eBay Inc. v. Digital Point Solutions, Inc. et al

Filing 221

MOTION to Stay Civil Action Pending Resolution of Criminal Proceedings; Memo. of Pts. and Authorities filed by BrianDunning.com, Brian Dunning, Kessler's Flying Circus, Thunderwood Holdings, Inc.. Motion Hearing set for 10/1/2010 09:00 AM in Courtroom 3, 5th Floor, San Jose. (Attachments: # 1 Declaration of Leo J. Presiado, # 2 Proposed Order)(Cook, Stephen) (Filed on 7/20/2010)

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eBay Inc. v. Digital Point Solutions, Inc. et al Doc. 221 1 RONALD RUS, #67369 rrus@rusmiliband.com 2 LEO J. PRESIADO, #166721 lpresidado@rusmiliband.com 3 STEPHEN R. COOK #204446 scook@rusmiliband.com 4 RUS, MILIBAND & SMITH A Professional Corporation 5 Seventh Floor 2211 Michelson Drive 6 Irvine, California 92612 Telephone: (949) 752-7100 7 Facsimile: (949) 252-1514 8 Attorneys for Defendants THUNDERWOOD HOLDINGS, INC., 9 BRIAN DUNNING, and BRIANDUNNING.COM 10 LAW OFFICES OF PATRICK K. McCLELLAN Patrick K. McClellan #077352 11 2211 Michelson Drive, Suite 700 Irvine, CA 92612 (949) 261-7615 12 Telephone: 13 Attorney for Defendant KESSLER'S FLYING CIRCUS 14 15 16 17 18 EBAY INC., 19 20 vs. 21 DIGITAL POINT SOLUTIONS, INC.; SHAWN HOGAN; KESSLER'S FLYING 22 CIRCUS; THUNDERWOOD HOLDINGS, INC.; TODD DUNNING; DUNNING 23 ENTERPRISES, INC.; BRIAN DUNNING; BRIANDUNNING.COM; and DOES 1-20, 24 Defendants. 25 26 27 28 402959v1 SRC 7/15/10 1 (2785-0002) UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA, SAN JOSE DIVISION CASE NO. CV 08-4052 JF PVT Plaintiff, NOTICE OF MOTION AND MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS; MEMORANDUM OF POINTS AND AUTHORITIES JUDGE: DATE: TIME: CRTRM.: TRIAL DATE: Hon. Jeremy Fogel October 1, 2010 9:00 a.m. 3 June 8, 2012 CV 08-4052 JF PVT NOTICE OF MOTION AND MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS Dockets.Justia.com 1 2 TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on October 1, 2010 at 9:00 a.m. in Courtroom 3 3 located at 280 South 1st Street, San Jose, California, before the Hon. Jeremy Fogel, Defendants 4 Thunderwood Holdings, Inc., Brian Dunning, BrianDunning.com, and Kessler's Flying Circus 5 (collectively, "Defendants") will and hereby do move the Court for an order staying this civil 6 action as against Defendants pending resolution of the indictment and attendant criminal 7 proceeding at United States v. Brian Dunning, CR 10-0494 RMW (N.D. Cal.). 8 This Motion is made on the grounds that a stay of this civil action is necessary to 9 protect Mr. Dunning's Fifth Amendment rights in connection with the above-referenced criminal 10 proceeding, which arises from the same underlying facts as this civil action. In addition, the civil A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 action should be stayed as to Defendants Thunderwood Holdings, Inc. ("THI"), Kessler's Flying 12 Circus ("KFC"), and BrianDunning.com ("BD.com"). Mr. Dunning is the only person that can 13 speak on behalf of these entities. These entities will be greatly prejudiced by their inability to 14 meaningfully defend themselves in this civil action if forced to proceed prior to resolution of Mr. 15 Dunning's criminal case. 16 This Motion is based on the accompanying Memorandum of Points and Authorities RUS, MILIBAND & SMITH 17 and Declaration of Leo J. Presiado, filed herewith, as well as the Declarations of Brian Dunning 18 and William Kopeny, filed on October 15, 2009 in support of Defendants' prior Motion to Stay 19 Civil Action (dkt. 133) and incorporated herein by reference, all other pleadings and files in this 20 matter, and such additional evidence and argument as may be permitted by the Court. 21 DATED: July 20, 2010 22 LAW OFFICES OF PATRICK K. McCLELLAN 23 By: __ /s/ Patrick K. McClellan________ 24 PATRICK K. McCLELLAN Attorneys for Defendant 25 KESSLER'S FLYING CIRCUS 26 27 28 402959v1 SRC 7/15/10 1 (2785-0002) RUS, MILIBAND & SMITH A Professional Corporation By: __ /s/ Leo J. Presiado________________ LEO J. PRESIADO Attorneys for Defendants THUNDERWOOD HOLDINGS, INC., BRIAN DUNNING, and BRIANDUNNING.COM CV 08-4052 JF PVT 2 NOTICE OF MOTION AND MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 3 4 5 6 7 8 9 10 A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 TABLE OF CONTENTS Page 1. 2. INTRODUCTION ................................................................................................................. 1 STATEMENT OF FACTS.................................................................................................... 2 A. B. C. 3. The Government's Pre-Indictment Investigation....................................................... 2 Defendants' Pre-Indictment Motion to Stay .............................................................. 