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

Filing 157

NOTICE OF MOTION AND MOTION for Sanctions Pursuant to Fed.R.Civ.P. 11 filed by Defendant Edward Magedson, Xcentric Ventures LLC. Motion set for hearing on 11/1/2010 at 01:30 PM before Judge Stephen V. Wilson. (Speth, Maria)

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

Doc. 157

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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. 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 filed with the Court a First Amended Complaint which (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, each MOTION FOR SANCTIONS
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Case No: 2:10-cv-01360-SVW-PJW MOTION FOR SANCTIONS PURSUANT TO FED.R.CIV.P. 11 Hearing Date: November 1, 2010 Time: 1:30 p.m. Courtroom: 6

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

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. In response, Plaintiffs have moved to file a Second Amended Complaint, which does not include RICO claims, but has once again asserted the vast majority of the allegations identified in this Rule 11 Motion as baseless. Twenty-one days have passed and Plaintiffs have elected to correct some but not all of these problems. As a result, sanctions are warranted pursuant to Rule 11(c)(2).1 This motion is made following a 21-day period after service on Plaintiffs, which Defendants believes also complies with L.R. 7-3. DATED this 30th day of September, 2010. JABURG & WILK, P.C.

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/s/Maria Crimi Speth Maria Crimi Speth Attorneys for Defendants

This Rule 11 Motion and the Rule 11 Motion served on Plaintiffs 21 days ago are not identical because Plaintiffs have removed some claims and allegations. In order to comply with the 21-day hold, Defendants have added no content to this motion except a reference to the removed allegations. Defendants have, however, deleted some of the arguments and updated the fact chart (below) to reflect the removed allegations and the new paragraphs.

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MEMORANDUM OF POINTS AND AUTHORITIES

TABLE OF CONTENTS I. THEORY UNDERLYING RULE 11........................................................................... 1

II. PROCEDURAL HISTORY OF THIS LITIGATION.................................................. 2 III. IV. V. VI. VII. PLAINTIFFS HAVE VIOLATED RULE 11(B)(3)................................................. 4 PLAINTIFFS HAVE VIOLATED RULE 11(B)(2)................................................. 5 PLAINTIFFS HAVE VIOLATED RULE 11(B)(1)............................................... 10 SANCTIONS ARE WARRANTED....................................................................... 12 CONCLUSION ....................................................................................................... 13

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TABLE OF AUTHORITES
Cases

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AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir.1979 .............................................................................................. 6 Brookfield Commons. v. W. Coast Entm't Corp., 174 F.3d 1036 (9th Cir. 1999)...................................................................................... 5, 6 Burnette v. Godshall, N.D.Cal.1993, 828 F.Supp. 1439, affirmed 72 F.3d 766 ................................................. 5 Christian v. Mattel, Inc., 286 F.3d 1118 (9th Cir.2002)........................................................................................... 1 Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990) ............................................... 1 Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990)............................................................................................ 7 G.C. & K.B. Investments, Inc. v. Wilson, 326 F.3d 1096 (9th Cir. 2003)........................................................................................ 12 Gardner v. Nike, Inc., 279 F.3d 774 (9th Cir. 2002)............................................................................................ 7 Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531 (9th Cir.1986)......................................................................................... 11 GoTo.Com, Inc. v. Walt Disney Co., 202 F.3d 1199 (9th Cir.2000)........................................................................................... 6 Hartmax, 496 U.S. at 393 ............................................................................................................... 12 Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) .................................................. 9 Hudson v. Moore Business Forms, Inc., 836 F.2d 1156 (9th Cir.1987)..................................................................................... 1, 10 In re Curl, 803 F.2d 1004 (9th Cir.1986),.......................................................................................... 4 In re Girardi, --- F.3d ----, 2010 WL 2735731 (9th Cir. 2010) ............................................................. 5 In re Yagman, 796 F.2d 1165, amended, 803 F.2d 1085 (9th Cir.1986), .............................................. 11 Interstellar Starship Services, Ltd. v. Epix, Inc., 304 F.3d 936 (9th Cir. 2002)............................................................................................ 6 Mezzetti v. State Farm Mut. Auto. Ins. Co., 346 F.Supp.2d 1058, 1067 (N.D.Cal.2004)...................................................................... 5 Partington v. Gedan, 923 F.2d 686 (9th Cir.1991)............................................................................................. 4 Pavelic & LeFlore v. Marvel Entm't Group, 493 U.S. 120, 126, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989) ............................................ 1 Rachel v. Banana Republic, Inc., 831 F.2d 1503 (9th Cir.1987)........................................................................................... 1 Rhinehart v. Stauffer, 638 F.2d 1169 (9th Cir. 1979).......................................................................................... 9 Silvers v. Sony Pictures Entm't, Inc., 402 F.3d 881 (9th Cir. 2005)............................................................................................ 7 Stewart v. Am. Int'l Oil & Gas Co., 845 F.2d 196 (9th Cir. 1988).......................................................................................... 12 Townsend v. Holman Consulting Corp., 929 F.2d 1358 (9th Cir.1990)................................................................................... 10, 12 MOTION FOR SANCTIONS
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Universal City Studios v. Corley, 273 F.3d 429, 448 (2d. Cir. 2001) .................................................................................... 6 Zaldivar v. City of Los Angeles, 780 F.2d 823 (9th Cir.1986)........................................................................................... 10
Statutes

