AF Holdings LLC v. Doe et al

Filing 45

ORDER by Judge Hamilton denying 27 Motion to Amend/Correct ; ; denying 31 Motion to Strike (pjhlc1, COURT STAFF) (Filed on 1/7/2013)

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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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AF HOLDINGS LLC,

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Plaintiff,

No. C 12-2049 PJH

v.

ORDER DENYING MOTION FOR
LEAVE TO FILE SECOND AMENDED
COMPLAINT

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JOHN DOE, et al.,

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Defendants.
_______________________________/

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Plaintiff’s motion for leave to amend the complaint came on for hearing before this

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court on November 7, 2012. Plaintiff appeared by its counsel Brett L. Gibbs, and defendant

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Josh Hatfield appeared by his counsel Nicholas Ranallo. Having read the parties’ papers

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and carefully considered their arguments and the relevant legal authority, the court hereby

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DENIES the motion.

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BACKGROUND
Plaintiff AF Holdings LLC holds the copyrights to any number of “adult

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entertainment” videos, and has filed numerous lawsuits asserting copyright infringement

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against multiple “Doe” defendants, based on their alleged unlawful downloading of those

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videos from the Internet.

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The downloading is alleged to have been accomplished by using online peer-to-peer
file-sharing tool called BitTorrent. The BitTorrent transfer protocol is a file-sharing method

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used for distributing data via the Internet. See, e.g., Diabolic Video Prods., Inc. v. Does 1-

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2099, 2011 WL 3100404, at *2 (N.D. Cal. May 31, 2011).

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Because the alleged unlawful downloading occurs behind the mask of anonymous

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internet protocol (“IP”) addresses, AF Holdings does not know the identity of the persons

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who have utilized BitTorrent to access the copyrighted videos. At most, AF Holdings is

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able to identify the alleged infringers by the unique IP address assigned to the Internet

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subscriber by the subscriber's Internet Service Provider (“ISP”). Generally, soon after filing

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one of these lawsuits, AF Holdings requests an order authorizing limited expedited

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discovery, so it can serve subpoenas on the ISPs in the hope of obtaining the identity of the

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For the Northern District of California

United States District Court

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“Doe” defendants based on the IP addresses of their computers.
On July 7, 2011, AF Holdings filed a complaint in this district against 135 unidentified

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“Doe” defendants (identified only by IP addresses), alleging that on either April 21, 2011 or

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May 2, 2011, each of the 135 “Does” had infringed AF Holdings’ copyright by downloading

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a video called “Sexual Obsession.” See AF Holdings v. Does 1-135, No. C-11-3336 LHK

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(N.D. Cal.). On July 14, 2011, AF Holdings requested expedited discovery in order to

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discover the identity of the subscribers associated with the IP addresses. The request was

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granted on August 2, 2011. Among the IP addresses implicated in that suit was

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67.161.66.97, which is registered to defendant Josh Hatfield (“Hatfield”).

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According to Hatfield, his ISP provided his identifying information to AF Holdings in

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October 2011. After obtaining this information, AF Holdings did nothing for three months –

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although it did dismiss a number of the Does identified by certain IP addresses (but not

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Hatfield). On January 19, 2012, noting that more than 190 days had passed since the filing

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of the complaint (and more than 150 days since the order authorizing expedited discovery)

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the court issued an order to show cause why the Doe defendants should not be dismissed

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based on AF Holdings’ failure to effectuate service on any identified Doe.

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On February 22, 2012, the court ordered AF Holdings to provide certain

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supplementary information. On February 28, 2012, AF Holdings filed a notice of voluntary

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dismissal of the claims against Does identified by 19 of the IP addresses (not including the
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address associated with Hatfield). On March 27, 2012, the court dismissed the case in its

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entirety pursuant to Federal Rule of Civil Procedure 4(m), due to AF Holdings’ failure to

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effectuate service on any of the defendants.

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Approximately four weeks later, on April 24, 2012, AF Holdings filed the present

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action, asserting two claims of direct copyright infringement (reproduction and distribution)

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and one claim of contributory infringement against an unidentified Doe defendant, and

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another cause of action for negligence, against Hatfield, based on Hatfield’s alleged failure

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to secure his Internet connection against unlawful downloading by third parties.

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AF Holdings alleged that the Doe defendant had performed the actual downloading
and distribution, via the IP address that was registered to Hatfield, and that Hatfield

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For the Northern District of California

United States District Court

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“allowed” the Doe defendant to use his Internet connection to illegally download, republish,

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and distribute copies of the copyrighted video. However, AF Holdings did not allege any

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copyright infringement or contributory infringement claims against Hatfield.