3 The Government Indicts Brian Dunning and Shawn Hogan..................................... 4 ARGUMENT ........................................................................................................................ 5 A. B. The Implication of Mr. Dunning's Fifth Amendment Rights Warrants A Stay ............................................................................................................................ 6 The Remainder of the Keating Factors Favor A Stay ............................................... 8 (1) (2) (3) (4) (5) C. Any Prejudice to eBay is Outweighed by Defendants' Fifth Amendment Concerns ................................................................................... 8 Proceeding With This Action Severely Burdens Mr. Dunning ..................... 9 The Convenience Of The Court Weighs In Favor Of A Stay ....................... 9 No Interests Of Persons Not Parties To The Action Will Be Affected By A Stay ...................................................................................................... 9 The Interest Of The Public Favors A Stay .................................................. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4. RUS, MILIBAND & SMITH A Stay Of This Action Pending The Conclusion Of The Criminal Proceeding Is Required As to THI, KFC, and BD.com As Well ............................ 10 CONCLUSION ................................................................................................................... 12 402959v1 SRC 7/15/10 1 (2785-0002) CV 08-4052 JF PVT i NOTICE OF MOTION AND MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 3 4 5 TABLE OF AUTHORITIES C A SE S Page(s) American Express Business Finance Corp v. RW Prof Leasing Services Corp., 225 F. Supp 2d 263 (E.D.N.Y. 2003) ...................................................................................... 11 6 Bruner Corp v. Balogh, 819 F. Supp. 811 (E.D. Wis. 1993) rev'd in part on other grounds, 133 F.3d 491 (7th 7 Cir. 1998) ................................................................................................................................ 11 8 Continental Ins. Co. v. Cota, 2008 WL 4298372 (N.D. Cal. Sept. 19, 2008)...................................................................... 6, 7 9 10 Douglas v. United States, 2006 WL 2038375 (N.D. Cal. July 17, 2006) ......................................................................... 10 11 Javier H. v. Garcia-Botello, 12 218 F.R.D. 72 (W.D.N.Y.) 2003) ........................................................................................ 7, 10 13 Jones v. Conte, 2005 WL 1287017 (N.D. Cal. Apr. 19, 2005) ............................................................ 6, 7 9, 10 14 15 Keating v. Office of Thrift Supervision, 45 F.3d 322 (9th Cir. 1995) ............................................................................................... 5, 6, 7 16 McCormick v. Rexroth, 17 No. C 09-4188, 2010 WL 934242 (N.D. Cal. Mar. 15, 2010) ...................................... 2, 5, 7, 8 18 Taylor, Bean & Whitaker Mort. Corp. v. Triduanium Fin'l, 2009 WL 2136986 (E.D. Cal. July 15, 2009) ..................................................................... 9, 11 19 20 United States v. Dunning, 10-CR-0494-RMW (N.D. Cal.)............................................................................................. 1, 4 21 United States v. Hogan, 22 10-CR-00495-JF (N.D. Cal.) ................................................................................................. 1, 4 23 24 25 26 27 28 402959v1 SRC 7/15/10 1 (2785-0002) A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 RUS, MILIBAND & SMITH AA CV 08-4052 JF PVT ii MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 1. 3 MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION On February 25, 2010, the Court issued an Order denying, without prejudice, 4 Defendants' motion to stay this civil action ("Order"). (Order 13.) The Court's Order was based 5 primarily on the "potentially indefinite" duration of a pre-indictment stay and uncertainty as to the 6 "precise degree of overlap" between the government's investigation and the facts alleged in the 7 Second Amended Complaint ("SAC"). (Order 5, 7.) During the hearing on Defendants' motion to 8 stay, however, the Court recognized that "[i]f there's an indictment, then we have to recalibrate 9 the entire case." (1/29/10 Tr. 18 (emphasis added).) 