Davison Design & Development Inc. et al v. Riley

Filing 212

ORDER by Judge Hamilton re protective order and declaratory judgment jurisdiction. (pjhlc2, COURT STAFF) (Filed on 9/13/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DAVISON DESIGN & DEVELOPMENT
INC., et al.,

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Plaintiffs,

No. C 11-2970 PJH

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v.
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CATHY RILEY,

ORDER RE PROTECTIVE ORDER
AND DECLARATORY JUDGMENT
JURISDICTION

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Defendant.
_______________________________/

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For the Northern District of California

United States District Court

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Plaintiffs’ motion for protective order came on for hearing before this court on July

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10, 2013. Plaintiffs XL Marketing Corp., et al. (“plaintiffs”) appeared through their counsel,

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Leeor Neta. Counsel for defendant Cathy Riley (“defendant” or “Riley”) did not appear at

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the hearing. Having read the papers filed in conjunction with the motion and carefully

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considered the arguments and the relevant legal authority, and good cause appearing, the

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court hereby rules as follows.

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This is a declaratory judgment suit brought by plaintiffs. Plaintiffs seek an order

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stating that some 115 emails sent from plaintiffs to defendant do not violate California’s

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anti-spam law, Cal. Bus. & Prof. Code § 17529.5. Specifically, plaintiffs seek a declaratory

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judgment that none of the emails contain or are “accompanied by a third-party’s domain

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name without the permission of the third-party” (as prohibited by Cal. Bus. & Prof. Code §

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17529.5(a)); that none of the emails contain or are accompanied by “falsified,

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misrepresented, or forged header information” (as prohibited by Cal. Bus. & Prof. Code §

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17529.5(b)); and that none of the emails have “a subject line that a person knows would be

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likely to mislead a recipient, acting reasonably under the circumstances, about a material

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fact regarding the contents or subject matter of the message” (as prohibited by Cal. Bus. &

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Prof. Code § 17529.5(c)).

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When plaintiffs first filed suit, defendant Riley also asserted counter-claims,

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affirmatively alleging that plaintiffs’ emails violated section 17529.5. However, the court

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granted plaintiffs’ motion to dismiss on preemption grounds, finding that the federal CAN-

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SPAM Act expressly preempted all state laws related to spam e-mail, except to the extent

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that any alleged violations sounded in tort. See Dkt. 149. While the court originally found

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all of Riley’s counter-claims to be preempted, it later revisited its ruling, and found that

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seven of the disputed emails could possibly give rise to a tort-based fraud claim. See Dkt.

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188 at 2. Thus, Riley has active counter-claims as to only those seven emails. As to the

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remaining 108 emails, Riley’s counter-claims remain preempted, and the only active claims

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For the Northern District of California

United States District Court

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related to those emails are plaintiffs’ declaratory judgment claims.
In connection with plaintiffs’ declaratory judgment claims, Riley has served 5,010

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discovery requests. Plaintiffs now move for a protective order allowing them to respond to

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“only those specific discovery requests that address the issues necessitating further

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discovery,” and prohibiting Riley from serving any further discovery. Plaintiffs note that

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“most of the requests failed to address the issue of reliance and damages, the primary

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basis for additional discovery as ordered by the court.”

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While the court agrees that 5,010 is an excessive number of discovery requests,

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plaintiffs characterize the scope of permissible discovery too narrowly. As discussed

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above, plaintiffs seek a declaratory judgment stating that none of their emails violate any of

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the three prongs of section 17529.5. These claims entitle Riley to discovery regarding the

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use of third-party domain names in plaintiffs’ emails, and whether plaintiffs had permission

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to use those third-party domain names (as required by section 17529.5(a)). Plaintiffs’

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declaratory judgment claims also entitle Riley to discovery regarding the truthfulness of

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information in the headers and subject lines of the emails, which are relevant to section

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17529.5(b) and (c). To the extent that plaintiffs believe that the court limited discovery to

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the issues of reliance and damages, plaintiffs misread the court’s previous discovery order.