§ 1964(c)............................................................................................................................... 9 § 201(d)(1)............................................................................................................................ 7 15 U.S.C. § 45 ...................................................................................................................... 8 17 U.S.C. § 101 .................................................................................................................... 7 17 U.S.C. § 201(d)(2) ........................................................................................................... 7 47 U.S.C. § 230 .................................................................................................................. 10
Other Authorities

Advisory Committee Note on Rule 11, 28 U.S.C.App., p. 576 ...................................................................... ii, 1, 3, 4, 5, 9, 11, 12 Notes of Advisory Committee, 28 U.S.C.A. Rules of Civil Procedure (Supp.1988); ......... 1
Rules

Local.Rules. 7-3.................................................................................................................... ii Rule 11(b)(1) ...................................................................................................................... 10 Rule 11(b)(2) ........................................................................................................................ 5 Rule 11(b)(3) .................................................................................................................... 4, 5 Rule 11(c), Fed.R.Civ.P .................................................................................................... i, ii
Regulations

16 C.F.R. § 255.0(a) ............................................................................................................. 8

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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.

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 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). MOTION FOR SANCTIONS
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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 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 MOTION FOR SANCTIONS 2:10-cv-01360-SVW-PJW 2
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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 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.

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On August 17, 2010, Plaintiffs sought leave to file their Second Amended Complaint. 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 (Exhibit "A") pointing out each allegation made by Plaintiffs which is in violation of Rule 11(b)(3).2 After serving this Rule 11