10 A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 The government indicted Defendant Brian Dunning on June 24, 2010 1 Any 11 uncertainty as to the direction of the government's investigation or the degree of overlap between 12 the two cases is now gone. The SAC and the Dunning indictment allege nearly identical facts to 13 support their allegations of improper "cookie stuffing" by Mr. Dunning, THI, KFC, and BD.com. 14 Less than a week after the indictment was filed, the government filed a Notice of Related Case: 15 16 17 18 19 (Gov't Notice Rel. Case 1 (dkt. 218).) Moreover, Plaintiff which opposed a pre-indictment stay 20 of this matter has now suggested a willingness to stipulate to a stay, but only if it encompasses 2 21 all Defendants. With formal criminal proceedings now a reality, Mr. Dunning should not be RUS, MILIBAND & SMITH The charges filed in United States v. Dunning, CR 10-0494 RMW, involve one of the defendants charged in the civil complaint in case CV 08-4052. In that civil case, the defendants are alleged to have engaged in the same "cookie stuffing" scheme that is the subject of the Indictment in case CR 10-0494 RMW. 22 saddled with the impossible burden of attempting to "present[] his civil defense in a manner that 23 24 25 On the same day, the government also indicted co-defendant Shawn Hogan. United States v. Hogan, CR 100495 JF (N.D. Cal. June 24, 2004). 2 1 26 Dunning's control and should not impact Mr. Dunning's rights under the Fifth Amendment, Plaintiff refused to this matter until he receives what he believes to be delinquent discovery responses from Plaintiff. (Id. 6.) 402959v1 SRC 7/15/10 1 (2785-0002) Despite a careful explanation to Plaintiff's counsel that the position of the other defendants was beyond Mr. 27 the remaining defendants is unclear at this point, although counsel for Mr. Hogan has indicated a reluctance to stay 28 stipulate to this motion. (See Decl. of Leo Presiado ("Presiado Decl.") 4-5, 7 & Exs. 1, 3 thereto.) The position of AA CV 08-4052 JF PVT 1 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 protects his Fifth Amendment rights," when the operative facts in the SAC and the Indictment 2 mirror each other. McCormick v. Rexroth, No. C 09-4188, 2010 WL 934242, *3 (N.D. Cal. Mar. 3 15, 2010) (J. Fogel). 4 Civil proceedings should also be stayed against Defendants THI, KFC, and 5 BD.com because, as the sole owner and representative of THI and BD.com, Mr. Dunning is the 6 only person that can speak on their behalf. Absent a stay, these entities will be precluded from 7 offering any meaningful defense. Accordingly, this civil action should be stayed until the parallel 8 criminal proceedings are complete. 9 2. 10 A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 STATEMENT OF FACTS A. The Government's Pre-Indictment Investigation Mr. Dunning is the founder, sole shareholder and only employee of Defendant THI. 11 RUS, MILIBAND & SMITH 12 (See Decl. of Brian Dunning ("Dunning Decl.") 2, filed Oct. 15, 2009 (dkt. 133).) Defendant 13 BD.com is not a business entity, but rather a name under which Mr. Dunning does business. THI 14 and co-defendant Dunning Enterprises, Inc. ("DEI") 3 did business as Kessler's Flying Circus until 15 approximately June 2007. (Id. 2.) KFC was in the business of implementing internet marketing 16 programs on behalf of internet merchants, including eBay. In return for promoting and directing 17 on-line traffic to eBay's website, eBay paid KFC a commission through eBay's agent, Commission 18 Junction, Inc. eBay tracks visitors to its website using small data files placed on internet users' 19 computers called "cookies." eBay alleges that the Defendants defrauded eBay by forcing the 20 placement of cookies on internet users' computers who did not knowingly visit eBay's website, 21 thereby triggering a commission payment to Defendants to which they were not entitled. (SAC 22 25-27.) 23 On June 18, 2007, prior to the commencement of this action, the FBI conducted a 24 search of Mr. Dunning's personal residence located in Laguna Niguel, California. The FBI seized, 25 and maintains physical custody of, all electronic equipment in the home, including all computers, 26 27 28 3 DEI is owned by Mr. Dunning's brother Todd Dunning, also a defendant in this case. CV 08-4052 JF PVT 2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 402959v1 SRC 7/15/10 1 (2785-0002) AA 1 disk drives, hard drives, cell phones and servers used by Mr. Dunning. In addition to the search 2 and seizure, Special Agent Lisa Miller, who operates out of the San Francisco office of the FBI, 3 interviewed Mr. Dunning in his living room for approximately three hours. The focus of Agent 4 Miller's questioning was Mr. Dunning's involvement in KFC's business and, in particular, KFC's 5 relationship with eBay and Commission Junction. Agent Miller inquired specifically as to such 6 issues as "cookie stuffing," "forcing cookies," "forcing clicks," the provision of "links" and 7 "widgets," and the direction of internet traffic to eBay's website. 8 After the search of his home and his interview with the FBI, Mr. Dunning retained 9 William J. Kopeny as counsel in the criminal investigation. 