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After Hatfield moved to dismiss the negligence claim, AF Holdings filed a first

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amended complaint (“FAC”), which again asserted claims of copyright infringement against

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the Doe defendant, and a claim of negligence against Hatfield, based on an alleged third

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party’s use of Hatfield’s Internet connection to commit the infringement, and Hatfield’s

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failure to secure his Internet connection and/or failure to monitor the unidentified third

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party’s use of his Internet connection. In a footnote on page 1, AF Holdings stated that “[a]t

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this stage of the litigation, [p]laintiff does not know if [d]efendant Doe is the same individual

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as Josh Hatfield.” FAC at 1, n.1.

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On June 30, 2012, Hatfield moved to dismiss the negligence claim asserted in the

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FAC. In its opposition, filed July 16, 2012, AF Holdings asserted that it had not alleged that

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Hatfield knowingly facilitated and actively participated in anyone’s infringement, but rather

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that Hatfield was a “concededly ignorant but alleged careless defendant.” AF Holdings

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argued that its claim against Hatfield was purely based on a theory of negligence and a

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duty to secure one’s Internet connection.

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On September 4, 2012, the court issued an order granting the motion, on the basis
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that an allegation of non-feasance (failure to secure Internet connection) cannot support a

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claim of negligence in the absence of facts showing the existence of a special relationship;

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and that the negligence claim was preempted by the Copyright Act. Finding that

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amendment would be futile, the court dismissed the negligence claim with prejudice. Since

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that was the only claim asserted against Hatfield, he was effectively dismissed from the

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case (although the order framed the issue solely in terms of dismissal of the negligence

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cause of action).

passed since the case had been filed, and there was no indication in the docket that the

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Doe defendant had been served and no request for expedited discovery to learn the Doe

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For the Northern District of California

The order added that with regard to the Doe defendant, more than 120 days had

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United States District Court

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defendant’s identity had been filed. The court ordered AF Holdings to file a proof of

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service no later than October 4, 2012, showing service on the Doe defendant, and stated

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that if the proof of service was not filed by that date, the case would be dismissed under

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Rule 4(m).

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AF Holdings did not file a proof of service. However, on September 28, 2012, it filed

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the present motion for leave to file a second amended complaint (“SAC”), to allege two

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claims of copyright infringement (reproduction and distribution) and a claim of contributory

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infringement against Hatfield (who was no longer in the case as of the date of the order

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dismissing the sole claim asserted against him in the FAC).

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The proposed SAC did not name a Doe defendant. However, with the exception of

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having no Doe defendant and no cause of action for negligence, it was almost entirely

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identical to the FAC. The primary difference was that every incidence of “Doe defendant” in

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the FAC had been replaced by “defendant” or “defendant Hatfield” in the proposed SAC.

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At the November 7, 2012 hearing, the court advised counsel for AF Holdings that he

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would have to persuade the court that he had discovered additional evidence, based on the

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same identification of a defendant that he had known about for more than a year. The

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court gave counsel one week to submit a revised proposed SAC that demonstrated

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diligence and that supported the alleged “new facts” asserted by counsel. The court also
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indicated that it would prefer to resolve the case on the merits, rather than simply

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dismissing it for failure to serve, but that its concern was with lack of diligence on the part of

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AF Holdings, and whether the alleged “new facts” were sufficient to state a claim.

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On November 14, 2012, AF Holdings filed a revised proposed SAC. The revised

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SAC is identical to the prior proposed SAC, except that it includes a section headed

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“Plaintiff’s Further Investigation of Defendant.” In this section, AF Holdings alleges that it
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initiated an online Internet investigation on September 8, 2012, which

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“determined [d]efendant’s general online presence,” from which AF Holdings “concluded”

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that Hatfield had “a large Internet presence” and that “that presence demonstrated
[d]efendant’s knowledge of computers and the Internet,” Revised Proposed SAC ¶ 30;
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For the Northern District of California

United States District Court

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located a Facebook page “purportedly attributed to a Josh Hatfield

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living in the Bay Area fitting the age range of [d]efendant,” which stated that the individual

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“likes” movies – “pretty much any movie,” id. ¶ 31;

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located a MySpace page “purportedly attributed to a Josh Hatfield

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living in the Bay Area fitting the age range of [d]efendant,” stating that the individual “goes

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by the moniker ‘Mistah HAT’ and has pictures of his various activities including, but not

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limited to, playing video games,” id. ¶ 32;