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Motion, Defendants have updated this chart to reflect the paragraph in the proposed Second Amended Complaint and to remove from the chart allegations that Plaintiffs did not include in the proposed Second Amended Complaint. The statements in the FAC are presented as facts; yet these statements are either knowingly false or unsupported by any evidence, either existing or having potential to exist. The Ninth Circuit has explained why misrepresentation by attorneys to a court cannot be taken lightly:
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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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The vice of misrepresentation is not that it is likely to succeed but that it imposes an extra burden on the court. The burden of ascertaining the true state of the record would be intolerable if misrepresentation was common. The court relies on the lawyers before it to state clearly, candidly, and accurately the record as it in fact exists. In re Girardi, --- F.3d ----, 2010 WL 2735731 (9th Cir. 2010) (internal quotation omitted). The complete absence of evidence to support the allegations identified above suggests that Plaintiffs, at best, failed to conduct a reasonable inquiry, and, at worst, made deliberate misrepresentations to this Court. See Mezzetti v. State Farm Mut. Auto. Ins. Co., 346 F.Supp.2d 1058, 1067 (N.D.Cal.2004) (noting that "[g]obbledygook can be no less obfuscatory than an outright lie"). Each of Plaintiffs' statements identified in the chart above demonstrates that the factual contentions they have made lack evidentiary support or even the potential to discover such evidentiary support, in violation of Rule 11(b)(3). IV. PLAINTIFFS HAVE VIOLATED RULE 11(B)(2) Rule 11(b)(2) 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 claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law. Fed.R.Civ.P. Rule 11(b)(2). An attorney's responsibility under Rule 11 to conduct reasonable prefiling investigation is particularly important where, as here, claims have been made under Racketeer Influenced and Corrupt Organizations Act (RICO). Burnette v. Godshall, N.D.Cal.1993, 828 F.Supp. 1439, affirmed 72 F.3d 766 Plaintiffs have made frivolous legal arguments regarding the use of trademarks in HTML code, as well as the use of computer code itself, for the purpose of finding liability against a website. In Paragraphs 80 and 81 of the FAC, Plaintiffs reference two cases, citing them for propositions which neither can be read to support. Citing Brookfield Commons. v. W. Coast Entm't Corp., 174 F.3d 1036, 1065 (9th Cir. 1999), Paragraph 80 argues that courts "regularly enjoin" the use of infringing trademarks through their MOTION FOR SANCTIONS
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inclusion in the "description and keyword metatags of HTML." In Brookfield, the court found that use of a confusingly similar mark in a web site's metatags is actionable under Lanham Act. Id. However, this holding was limited to the context of initial interest confusion when the defendant uses the plaintiff's trademark "in a manner calculated `to capture initial consumer attention.'" Interstellar Starship Services, Ltd. v. Epix, Inc., 304 F.3d 936, 941 (9th Cir. 2002) (quoting Brookfield, 174 F.3d at 1062). When determining whether trademark infringement has occurred on a website, the Ninth Circuit has explained that a court must evaluate "(1) the similarity of the marks, (2) the relatedness of the goods or services, and (3) the parties' simultaneous use of the Web as a marketing channel," coupled with the other four Sleekcraft factors. Id. (quoting GoTo.Com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1204 (9th Cir.2000)); see also AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 346 (9th Cir.1979). Plaintiffs neglected to provide the Court with a complete, accurate recitation of current case law regarding initial interest confusion for metatags. Similarly, citing Universal City Studios v. Corley, 273 F.3d 429, 448 (2d. Cir. 2001), Plaintiffs assert that courts consider computer code to be "speech," thereby recognizing the "power and impression" of search results on the internet, and holding parties accountable for what the HTML code contains. See FAC at ¶¶ 81-82. Again, Plaintiffs neglect to explain the context and limitations of the holding in Corley in an effort to mislead the Court. As the Corley court explained, "The functionality of

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computer code [ ] affects the scope of its First Amendment protection." Corley, 273 F.3d at 452. Importantly, the computer code the Corley court was referring to was decryption software, which possessed a "skeleton key" or a "combination that can open a locked door." Id. at 453. Notably, even though this decision has been present in the Second Circuit for nine years, it has not yet been adopted by any court in the Ninth Circuit, including this one, for the purpose advocated by Plaintiffs.

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Plaintiffs have also misinterpreted copyright law, and, in particular, 17 U.S.C. § 101. Plaintiffs are asking the Court to find that the transfer of an exclusive license in a copyright protected work is the same thing as the transfer of ownership in that work. This is not an accurate reflection of the law, and there is no statute or case law which interprets the license granted to Xcentric in this manner. The Court Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990) explained that "Copyright ownership is comprised of a bundle of rights" and the granting of a license is giving up "only one stick from that bundle." Id. at 559. The plain language of 17 U.S.C. § 201(d)(2) limits the rights of an exclusive licensee to those "protections and remedies" afforded in the 1976 Act, thereby identifying the distinction between an exclusive license and copyright ownership. See Gardner v. Nike, Inc., 279 F.3d 774, 780 (9th Cir. 2002). The Ninth Circuit in Gardner analyzed ­ and rejected ­ the very argument advocated by Plaintiffs in trying to blur the line between an exclusive licensee and a copyright owner. That court explained: Appellants contend that, if a licensee of exclusive rights under the copyright is characterized by the 1976 Act as an "owner" of those rights under § 201(d)(2), then it must follow that such "ownership" carries with it an unrestricted right to freely transfer the license. However, Appellants' argument ignores the plain language of § 201(d)(2), which states that the owner of such exclusive rights is entitled only to "the protection and remedies" accorded the copyright owner under the 1976 Act. This explicit language limits the rights afforded to an owner of exclusive rights. Based on basic principles of statutory construction, the specific language of § 201(d)(2) is given precedence over the more general language of § 101 and § 201(d)(1). Id. Instead of the granting of an exclusive right being the equivalent to blanket copyright ownership, as Plaintiffs have advocated, the Ninth Circuit has explained that the exclusive licensee becomes the owner of the particular right in the copyright which was transferred to them. See Silvers v. Sony Pictures Entm't, Inc., 402 F.3d 881, 886 (9th Cir. 2005). There is no basis to argue as Plaintiffs have that this exclusive license is a transfer of the entirety of the copyright ownership. Id. Plaintiffs again have made legal contentions that are not justified under the law as it currently stands, nor is there any reason to believe that