4 Mr. Kopeny learned that the FBI 10 search was the result of a warrant issued by the District Court of the Northern District of A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 California, the District in which the corporate offices of eBay are located. (See Kopeny Decl. 12 2-3.) Mr. Kopeny also learned that Mr. Dunning was a target in a criminal investigation relating 13 to KFC's services to eBay, and eBay's "cookie stuffing" allegations. (Id. 4-5.) Mr. Kopeny 14 has been in contact with Assistant United States Attorney Kyle F. Waldinger, who is the lead 15 AUSA on the matter and who is assigned to the Computer Hacking and Intellectual Property 16 ("CHIP") Unit. (Id. 3, 5-6.) By its own description set forth on the U.S. Department of Justice 17 website, the CHIP Unit is charged with combating "cybercrime" and "works closely with the FBI 18 and other agencies "to establish a relationship with the local high tech community and encourage 19 them to refer cases to law enforcement." 5 20 21 B. Defendants' Pre-Indictment Motion to Stay On October 15, 2009, Defendants filed a Motion to Stay Civil Action Pending RUS, MILIBAND & SMITH 22 Resolution of Criminal Proceedings. 6 (Dkt. 133.) Defendants' motion was based on the 23 government's active pre-indictment investigation into the same issues alleged in the SAC, Mr. 24 Dunning's status as a "target" in that investigation, and Defendants' belief that a criminal 25 26 27 28 4 5 6 See Decl. of William Kopeny ("Kopeny Decl.") 2, filed on Oct. 15, 2009 (dkt. 133). See <http://www.justice.gov/criminal/cybercrime/chipfact.htm> (last accessed on July 19, 2010). Todd Dunning also filed a motion to stay on the same day (dkt. 135), and defendants Digital Point Solutions, Inc. and Shawn Hogan filed a motion to stay the following day (dkt. 140). 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 3 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 indictment was imminent. (See Kopeny Decl. 4-7.) On October 30, 2009, Plaintiff filed a 2 consolidated opposition to the Motions to Stay. (Dkt. 151.) Plaintiff's objections were premised 3 almost entirely on the fact that the Defendants had not been indicted: "No criminal charges are 4 pending, and years remain until the relevant statutes of limitations run" (Opp. 1); "the absence of 5 criminal charges against defendants is fatal to their motions to stay" (Opp. 4); "the scope of any 6 future criminal proceeding is entirely speculative." (Opp. 9). 7 On January 29, 2010, the Court heard oral argument on Defendants' Motions to 8 Stay. During the hearing, the Court expressed concern over the uncertainty surrounding the 9 timing of an indictment, if any, and what the scope of any forthcoming indictment might be, 10 stating "I don't want anybody to get caught in a situation where nine months from now we are still A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 waiting for the U.S. Attorney. That's not an acceptable situation." (1/29/10 Hr'g Tr. 18.) The 12 Court noted, however, that if an indictment came, "then we have to recalibrate the entire case." 13 (Id.) Plaintiff's also acknowledged that an indictment could alter the case substantially: "Frankly, 14 the parties might be in a position at that point [post-indictment] to agree upon some form of stay if 15 one is appropriate." (Id. at 12.) 16 The Court's February 25, 2010 Order denying Defendant's request for a pre- RUS, MILIBAND & SMITH 17 indictment stay also focused on the uncertainty surrounding any future criminal proceedings. In 18 fact, the Court's analysis and conclusions were based almost entirely on the "absence of an actual 19 indictment" and the resulting uncertainty surrounding the degree of overlap between the facts 20 alleged in the SAC and any future indictment. (See, e.g., Order 5.) The Court denied Defendant's 21 motion without prejudice. 22 23 C. The Government Indicts Brian Dunning and Shawn Hogan On June 24, 2010, the government indicted Defendants Brian Dunning and Shawn 24 Hogan. 7 The Indictment charges Mr. Dunning with five counts of wire fraud in connection with 25 the identical conduct alleged by eBay in the SAC. On June 29, 2010, the government filed a 26 27 28 7 Cal.). See United States v. Dunning, CR 10-0494 RMW (N.D. Cal.); United States v. Hogan, CR 10-00495 JF (N.D. 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 4 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 Notice of Related Case, acknowledging that "the defendants [in the civil action] are alleged to 2 have engaged in the same 'cookie stuffing' scheme" alleged in the Dunning and Hogan 3 indictments. (Gov't Notice Rel. Case 2 (dkt. 218) (emphasis added).) 