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The court held that plaintiffs may only seek discovery from defendant regarding reliance

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and damages, because all information relevant to plaintiffs’ declaratory judgment claim “lies
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either with plaintiffs themselves, or with third parties.” Dkt. 197 at 2. Riley merely received

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the emails from plaintiffs, so she would not have any information regarding the use of third-

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party domain names without permission, or the presence of falsified, misrepresented, or

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forged header information, or the presence of misrepresentations of material fact in the

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emails’ subject lines. Instead, as the court previously pointed out, that information lies with

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plaintiffs, and Riley is justified in seeking discovery on those issues. That discovery cannot

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plausibly require 5,010 requests, but plaintiffs are incorrect in their argument that discovery

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should be limited to issues of reliance and damages.

not, the court notes that the unusual posture of this case affects this court’s jurisdiction over

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For the Northern District of California

However, before delineating which categories of discovery are proper and which are

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United States District Court

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plaintiffs’ claims. As discussed above, the court previously found that the bulk Riley’s

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counter-claims (which affirmatively alleged violations of section 17529.5) were preempted

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by the federal CAN-SPAM Act, to the extent that they did not sound in tort. Thus, as to all

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but seven of the disputed emails, Riley has no viable claim that the emails violate section

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17529.5. Plaintiffs have insisted on going forward with their declaratory judgment claims as

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to the remaining 108 emails, arguing that a ruling will “insulate” them “from further litigation

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that Mr. Balsam [defendant’s counsel] will initiate not only in this case but in other cases,”

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and emphasizing that they “have been sued and targeted by Mr. Balsam in both this case

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and other cases and will continue to be targeted about emails that look essentially like the

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ones that you’ve seen in this case.” Dkt. 201 (transcript of 6/12/13 hearing) at 8 (emphasis

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added). However, based on the fact that Riley can no longer assert that those 108 emails

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violate section 17529.5, the court finds it appropriate to revisit the basis for exercising

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jurisdiction over this case.

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The Declaratory Judgment Act states that “[i]n a case of actual controversy within its

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jurisdiction,” a court “may declare the rights and other legal relations of any interested party

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seeking such declaration.” 28 U.S.C. § 2201(a). This requires a two-step inquiry: (1)

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“whether there is an actual case or controversy” within the court’s jurisdiction, and (2) “if an

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actual case or controversy exists, the court must decide whether to exercise its jurisdiction
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by analyzing the factors set out in Brillhart v. Excess Insurance Co.” Principal Life

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Insurance Co. v. Robinson, 394 F.3d 665, 669 (9th Cir. 2005) (citing Brillhart, 316 U.S. 491

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(1942)). Step (1) of the inquiry (the “case or controversy” requirement) focuses on whether

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the court has subject matter jurisdiction and whether the dispute is ripe for adjudication. In

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this case, the court has already determined that subject matter jurisdiction exists between

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the parties, as the requirements for diversity jurisdiction are met. However, the court has

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not looked at the “ripeness” requirement, especially in light of the court’s preemption ruling.

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The “traditional ripeness standard” looks to whether “there is a substantial controversy,

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between parties having adverse legal interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.” Principal Life Insurance at 671 (citing

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For the Northern District of California

United States District Court

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Maryland Casualty v. Pacific Coal & Oil, 312 U.S. 270, 273 (1941)). As applied to this

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case, the fact that Riley no longer asserts a violation of section 17529.5 as to 108 of the

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emails serves to preclude a finding that there is a controversy “of sufficient immediacy and

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reality.” As stated above, plaintiffs admit that they seek a declaratory judgment in order to

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“insulate” themselves from future litigation. But any future lawsuits would necessarily

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involve different issues than are at play here. The recipient will likely be different (which

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would mean an entirely new inquiry into any issue of “consent” to receive the emails), and

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the emails themselves will necessarily be different, as Riley cannot bring a future lawsuit on

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these very same emails. Thus, plaintiffs seem to be seeking a judgment that would apply

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to future emails that are “essentially” (their word) the same as the emails at issue in this

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case. This scenario does not present a sufficiently “immediate” or “real” dispute to justify

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declaratory judgment jurisdiction.