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conducted a search on September 8, 2012 relating to Hatfield’s

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address (assertedly an 8-unit apartment building on Lenox Ave. in Oakland), and

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discovered a “recent” listing by a real estate agent for an apartment in that building that

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was advertised as being available on 3/1/12, id. ¶ 33 (including lengthy quotation from

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rental ad);

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called the agent who had listed the rental and left a message, but

never received a call back, id. ¶ 34;
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was able to obtain no information about Hatfield’s neighbors or

whether he in fact had any neighbors, id. ¶ 34;
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conducted “more research” on September 8, 2012 regarding the

building’s “other potential residents,” which indicated that “while a residential building, it had
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a few tenants who were running their businesses out of their units,” id. ¶ 35;

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performed a “skip trace” on Hatfield on October 9, 2012, and

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discovered that he was 33 years old, was in fact living at the Lenox Ave. address, was

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living with a 30-year old female with a different last name, and that “[t]here was no

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indication that the two were married,” id. ¶¶ 36-37;

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discovered “on or around the same time” that Hatfield has a criminal

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record, based on offenses that occurred in Oregon in 1999 and 2001, although “[t]he actual

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violation charged [is] unclear,” id. ¶ 38;

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found “no evidence” that Hatfield has “a wireless Internet network” or

that “if such wireless Internet connection existed, that such network was unsecured (i.e.,

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without password protection),” id. ¶ 39;
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searched the court’s docket in this case and found no “declaration

under oath” from Hatfield stating that “he had not infringed on” AF Holdings’ work, id. ¶ 40.

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Based on the above, AF Holdings asserts that it had “a good faith basis to name

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Josh Hatfield as the infringing [d]efendant in this case,” in view of the fact that Hatfield was

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the subscriber assigned to the IP number 67.161.66.97 by his ISP in April 2011, and “was

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the only person with direct access to the account during this period,” and also “considering

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that any then unknown or unconfirmed information would bear out through the discovery

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process.” Id. ¶ 41.

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DISCUSSION
A.

Legal Standard
Federal Rule of Civil Procedure 15 requires that a plaintiff obtain either consent of

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the defendant or leave of court to amend its complaint once the defendant has answered,

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but “leave shall be freely given when justice so requires.” Fed. R. Civ. P. 15(a); see also,

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e.g., Chodos v. West Pub. Co., 292 F.3d 992, 1003 (9th Cir. 2002) (leave to amend

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granted with “extreme liberality”). The Ninth Circuit has held that discovery of new facts

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after a complaint was filed may warrant granting leave to amend. Wittmayer v. United

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States, 118 F.2d 808, 809 (9th Cir. 1941).
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The effect of this policy of granting motions to amend with “extreme liberality” is that

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the moving party need only a reason why amendment is required, and the burden then

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shifts to the opposing party to convince the court that “justice” requires denial. See, e.g.,

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DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987). Leave to amend is

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thus ordinarily granted unless the amendment is futile, would cause undue prejudice to the

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defendants, or is sought by plaintiffs in bad faith or with a dilatory motive. Foman v. Davis,

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371 U.S. 178, 182 (1962); Smith v. Pacific Properties and Dev. Corp., 358 F.3d 1097, 1101

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(9th Cir. 2004). In addition, amendments seeking to add claims are to be granted more

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freely than amendments adding parties. Union Pacific R. Co. v. Nevada Power Co., 950
F.2d 1429, 1432 (9th Cir. 1991).

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For the Northern District of California

United States District Court

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B.

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Plaintiff’s Motion
AF Holdings asserts that, “after further investigation since filing its [FAC],” it has “a

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reasonable basis to name and serve [d]efendant Hatfield as the direct and contributory

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infringer in this case.” Specifically, AF Holdings claims that since filing the FAC, it has

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“discovered new information about [Hatfield’s] interactions on the computer and living

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situation (among other things),” which information it asserts allows it to have “a good faith

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basis to name Josh Hatfield as the infringing [d]efendant in this case.”

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AF Holdings contends that the motion is timely, and that in order to respond to the

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court’s order requiring filing of a proof of service showing service on the Doe defendant, it

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must first must file an amended complaint to name the infringer.

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AF Holdings argues that there is no prejudice to Hatfield, because as of this date the

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court has not held a case management conference, and has set no deadline for requesting

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leave to amend the pleadings. AF Holdings also asserts that it is acting in good faith in

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seeking to amend the complaint.