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a court will change their standing interpretation of the language of the 1976 Copyright Act. Plaintiffs have also made legal conclusions in Paragraphs 183-184 which are unsupportable as a matter of law regarding Xcentric being in violation of Section 5 of the FTC Act, 15 U.S.C. § 45, and the Codes of Federal Regulations, 16 C.F.R. Part 255.0 et seq. Plaintiffs argue that Xcentric is obligated to "disclose that it is paid money to make these testimonials and endorsements." Plaintiffs are asking that the Court impose a much broader regulation on Defendants than the FTC does. Moreover, what Plaintiffs have pointed to are FTC's Endorsement Guides. These are not new legal principles; they simply provide new examples to show how these standards apply in social media. In full, those FTC endorsement guidelines can be found at

http://ftc.gov/os/2009/10/091005revisedendorsementguides.pdf. However, the FTC has recognized that since these guidelines were published in October, 2009, a general state of confusion has occurred regarding what, if anything, website owners need to do. To address the confusion, the FTC created a fact sheet on the Revised Endorsement Guides. See http://ftc.gov/bcp/edu/pubs/business/adv/bus71.shtm. Interestingly enough, these

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Guides are simply intended to "provide the basis for voluntary compliance." See 16 C.F.R. § 255.0(a) (emphasis added). The Guides were issued under the authority of 15 U.S.C. § 45, which outlaws "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce," and authorizes the FTC to enforce this prohibition by the adoption of rules and by issuing orders to cease and desist against violators. It does not, notably, contemplate using these guides as the basis for a private right of action, nor is there any basis to believe such an extension is warranted, given that the FTC itself as exclaimed it will not likely be policing websites for violations of these Guides. See http://ftc.gov/bcp/edu/pubs/business/adv/bus71.shtm. Before filing a civil action, an attorney has a duty to make an investigation to ascertain that it has at least some merit, and further to ascertain that the damages sought appear to MOTION FOR SANCTIONS
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bear a reasonable relation to injuries actually sustained. Rhinehart v. Stauffer, 638 F.2d 1169 (9th Cir. 1979). Plaintiffs have identified certain damages, which they claim are recoverable. However, certain items identified are not recoverable damages as a matter of law, including (1) Plaintiffs' rent for their office space for the entire time Plaintiffs have been in business; (2) Plaintiffs' phone and internet connections for the entire time Plaintiffs have been in business; (3) Plaintiffs' move-in costs for starting up their business; (4) Plaintiffs' start-up costs for their business; (5) Plaintiffs' lobbying costs; (6) amounts spent on SEO consultants and services; (7) cost of registering and maintaining domain names; and (8) lost profits from commercial transactions Plaintiffs allegedly would have entered into. None of these "damages" are actually recoverable as a matter of law. In Holmes v. Securities Investor Protection Corporation, 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the Supreme Court held that a plaintiff may sue under § 1964(c) only if the alleged RICO violation was the proximate cause of the plaintiff's injury. Plaintiffs knew or should have known that they needed a causal connection between their alleged damages and the predicate acts. This Court warned Plainitiffs'

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counsel at the oral argument on the motion for summary judgment that it is a Rule 11 violation to plead a wire fraud claim without knowing what the damages are and how those damages are related to the predicate acts. Instead of heeding this Court's warning, Plaintiffs pled that virtually every expense that Plaintiffs incurred in the conduct of AEI's business is a damage causally related to the predicate acts. Plaintiffs go so far as to include their rent in the damages even though they know they can not allege with a straight face that the rent was incurred as a result of the predicate acts. In Paragraphs 309-355, Plaintiffs attempt to allege a cause of action against Xcentric for "common law defamation," "defamation per se," "false light," "intentional interference with prospective economic relations," "negligent interference with prospective economic relations," "negligent interference with economic relations," and MOTION FOR SANCTIONS
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

"injunction."