4 On July 15, 2010, counsel for Mr. Dunning held a telephonic meet and confer 5 conference concerning this Motion with Plaintiff's counsel. (See Presiado Decl. 3-4.) When 6 asked whether Plaintiff would stipulate to a stay of the civil proceedings as to Defendants Brian 7 Dunning, THI and BD.com, counsel for Plaintiff indicated that Plaintiff likely would not agree to 8 a stay as to these Defendants alone. (See id.) Plaintiff's counsel later confirmed that it was not 9 willing to stipulate to a "partial stay of discovery that includes only your clients and KFC." (Id. 10 5 & Ex. 1 thereto.) Obviously, Mr. Dunning's counsel cannot speak for his co-defendants, but it is A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 worth noting that all of the defendants previously sought a pre-indictment stay of this action, and 12 the Fifth Amendment issues have only become more urgent since Messrs. Dunning and Hogan 13 were indicted. 14 3. 15 ARGUMENT Mr. Dunning is charged in a criminal indictment with conduct nearly identical to RUS, MILIBAND & SMITH 16 the allegations in the SAC. Any doubt concerning the "extent to which [Mr. Dunning's] Fifth 17 Amendment rights are implicated" by this parallel civil proceeding is now gone: Mr. Dunning 18 will be unable to offer any meaningful defense to Plaintiff's allegations both on his own behalf 19 and on behalf of THI and BD.com without waiving his Fifth Amendment rights. As the Court 20 indicated on January 29, 2010, now that indictments have been issued, "we have to recalibrate the 21 entire case." (1/29/10 Hr'g Tr. 18.) The only recalibration that will both preserve Mr. Dunning's 22 constitutional rights and his ability to defend this action is to stay the civil proceedings pending 23 resolution of the criminal matter. 24 The Court has authority to stay civil proceedings "when the interests of justice 25 seem to require such action." Keating v. Office of Thrift Supervision, 45 F.3d 322, 324 (9th Cir. 26 1995), quoted in McCormick, 2010 WL 934242, at *1. When faced with parallel criminal 27 proceedings, the analysis should be undertaken "in light of the particular circumstances and 28 competing interests involved in the case" and after consideration of the "extent to which the 402959v1 SRC 7/15/10 1 (2785-0002) CV 08-4052 JF PVT 5 AA MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 defendant's fifth amendment rights are implicated." Id. Additional factors to be considered, i.e., 2 the "Keating" factors, include: 3 4 5 6 7 8 (1) (2) (3) (4) (5) the interest of the Plaintiff in proceeding and the potential prejudice of delay; the burden which the proceeding may place on Defendants; the convenience of the Court in the management of its cases, and the efficient use of judicial resources; the interests of third-parties to the civil action; and the interest of the public in the pending civil and criminal litigation. 9 Id. at 324-25; see also Order 4-10 (addressing each of the Keating factors). Each of these factors 10 favors issuance of a stay. A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 12 A. The Implication of Mr. Dunning's Fifth Amendment Rights Warrants A Stay "The strongest case for deferring civil proceedings until after completion of RUS, MILIBAND & SMITH 13 criminal proceedings is where a party under indictment for a serious offense is required to defend 14 a civil or administrative action involving the same matter." Jones v. Conte, 2005 WL 1287017, *1 15 (N.D. Cal. Apr. 19, 2005) (J. Illston) (internal quotation omitted); see also Continental Ins. Co. v. 16 Cota, 2008 WL 4298372, *2 (N.D. Cal. Sept. 19, 2008) (stating that the extent to which fifth 17 amendment rights are implicated by a civil proceeding is the first consideration when evaluating a 18 stay request); Order 6 ("The status of the criminal proceeding is crucial, though not determinative 19 in a court's decision whether or not to stay the civil case.") (emphasis added). As acknowledged 20 by the government, this civil action accuses Mr. Dunning of engaging "in the same 'cookie 21 stuffing' scheme that is the subject of the Indictment." (Notice of Related Case (dkt. 218) 2.) The 22 near perfect overlap of the facts alleged in the civil and criminal cases cannot be reasonably 23 disputed. 