaints must be presented in good faith and after reasonable investigation is among the "many" contentions made by Defendants that are false. Plaintiffs are aware that each statement identified within this Paragraph is true. Plaintiffs are aware that the statements on the "Want to Sue Ripoff Report" section of the RipOff Report website accurately reflect the current state of the law as it applies to Xcentric.

254 Defendants mislead the public when they state that they are "immune" from legal action, "have never lost a case"

255 Entire paragraph

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256 Entire paragraph 257 Many of these contentions appearing on the "Want to Sue Ripoff Report?" section of Defendants [sic] website are either false or opinion wrongly presented as fact or partial truths.

257 Defendants have settled cases and Plaintiffs are aware that this is a false defaulted on cases, which is statement. Plaintiffs are further aware that considered tantamount to an Xcentric defaulted only on a single lawsuit, unfavorable resolution. which reasons are explained in full on the RipOff Report website. It is also a baseless allegation to state that a settlement is an unfavorable resolution when Plaintiff does not know the terms of the settlement. 24 2:10-cv-01360-RSWL-PJW

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258 Entire paragraph

Plaintiffs are aware that they have no evidence to support this allegation and that they themselves did not fail to bring suit. Plaintiffs are aware that every CAP member has multiple negative reports posted about it and that those are not removed as part of CAP.

263 Ripoff report does not post negative reports about certain businesses, including negative reports about CAP members and reports about CAP

270 anyone can pay to have favorable Plaintiffs are aware this is a false statement. commentary featured on their Plaintiffs are aware that anyone wishing to join CAP must complete an application reports via joining the CAP. process and must be willing to satisfy customer complaints and that not everyone who applies to be in CAP will be accepted. 278 Defendant[ ] Ed Magedson own[s], Plaintiffs are aware this is a false statement. operate[s], and/or control[s] the Plaintiffs know that Xcentric owns operates Web site located at and controls the RipOff Report website. www.RipoffReport.com. 302 Defendants represent themselves as Plaintiffs are aware this is a true statement, consumer advocates. and is neither false nor misleading. 302 Defendants mislead the public into believing they have presented an unbiased description of the targeted business or individual. Plaintiffs are aware that the RipOff Report fully discloses that it is a place for making complaints about businesses and that those who post on Ripoff Report are biased in that they are relating their own experiences and opinions. Plaintiffs are aware this is a false statement and that Xcentric does in fact conduct specific investigations of each member of CAP.

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302 Defendants label businesses or individuals enrolled in the Corporate Advocacy Program as "verified safe" without investigating the veracity of this statement.

302 Defendants solicit false and Plaintiffs are aware that this is a false defamatory complaints against statement and that Xcentric does not solicit Plaintiffs and others false statements for the website. Plaintiffs are further aware that Xcentric in fact requires anyone posting to the RipOff Report website to avow that the statements being published are true. 309 Defendants published defamatory Plaintiffs are aware that Defendants legally materials on Defendants' websites can not be considered publishers of the content about Plaintiffs. regarding Plaintiffs. 316 Defendants published the statements Plaintiffs are aware that Defendants legally attached hereto can not be considered publishers of the content about Plaintiffs. MOTION FOR SANCTIONS
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Plaintiffs are aware that Defendants did not 330 Defendants...knowingly publish[ed], creat[ed], and publish, create, or solicit any statements on solicit[ed] negative, false, and the RipOff Report website about Plaintiffs. defamatory content in exchange for their own business profit. 336 Defendants...knowingly publish[ed] Plaintiffs are aware that Defendants did not and creat[ed] negative, false, and publish or create any statements on the defamatory content in exchange for RipOff Report website about Plaintiffs. their own business profit. 341 Defendants...falsely and publicly Plaintiffs are aware that Defendants did not [made] these defamatory statements publish any statements on the RipOff Report website about Plaintiffs. about Plaintiffs. 342 Defendants...knowingly publish[ed] Plaintiffs are aware that Defendants did not and creat[ed] negative, false, and publish or create any statements on the defamatory content in exchange for RipOff Report website about Plaintiffs. their own business profit. 347 Defendants...solicited, developed, a