Plaintiffs are aware that every court of law which has addressed this

question, including the current Court before which this case is pending, has held that Xcentric is immune from liability for defamation for statements authored by third parties pursuant to the Communications Decency Act, 47 U.S.C. § 230. Thus, Plaintiffs have asked this Court to find these causes of action exist when no existing case law would allow them to do so, and where no reasonable extension of case law or creation of new law would allow them to do so. V. PLAINTIFFS HAVE VIOLATED RULE 11(B)(1) Rule 11(b)(1) 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... it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation. Fed.R.Civ.P. Rule 11(b)(1). The Court in Townsend noted that sanctions must be imposed if either (a) the paper is filed for an improper purpose or (b) the paper is frivolous. See, e.g., Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir.1990). The word "frivolous" is shorthand used to denote a filing that is both (i) baseless and (ii) made without a reasonable and competent inquiry. Id. Although the "improper purpose" and "frivolousness" inquiries are separate and distinct, they will often overlap since evidence bearing on frivolousness or non-frivolousness will often be highly probative of purpose. Id. The standard governing both inquiries is objective. Id. (citing Zaldivar v. City of Los Angeles, 780 F.2d 823, 829 (9th Cir.1986)). Plaintiffs here have filed their FAC both for an improper purpose, as well as it being a frivolous pleading. "The key question in assessing frivolousness is whether a complaint states an arguable claim-not whether the pleader is correct in his perception of the law." Hudson v. Moore Bus. Forms, Inc., 836 F.2d 1156, 1159 (9th Cir. 1987). Evidence of the

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frivolousness of Plaintiffs' filing is abundant, and can be easily understood if the Court is to look at the big picture of the FAC. Although Plaintiffs throw a number of baseless and MOTION FOR SANCTIONS
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