24 In Jones, the defendant was criminally charged with the unlawful distribution of 25 performance enhancing drugs. While under indictment, the defendant made a series of widely26 published statements relating to the alleged use of performance-enhancing drugs by professional 27 athletes, including Marion Jones. Ms. Jones subsequently filed a civil action against the 28 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 6 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 defendant, alleging defamation and tortious interference with business relations. The defendant 2 moved for a stay of the civil proceedings pending resolution of the criminal case. 3 Judge Illston noted that civil discovery in the case would overlap with issues in the 4 criminal matter, holding that "if discovery moves forward, the defendant will be faced with the 5 difficult choice between asserting his right against self-incrimination, thereby inviting prejudice in 6 the civil case, or waiving those rights, thereby courting liability in the [criminal] case." Id. at *1 7 (quoting Javier H. v. Garcia-Botello, 218 F.R.D. 72, 75 (W.D.N.Y. 2003). Judge Illston pointed 8 out that both the civil and criminal cases arose from the defendant's alleged involvement in the 9 distribution of performance-enhancing drugs, and that "the veracity of his statements regarding 10 plaintiff's [alleged use of performance-enhancing drugs] directly relate to his involvement with the A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 distribution of performance-enhancing drugs." Id. at 2. The Court stayed the civil proceedings 12 pending resolution of the criminal matter. Id.; see also McCormick, 2010 WL 934242, at *2 (N.D. 13 Cal.) (J. Fogel) (granting stay of civil proceedings pending resolution of related criminal case 14 where "factual issues in the two cases are essentially the same"); Cota, 2008 WL 4298372, at *2 15 (N.D. Cal.) (J. Conti) (granting stay of civil action when "[i]t is undisputed that all of the civil 16 actions and the criminal action spring from the same nucleus of facts") 17 Given the identical facts alleged in the Indictment and the SAC, "[i]t is difficult to RUS, MILIBAND & SMITH 18 imagine how adjudication of [this civil case] would not implicate many of the factual issues 19 underlying the criminal action." Id. at *2. Mr. Dunning should not be forced to choose between 20 abandoning the opportunity to defend against this civil action, and "courting liability in the 21 criminal case" by waiving his Fifth Amendment rights. Jones, 2005 WL 1287017, at * 1. Mr. 22 Dunning's Fifth Amendment rights are directly implicated by the issues in the case, and no remedy 23 exists that will allow him to both preserve these rights and defend this action, except a stay of the 24 civil proceedings. This Keating factor weighs decidedly in favor of a stay. 25 / / / 26 / / / 27 / / / 28 / / / 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 7 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 3 4 B. The Remainder of the Keating Factors Favor A Stay (1) Any Prejudice to eBay is Outweighed by Defendants' Fifth Amendment Concerns A stay of civil proceedings nearly always has the potential of working some 5 prejudice to the plaintiff. Any such prejudice in this case, however, is outweighed by "the burden 6 on [Defendants] of presenting [their] civil defense in a manner that protects [their] Fifth 7 Amendment rights." McCormick, 2010 WL 934242, at *3. Moreover, Plaintiff's core concern, as 8 stated in their opposition to Defendants' pre-indictment motion to stay, was the possibility of an 9 "indefinite delay" in the proceedings. (Opp. 12.) That concern was eliminated by the initiation of 10 formal criminal proceedings. A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 Plaintiff's other purported concern that delaying the civil case will somehow RUS, MILIBAND & SMITH 12 prejudice its ability to access evidence is baseless. The criminal case will involve virtually 13 identical evidence and witnesses as the civil matter. As this Court recently held, "the fact that 14 witnesses for the two proceedings are likely to include many of the same people providing much 15 of the same testimony should reduce the danger that any testimony will be lost as a result of the 16 stay." McCormick, 2010 WL 934242, at *3. Moreover, as Plaintiff is aware, much of the 17 evidence in this case concerning Defendants resides on Defendants' computer equipment, which 18 was seized by the government on June 18, 2007 over a year before Plaintiff filed its Complaint 19 and remains in the custody of the FBI. (See Kopeny Decl. 4, 6-7.) As a result, the evidence 20 about which Plaintiff is concerned is preserved from loss or destruction, but is also difficult to 21 access until after the criminal matter is resolved. 22 Finally, Plaintiff's may also claim, as they did in response to Defendants' pre- 23 indictment motion to stay, that delaying the civil matter will deplete any assets available to 24 Plaintiff for a future monetary reward. But Defendants have not been found criminally or civilly 25 liable for any of the conduct alleged in the SAC or the Indictment; Defendants enjoy the 26 presumption of innocence. Plaintiff offers no evidence to suggest that funds are being secreted 27 away in an effort to defeat some future judgment. Further, Plaintiff's argument, if accepted, would 28 permit Plaintiff to leverage the government's criminal indictment to secure a virtually unopposed 402959v1 SRC 7/15/10 1 (2785-0002) CV 08-4052 JF PVT 8 AA MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 and undeserved judgment against Defendants in the civil matter. See Taylor, Bean & Whitaker 2 Mort. Corp. v. Triduanium Fin'l, 2009 WL 2136986, *4 (E.D. Cal. July 15, 2009) (granting a stay 3 despite plaintiff's argument that it will be more difficult to recover monetary losses after the stay is 4 lifted). Defendants' interest in presenting a full and complete defense to the allegations in the SAC 5 while also preserving Mr. Dunning's Fifth Amendment rights must take priority over Plaintiff's 6 attempt to secure an ill-gotten windfall judgment. 