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Even if there is a basis for finding that the “ripeness” requirement is met, the court

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may still, in its discretion, decline to exercise jurisdiction over a declaratory judgment

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action. In other words, “[d]espite a conclusion that the case is ripe, the Declaratory

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Judgment Act requires further analysis in connection with the district court’s discretion, in

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line with Brillhart, as to whether or not to exercise jurisdiction.” Principal Life Insurance at

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672. The Brillhart factors state that “(1) the district court should avoid needless
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determination of state law issues, (2) it should discourage litigants from filing declaratory

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actions as a means of forum shopping, and (3) it should avoid duplicative litigation.”

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Principal Life Insurance at 672. Factor (1) is especially relevant here, as the court has

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already held that Riley’s claims are preempted by federal law, which means that plaintiffs’

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requested declaration involves exclusive issues of state law. Factor (3) is also somewhat

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relevant, because plaintiffs have admitted that they seek a declaratory judgment here as a

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means of combating future litigation initiated by Riley’s counsel. The parties expressly

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mention one such case, which appears to be pending in Sonoma county state court, on

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behalf of a different email recipient. Plaintiffs argue that Mr. Balsam “has similarly
attempted to bury [plaintiffs] in discovery” in that case. Dkt. 193 at 11. Thus, it seems that

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For the Northern District of California

United States District Court

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plaintiffs want to attempt to pre-litigate those state court claims here, and then have another

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crack at it in state court, should they fail here. This strategy creates duplicative litigation,

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because the only cases that need to be litigated are the ones brought by the email

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recipients themselves, and which affirmatively allege a violation of section 17529.5. Any

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attempt to litigate “similar” claims in this forum, for the sole purpose of using those rulings in

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a later case, necessarily creates duplicative litigation.

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For these reasons, the court declines to exercise declaratory judgment jurisdiction

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over plaintiffs’ claims related to the 108 emails that are not alleged to be fraudulent, and

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DISMISSES plaintiffs’ claims as to those emails. And as to the other seven emails, the

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court declines to exercise declaratory judgment jurisdiction to the extent that plaintiffs seek

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a ruling that goes beyond Riley’s counterclaims, and DISMISSES those claims as well (in

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other words, plaintiffs may still seek a ruling that those seven emails are not fraudulent, but

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may not seek a ruling regarding the other provisions of section 17529.5). Although neither

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party has raised the issue of declining declaratory judgment jurisdiction, the Ninth Circuit

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has explained that a district court may raise it sua sponte, as long as it “explain[s] the basis

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for its decision on the record.” Gov’t Employees v. Dizol, 133 F.3d 1220, 1221 (9th Cir.

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1998). And as explained above, this case does not present a sufficiently “immediate” or

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“real” dispute and requires needless determination of state law issues. The court also
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notes that resolution of the declaratory judgment claims would require a particularly

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burdensome analysis, forcing the court to determine whether each line of all 115 emails is

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free of falsified information, misrepresented information, etc. Riley’s 5,010 discovery

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requests exemplify the burden imposed on both the parties and the court as a result of

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plaintiffs’ declaratory judgment claims. Thus, plaintiffs’ motion for protective order is

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DENIED as moot. The parties are directed to meet and confer regarding the scope of

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discovery, in light of this order. To be clear, the only claims left in this case are (1) Riley’s

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counter-claims that seven of the emails are fraudulent, in that they contain Riley’s name in

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the “from” line, and (2) plaintiffs’ declaratory judgment claims that those seven emails are
not fraudulent. The court also directs the parties to re-evaluate the need for the two

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For the Northern District of California

United States District Court

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currently-pending motions, in light of this order, and to withdraw and/or re-file them if

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appropriate. The court expects that a discrete motion for summary judgment or cross-

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motions for summary judgment on the fraud claim will likely resolve this case. However, if

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a trial is required, one will be scheduled on the fraud claim alone.

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IT IS SO ORDERED.

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Dated: September 13, 2013
______________________________
PHYLLIS J. HAMILTON
United States District Judge

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