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In opposition, Hatfield argues that the case should be dismissed pursuant to Rule

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41(b) for failure to prosecute and failure to comply with the court’s order to file a proof of

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service on the Doe defendant; and second, that leave to amend should be denied. At the

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hearing, the court denied the motion to dismiss, and also denied a motion filed by AF
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Holdings to strike the opposition.
With regard to the motion for leave to amend, Hatfield argues that AF Holdings’ bad

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faith is “evident.” He asserts that AF Holdings has strung him along for months on the

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premise that it was unaware of the identity of the infringer, and was unable to determine the

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identity without formal discovery – and indeed, filed two complaints based on this position.

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In addition, Hatfield notes that AF Holdings filed an opposition to the prior motion to dismiss

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the FAC, in which it explicitly stated that Hatfield was “concededly ignorant” regarding the

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alleged infringement.

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Nevertheless, Hatfield asserts, on September 4, 2012, only a few hours after the
court issued the order dismissing the negligence cause of action, counsel for AF Holdings

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For the Northern District of California

United States District Court

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sent an email threatening to sue him as the infringer unless he agreed to pay a particular

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settlement demand. Given AF Holdings’ prior position that Hatfield had no knowledge of

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the alleged infringement, and its failure to sue him for copyright infringement, Hatfield

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contends that this email, sent mere hours after the court dismissed the negligence claim,

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constituted an “improper threat” and clearly shows AF Holdings’ bad faith.

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In a somewhat related argument, Hatfield asserts that AF Holdings unduly delayed

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in seeking leave to amend. Hatfield contends that AF Holdings knew or should have known

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of the facts and theories raised by the proposed amendments when it filed the prior

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versions of the complaint, but that in any event, AF Holdings has known of his identity for

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more than a year, and nonetheless failed to seek leave to amend to substitute him for the

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Doe defendant.

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Since there has been no discovery relevant to this case since AF Holdings was

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granted expedited discovery to learn the identities of the owners of the implicated IP

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addresses in AF Holdings v. Does 1-135, and since AF Holdings previously indicated that

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Hatfield was a “concededly ignorant” account holder and does not explain what this “new

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information” is that it claims supports the proposed amendment, Hatfield argues that there

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is no reason AF Holdings could not have conducted its “investigation” earlier before wasting

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the time and resources of this court.
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Hatfield argues in addition that AF Holdings has made no real effort to justify its own

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delay in this matter, and also has not established that Hatfield will not be prejudiced if the

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motion is granted. Hatfield contends that unlike the negligence claim, much of the

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evidence for the copyright claim would consist of “fleeting electronic evidence” which may

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be lost due to the passage of time, and that allowing AF Holdings to proceed with this claim

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would thus be prejudicial.

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Finally, Hatfield argues that leave to amend would be futile, as AF Holdings is barred

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by principles of equitable and judicial estoppel from alleging that Hatfield is the infringer of

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its copyrighted works.
As noted above, in determining whether to grant leave to amend, the court must

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For the Northern District of California

United States District Court

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consider whether the proposed amendment is futile, whether it would cause undue

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prejudice to the defendant, and whether it is sought by plaintiff in bad faith or with a dilatory

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motive. These factors do not carry equal weight, as delay, by itself, may be insufficient to

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justify denial of a motion for leave to amend, and “it is the consideration of prejudice to the

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opposing party that carries the greatest weight.” Eminence Capital LLC v. Aspeon, Inc.,

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316 F.3d 1048, 1052 (9th Cir. 2003); see also Bowles v. Read, 198 F.3d 752, 758 (9th Cir.

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1999). On the other hand, egregious, unexplained delay alone may in certain

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circumstances provide a sufficient basis for denying leave to amend. See

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AmerisourceBergen Corp. v. Dialysis West, Inc., 465 F.3d 946, 953 (9th Cir. 2006).

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With regard to futility, the court is not persuaded by Hatfield’s argument that the

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proposed amendment would be futile based on equitable estoppel and judicial estoppel.

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Both equitable estoppel and judicial estoppel are affirmative defenses. See, e.g.,

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Powertech Tech. Inc. v. Tessera, Inc., 872 F.Supp. 2d 924, 934-35 (2012) (equitable

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estoppel); Coble v. DeRosia, 823 F.Supp. 2d 1048, 1050 (E.D. Cal. 2011) (judicial

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estoppel). For that reason, assuming the court were to grant leave to amend, any such

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argument would be more appropriately raised in a Rule 12(b)(6) motion to dismiss.