unsubstantiated claims out for review, these are, at least facially, potentially salacious enough to give the Court pause. Yet the analysis is not whether Plaintiffs individual "fact" allegations are interesting, but whether Plaintiffs have stated an arguable claim. Unquestionably, they have not. The Court recognized the serious problems with Plaintiffs' original complaint at the July 12, 2010 hearing. Plaintiffs had in their possession each piece of evidence and information utilized in crafting the FAC. Generally speaking, the arguments identified by Plaintiffs as to why they could pursue their claims are directly in line with the arguments which they actually advocate in the FAC. Yet the Court specifically addressed these arguments, and explained to Plaintiffs that, absent something more, they still would be unable to state a cognizable claim for wire fraud. In fact, the Court explained to Plaintiffs not only the deficiencies in their pleading, and specifically, in their allegations concerning the predicate act of wire fraud, but the Court also cautioned Plaintiffs about its concerns regarding the reasonable investigation necessary before a pleading is filed : See, that's the problem, ma'am. This is, in my view, pretty ­ I'm looking for a word that is not pejorative that still makes the point -- pretty unacceptable lawyering because under Rule 11 you've now admitted to a Rule 11 violation. You filed a wire fraud allegation as a predicate act for your RICO. As you stand at the lectern, you can't even, in a best-world sense, articulate a wire fraud. You now say you have to speak to your client. The rules clearly say that you have to have a good-faith basis for alleging something in a complaint, and how could you have had a good-faith basis without speaking to your client and now being totally unable to articulate a basis? See Transcript for July 12, 2010 hearing at p. 7. Unfortunately, it appears that Plaintiffs failed to heed the Court's warning. A major purpose of the 1983 amendments to Rule 11 was to enable district courts to deter dilatory or abusive pretrial tactics and to streamline litigation. See Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1536 (9th Cir.1986) (discussing views of advisory committee members). Recognizing that that sanctions should not be used to "chill an attorney's enthusiasm or creativity in pursuing factual or legal theories," In re Yagman, 796 F.2d 1165, 1182, amended, 803 F.2d 1085 (9th Cir.1986), the Ninth Circuit MOTION FOR SANCTIONS
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has also explained that it must "draw the line between creative lawyering and abuse of the judicial process." Stewart v. Am. Int'l Oil & Gas Co., 845 F.2d 196, 201 (9th Cir. 1988). Here, the process was abused. While "[a] district court confronted with solid evidence of a pleading's frivolousness may in circumstances that warrant it infer that it was filed for an improper purpose," the Court does not need to make such an inference, since Plaintiffs have also filed the FAC for an improper purpose. Townsend, 929 F.2d at 1365. An example of the improper purpose of Plaintiffs' filing is the fact that Plaintiffs failed to heed the Court's advice about the necessary elements of wire fraud, namely, the causation elements. The Ninth Circuit has held that that "[w]ithout question, successive complaints based upon propositions of law previously rejected may constitute harassment under Rule 11." G.C. & K.B. Investments, Inc. v. Wilson, 326 F.3d 1096, 1110 (9th Cir. 2003) (internal citations omitted). This is now Plaintiffs' second bite at the apple, and they are no closer to pleading any legally cognizable claim than they were when the Court dismissed the original Complaint. Plaintiffs' improper purpose appears to be to cost Xcentric so much money in the litigation that it will give in and remove or edit the posting about Plaintiff regardless of the merits of the claim. Without a doubt, the filing of the FAC was done for the purpose of harassing Defendants and costing them money, which is an improper purpose under Rule 11. VI. SANCTIONS ARE WARRANTED "An attorney who signs the paper without such a substantiated belief `shall' be penalized by `an appropriate sanction.'" Hartmax, 496 U.S. at 393 (emphasis added). The Court in Hartmax succinctly explained why Plaintiffs and their counsel must be sanctioned: "Baseless filing puts the machinery of justice in motion, burdening courts and individuals alike with needless expense and delay." Id. at 398. As established herein, Plaintiffs are in violation of three separate sections of Rule 11. Because each violation subjects Plaintiffs ­ and their counsel ­ to sanctions, Defendants request that the Court MOTION FOR SANCTIONS
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JABURG & WILK, P.C. ATTORNEYS AT LAW 3200 NORTH CENTRAL AVENUE SUITE 2000 PHOENIX, ARIZONA 85012

order Plaintiffs to pay all of Defendants' attorney fees incurred in defending this frivolous lawsuit and such other relief as the Court deems appropriate. VII. CONCLUSION For all of the foregoing reasons, Defendants request that the Court order Plaintiffs and their counsel to pay all of Defendants' attorney fees incurred in defending this frivolous lawsuit and such other relief as the Court deems appropriate. DATED this 30th day of September, 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 the 30th day of September, 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 [e-mail] [e-mail] And a courtesy copy of the foregoing delivered to: Honorable Stephen V. Wilson U.S. District Court Judge /s/Debra Gower

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EXHIBIT A

FAC ¶

SAC ¶

False Allegation by Plaintiffs

Why Allegation Lacks Evidentiary Support

6

1

AEI has its principal place of Plaintiff Mobrez has testified business at 11766 Wilshire under oath that AEI is no longer Blvd. 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 only a few postings have been adjudicated 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.

16

11

17

12

Entire paragraph

18

13

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

18

13

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

18

13

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.

19

14

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http://googlewebmastercentral.blo gspot.com/2009/10/managingyour-reputation-throughsearch.html 19 14 The Ripoff Report enterprise does not disclose its own financial self-interest 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/Cons umersSayThankYou/AdvertisingS tandards.aspx

19

14

The Ripoff Report enterprise Plaintiffs know that Reports do Plaintiffs does not disclose that some not come down. believed that they found two Reports do come down... exceptions to this policy, but learned the truth before signing this pleading. 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.

21

15

22

16

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.

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22

16

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.

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/w ebmasters/bin/answer.py?hl=en&a nswer=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.blo gspot.com/2009/09/google-doesnot-use-keywords-meta-tag.html

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16

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." 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.

23

17

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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27,59, 60

20,51, 52

The Ripoff Report enterprise Plaintiffs are aware that neither earns revenues from the sale of Xcentric nor Magedson sells any goods through the RipOff Report goods website. Plaintiffs are aware, and public records reflect, that the "Do-it-Yourself 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.