7 8 (2) Proceeding With This Action Severely Burdens Mr. Dunning As described above, proceeding with this case will force Mr. Dunning to choose 9 between defending himself in this action and preserving his Fifth Amendment rights. The extreme 10 prejudice that will result from forcing this choice upon Mr. Dunning outweighs any purported A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 prejudice to eBay from a finite delay in this matter. 12 13 (3) The Convenience Of The Court Weighs In Favor Of A Stay RUS, MILIBAND & SMITH The Court has an interest in managing its cases efficiently. (Order 9.) At the pre- 14 indictment stage, the Court found this factor weighed in favor of Plaintiff because any stay "would 15 be of unknown duration, and the extent to which common issues would be resolved in a criminal 16 proceeding is speculative when no criminal charges actually are pending." (Order 10.) The length 17 of the stay is no longer of "unknown duration" and the "common issues" between the civil and 18 criminal cases have now been confirmed. This factor weighs in favor of a stay. See Jones, 2005 19 WL 1287017, at *2 ("Staying the case makes efficient use of judicial resources by insuring that 20 common issues of fact will be resolved and subsequent civil discovery will proceed unobstructed 21 by concerns regarding self incrimination.") (internal citations omitted). 22 23 24 (4) No Interests Of Persons Not Parties To The Action Will Be Affected By A Stay The interest of persons not parties to this action will not be affected by a stay. 25 Commission Junction has released its claims against the Defendants, and there appears to be no 26 other person(s) who may be affected by this action that is not already a party. (Order 10 & n.3.) 27 / / / 28 / / / 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 9 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 (5) The Interest Of The Public Favors A Stay The public has an interest in "ensuring that the criminal process is not subverted by 3 ongoing civil cases." Douglas v. United States, 2006 WL 2038375 (N.D. Cal. July 17, 2006). 4 Moreover, "the public's interest in the integrity of the criminal case is entitled to precedence over 5 the civil litigant. Jones, 2005 WL 1287017, at *2 (quoting Javier H., 218 F.R.D. at 75). Absent 6 a stay, this case will proceed to trial parallel to the criminal case, leaving Defendants with no 7 reasonable opportunity to offer a defense. This scenario does not further the public's interest in a 8 justice system that provides a viable means of securing the fair resolution of civil and criminal 9 matters. Conversely, a stay would promote the public interest by providing Defendants with a 10 meaningful opportunity to exercise their constitutional rights and present a full and complete A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 11 defense to the allegations in the SAC. 12 13 14 C. A Stay Of This Action Pending The Conclusion Of The Criminal Proceeding Is Required As to THI, KFC, and BD.com As Well The Court should stay the civil proceedings as to THI, KFC, andBD.com as well. RUS, MILIBAND & SMITH 15 BD.com is not even a separate entity; it is merely a name by which Mr. Dunning does business. 16 As for THI, Mr. Dunning is the founder, sole shareholder and only employee of that entity and 17 the only person through whom this entity can present a meaningful defense to the allegations in 18 the SAC. 8 In addition, THI is the general partner of KFC and, as with THI, Mr. Dunning is the 19 primary, if not only, person through whom KFC can counter Plaintiff's allegations. 20 While the Court has ordered these entity Defendants to respond to discovery 21 requests, and has authorized en masse responses prepared by a designated agent or corporate 22 counsel, this process has obvious limitations and will not be sufficient as the case proceeds to trial. 