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As for Hatfield’s argument that he will be prejudiced because of the “fleeting” nature
of electronic evidence, AF Holdings asserts in its reply that because Hatfield was previously
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named as a defendant in the negligence claim, he had an obligation to “preserve evidence”

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that could be used in this case. However, the negligence claim was dismissed on

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September 4, 2012, and Hatfield had no continuing duty to preserve evidence after that

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date.
After AF Holdings filed the present action naming the Doe defendant and Hatfield,

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him for infringement, Hatfield had no reason to know, until AF Holdings filed the present

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motion for leave to amend, that he was in danger of being sued for copyright infringement.

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This is arguably prejudicial, although it may not be sufficient to qualify as “substantial

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prejudice” in order to justify denial of leave to amend. See Monongo Band of Mission

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For the Northern District of California

but did not sue Hatfield for infringement and even stated that it was not its intention to sue

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United States District Court

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Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990).
The court does find, however, that AF Holdings delayed unduly in seeking leave to

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amend, and that its conduct is at least suggestive of bad faith. As noted above, the

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complaint in this action was filed on April 24, 2012. Thus, when AF Holdings filed its

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motion for leave to amend the complaint to add Hatfield as a defendant and to assert new

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claims against him – or to substitute Hatfield in place of the Doe defendant – the 120-day

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limit for service had already passed more than a month previously. Even though the

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complaint in this case was filed only five months before the motion for leave to amend was

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filed, there is no dispute that AF Holdings has had the identifying information for Hatfield

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since it obtained the information in the prior AF Holdings v. Does 1-135 case in October

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2011.

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While the prior case was dismissed without prejudice, and AF Holdings was thus

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within its rights to file another suit naming a Doe defendant, AF Holdings did not file a

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complaint against Hatfield for infringement. Indeed, in the FAC in the present case, filed on

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June 14, 2012, AF Holdings asserted that it did not know if the Doe defendant was the

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same individual as Hatfield; and in its July 16, 2012 opposition to Hatfield’s motion to

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dismiss the FAC, AF Holdings stated unequivocally that it was not accusing Hatfield of

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infringement, and that Hatfield was a “concededly ignorant but alleged careless defendant.”
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It was only after the court dismissed the negligence claim (with the result that no claim

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remained against Hatfield) that AF Holdings decided that it would sue Hatfield for

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infringement (unless Hatfield offered a sum of money to settle the case).

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In addition, the court notes that the “investigation” AF Holdings claims to have

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conducted apparently commenced on September 8, 2012 – which was four days after the

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date the court dismissed the negligence claim and AF Holdings threatened to sue Hatfield

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as the infringer.

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The court finds further that the new allegations in the revised proposed SAC are

claims. The allegation that AF Holdings discovered that Hatfield has “a large Internet

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vague and speculative, and do not demonstrate diligence or add any substance to the

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United States District Court

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presence” is conclusory and appears to be based on pure speculation about social media

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accounts that may or may not be registered to Hatfield. The lengthy quotation from the

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rental ad is irrelevant to the claims asserted in the complaint; at most, it simply supports AF

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Holdings’ claim that Hatfield lives in an 8-unit building. In addition, the alleged “research”

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about Hatfield’s “neighbors” is contradicted by the alleged “research” regarding the other

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residents of the building, as AF Holdings claims to have discovered no information about

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Hatfield’s neighbors, and to have simultaneously learned that “a few [unidentified] tenants”

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in Hatfield’s building were/are running businesses out of their apartments. In any event,

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this “research” sheds no light on the alleged infringement.

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Similarly, the allegation that Hatfield is sharing the apartment with someone of the

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opposite sex, and that “there is no indication that the two are married” is meaningless, as is

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the allegation that AF Holdings found “no evidence” that Hatfield has a wireless connection.

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Finally, the allegation that Hatfield has a criminal record is vague as to the offenses

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charged or any other details.

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In short, the revised proposed SAC alleges no facts showing that Hatfield infringed

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AF Holdings’ copyrighted material, apart from the facts that were previously alleged and

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that have been known to AF Holdings for more than a year – in particular, that the IP

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connection through which the material was downloaded is registered to Hatfield.
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CONCLUSION

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In accordance with the foregoing, AF Holdings’ motion for leave to file a second

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amended complaint is DENIED. In addition, for the reasons stated at the hearing, AF

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Holdings’ motion to strike Hatfield’s opposition to the motion is DENIED, as is Hatfield’s

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request that the case be dismissed pursuant to Rule 41(b).

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IT IS SO ORDERED.

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Dated: January 7, 2013
______________________________
PHYLLIS J. HAMILTON
United States District Judge

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For the Northern District of California

United States District Court

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