30

23

34

27

The Ripoff Report Plaintiffs are aware there is no enterprise...exploits the gap such concept as a "gap between between web pages and their web pages and their respective respective HTML. 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.

39

32

41

34

Ripoff Report does much This summary and conclusory more, behind the scenes, that allegation lacks any factual or destroys livelihoods, evidentiary support. reputations and businesses.

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46, 47,49, 50,51

39, 43, 88

Report takes 42, Ripoff 44, ownership of the copyright and content of every Report, rebuttal and user comment

This is a misstatement of what the transfer of rights grants to Xcentric. Xcentric is not the owner of the copyright; it is the exclusive licensee of the content. The author of the report still retains the ownership of the copyrighted works themselves. Each of the websites identified by Plaintiffs requires users to be bound by their respective Terms of Service.

47

40

unlike community websites such as Facebook, Craigslist, and Roommates.com, Ripoff Report 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

56

49

Ripoff Report also has The rebuttals are as accessible designed the ROR Website and easy to memorialize as the with various technical 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.

72

64

73

65

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/w ebmasters/bin/answer.py?answer= 35769.

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69

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85

77

The order of prominence in which the search results appear are known as "page rank" or "page rankings."

This is an incorrect definition of "page 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/w ebmasters/bin/answer.py?answer= 70897&hl=en

93

85

Defendants improperly This is a baseless allegation. assassinate the goodwill of the Defendants host a forum. The authors and submitters of content subject in search results. write the content. They do this for their own Plaintiffs have no basis for their direct pecuniary gain, either assertion of why Defendants (1) in the form of sales of operate the website. 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. Having high "authority" means a website's individual web pages rank consistently highly in search query page rankings. 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/w ebmasters/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.

93

85

103

95

106

98

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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http://www.google.com/support/w ebmasters/bin/answer.py?answer= 35769 110 102 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. 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

111

103

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.

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106

For example, Defendants Defendants do not publish the published to the Web reports and, pursuant to federal law, can not be deemed a publisher. The Ripoff Report enterprise The URL reflects (1) the name of has since "optimized" it for the business being reported, and (2) the title of the report itself (or search engines. 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. Defendants updated Report number 417493 on or about May 21, 2010 at 3:30 p.m. Pacific Standard Time. Plaintiffs are aware that Defendants did not author the report about Plaintiffs. An explanation as to what the word

117

109

118

110

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"update" 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. 118 110 Defendants continuously Plaintiffs are implying that publish Report number 417493 Defendants affirmatively take action to ensure the report about to the Web. Plaintiffs is published on the RipOff 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. 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/ innovation/07/23/internet.addresse s/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/br owse/Google. Defendants are not encouraging anyone to specifically use the Google search

119

111

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112

Entire paragraph

121

113

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

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engine, but merely, to do their own research. 135 127 Entire paragraph 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. 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. CAP is a program offered by Xcentric. There is only one way to become a member, which is to apply and be accepted into the program by Xcentric.

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128

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

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There are at least two ways to become a member of Defendants' Corporate Advocacy Program.

169

161

A second, "unofficial" way to Filing a lawsuit is not a "way to get into CAP is to file a get into CAP." In the past certain Plaintiffs in lawsuits chose to lawsuit against Defendants. become CAP members 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.

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171 172

163, 164

Among Defendants' most striking false representations, both on the ROR Website on both June 26, 2009 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. 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. The true facts are that Ripoff Report has removed Rip-off Reports, and for substantial amounts of money.

Plaintiffs know that Defendants do have a policy against removing reports and that the statements by Defendant were true.

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165

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. Plaintiffs are aware this is a false statement and that reports were not removed for payment of any sum of money.

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166

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

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Entire paragraph

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anyone regarding their success record in litigation. Defendants have never lost a case on the merits. 178 170 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 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/w ebmasters/bin/answer.py?hl=en&a nswer=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.

179

171

Entire paragraph

180

172

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

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

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ROR has altered content Plaintiffs are aware there is no concerning Google to maintain evidence that the RipOff Report website is in "good favor" with its good favor. Google or has any other relationship with Google apart from that