23 For example, while the discovery responses of THI, KFC, and BD.com need not be prepared by an 24 agent with "first hand personal knowledge" (1/12/10 Order 8-9), it will be difficult for these 25 entities to prepare for trial and present a full and complete defense without the active participation, 26 27 28 8 See Decl. of Brian Dunning ("Dunning Decl.") 2, filed on Oct. 15, 2009 (dkt. 133). CV 08-4052 JF PVT 10 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 402959v1 SRC 7/15/10 1 (2785-0002) AA 1 involvement and testimony of the primary individual with first-hand knowledge of the facts in 2 dispute. Mr. Dunning will be unable to provide that assistance while the criminal matter is 3 pending at least not without waiving his Fifth Amendment rights. 4 In Taylor, Bean & Whitaker Mort. Corp. v. Triduanium Fin'l, 2009 WL 2136986, 5 *4 (E.D. Cal. July 15, 2009), the Court stayed civil proceedings against both individual and entity 6 defendants. While acknowledging that the business entity had no Fifth Amendment right against 7 self-incrimination, the Court nonetheless held that: 8 9 10 A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 the Fifth Amendment rights of every director or officer who may speak on behalf of Triduanium are implicated, and thus, Triduanium is likely to be greatly prejudiced in its ability to meaningfully defend itself in the civil matter. 11 Taylor, Bean & Whitaker Mort. Corp., 2009 WL 2136986, at *3. 12 Similarly, in American Express Bus. Fin. Corp v. RW Prof'l Leasing Serv. Corp., RUS, MILIBAND & SMITH 13 225 F. Supp 2d 263 (E.D.N.Y. 2003), the district court granted a stay of civil discovery as to the 14 two individual defendants to allow them to preserve their Fifth Amendment rights. American 15 Express, 225 F. Supp. 2d at 265. The district court also stayed civil discovery as to the entity 16 defendant, reasoning that the entity defendant would be unable to effectively conduct discovery 17 and mount a defense without the availability of the individual defendants, each of whom were 18 executive officers of the defendant corporation. Id. at 265-66; see also Bruner Corp v. Balogh, 19 819 F. Supp. 811 (E.D. Wis. 1993) (finding that "it is not likely" that the entity defendant "could 20 proceed to trial without meaningful discovery from "the individual defendant alleged to be part of 21 the RICO enterprise."), rev'd in part on other grounds, 133 F.3d 491 (7th Cir. 1998). 22 Defendants THI, KFC, and BD.com will be unable to mount a meaningful defense 23 without the assistance of Mr. Dunning. Accordingly, a stay of this action is warranted as to THI, 24 KFC, and BD.com, as well. 25 / / / 26 / / / 27 / / / 28 / / / 402959v1 SRC 7/15/10 1 (2785-0002) AA CV 08-4052 JF PVT 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 4. 2 CONCLUSION For all of the foregoing reasons, Defendants respectfully request that this action be 3 stayed as to Brian Dunning, BrianDunning.com, Thunderwood Holdings, Inc., and KFC, pending 4 the conclusion of the criminal proceedings against Mr. Dunning. 5 6 DATED: July 20, 2010 7 8 9 10 A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 RUS, MILIBAND & SMITH A Professional Corporation By: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 402959v1 SRC 7/15/10 1 (2785-0002) RUS, MILIBAND & SMITH /s/ Leo J. Presiado LEO J. PRESIADO Attorneys for Defendants THUNDERWOOD HOLDINGS, INC., BRIAN DUNNING, and BRIANDUNNING.COM DATED: July 20, 2010 LAW OFFICES OF PATRICK K. McCLELLAN By: /s/ Patrick K. McClellan PATRICK K. McCLELLAN Attorneys for Defendant KESSLER'S FLYING CIRCUS AA CV 08-4052 JF PVT 12 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS 1 2 3 CERTIFICATE OF SERVICE The undersigned hereby certifies that the foregoing: 4 NOTICE OF MOTION TO STAY CIVIL PROCEEDINGS PENDING RESOLUTION OF CRIMINAL PROCEEDINGS; MEMORANDUM OF POINTS AND AUTHORITIES; AND 5 DECLARATION OF LEO J. PRESIADO 6 was filed with the Court's Electronic Filing System on July 20, 2010 and may be accessed 7 electronically. Additionally, I served true copies of the foregoing documents on the following 8 party: 9 Todd Dunning 1 Stockbridge 10 Aliso Viejo, CA 92656 karinedunning@yahoo.com 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 402959v1 SRC 7/15/10 1 (2785-0002) A Professional Corporation Seventh Floor, 2211 Michelson Drive Irvine, California 92612 Tel (949) 752-7100 Fax (949) 252-1514 RUS, MILIBAND & SMITH I personally caused the documents to be delivered to the physical and e-mail address listed above. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on July 20, 2010, at Irvine, California. ____/s/ Leo J. Presiado____ Leo J. Presiado Rus, Miliband & Smith, APC 2211 Michelson Drive, Seventh Floor Irvine, CA 92612 Tel: 949-752-7100 Fax: 949-252-1514 Email: lpresiado@rusmiliband.com Attorneys for Defendants Thunderwood Holdings, Inc., Brian Dunning, and BrianDunning.com AA CV 08-4052 JF PVT 13 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO STAY CIVIL ACTION PENDING RESOLUTION OF CRIMINAL PROCEEDINGS

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