Arista Records LLC et al v. Lime Wire LLC et al

Filing 536

DECLARATION of Kelly M. Klaus in Support re: 533 MOTION in Limine to Preclude Specified Categories of Evidence and Argument.. Document filed by Arista Music, fka BMG Music, Arista Records LLC, Atlantic Recording Corporation, Capitol Records, LLC, fka Capitol Records, Inc., Elektra Entertainment Group Inc., Interscope Records, Laface Records LLC, Motown Record Company, L.P., Priority Records LLC, Sony Music Entertainment, fka Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records America, Inc., Warner Bros. Records Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6)(Klaus, Kelly)

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Arista Records LLC et al v. Lime Wire LLC et al Doc. 536 Att. 1 Dockets.Justia.com 1 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 18 18 19 19 20 20 21 22 23 24 25 07T9ARIH UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------x ARISTA RECORDS LLC, ET AL., Plaintiffs, v. LIMEWIRE LLC, ET AL.,, Defendants. ------------------------------x New York, N.Y. July 29, 2010 9:36 a.m. Before: HON. KIMBA M. WOOD District Judge APPEARANCES MUNGER, TOLLES & OLSON, LLP Attorneys for Plaintiffs BY: GLENN POMERANTZ KELLY KLAUS JENNIFER PARISER JONATHAN BLAVIN WILSON, SONSINI, GOODRICH & ROSATI Attorneys for Defendants BY: MICHAEL SOMMER JESSICA MARGOLIS 06 CV 5936 (KMW) SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 34 Gorton - direct Now, you don't deny that you were at Mr. Bildson's desk when you spoke with Mr. Falco, correct? A. The conversation that I had with Mr. Falco was in the RIAA office. It was not in Mr. Bildson's desk. Q. Didn't you have a conversation with Mr. Falco while you were at Mr. Bildson's desk? A. It was -- I mean I have at one point in my life had a conversation on the phone with Mr. Falco from Brett Bildson's desk, but the contents of that conversation are absolutely nothing like what's presented here. Q. So, you admit you had a conversation with Mr. Falco from Mr. Bildson's desk, but you deny that you said what Mr. Bildson says in his declaration, correct? A. Yes. Q. Now, is it your position that at the time you created these family partnerships in 2005 you did not believe that LimeWire or you personally would be sued for copyright infringement? Is that your position? A. Yes. Q. And you've stated that under oath previously, correct? A. That's possible. Q. Well, let's look at tab 2. This is a declaration you submitted back at the time of the summary judgment motions. And let's look at tab -- paragraph 7 of your declaration. Paragraph 7 you state under oath that, "At the time SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 07T9ARIH 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 41 07T9ARIH Gorton - direct and that the create date is October 4, 2001. A. Okay. Q. You have no reason to believe that's not true, correct? A. Could be true. Yes. Q. So, as of October of 2001 you're talking about potential lawsuits against LimeWire, correct? A. Correct. Q. And what you say is that "The lawsuits recently filed against Morpheus, Grokster, and FastTrack by the RIAA, and the internal RIAA memos recently released, raise the specter of legal action against LimeWire." Correct? A. I see that. Q. So you knew in October of 2001 that the specter of illegal action against LimeWire had been raised, right? A. Okay. Q. You then followed what happened with each of the Grokster rulings, correct? A. I was aware of them. Q. Well, in fact, LimeWire submitted an amicus brief in the Grokster lawsuit, didn't they? A. Yes. Q. And then you followed each ruling by the district court, by the Ninth Circuit, and by the Supreme Court, correct? A. I was aware of those rulings. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 55 07T9ARIH Gorton - direct A. I don't specifically recall the date. Q. Let me refresh your memory. If you could look at tab 2, which is your declaration, filed back at the time of the summary judgment motion. Turn to paragraph 6. Do you see in the second sentence that you say that you met with Kenneth Rubenstein on January 7, 2005? A. Yes. Q. Does that refresh your recollection that that's the first time you met with Mr. Rubenstein? A. Yes. Q. And that was less than 30 days after the Supreme Court announced that it was going to review the Ninth Circuit's decision in Grokster, correct? A. Correct. Q. And then if we can go back to the timeline. And you see that then three days after the Supreme Court issued its ruling in Grokster, you went ahead and created the partnerships and transferred your assets, correct? A. Correct. Q. Now your testimony is that the creation of those family limited partnerships had nothing to do with the Grokster case, correct? A. Correct. Q. Had nothing to do with your concern about your assets being SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 56 07T9ARIH Gorton - direct subject to a legal judgment, right? A. Correct. Q. And your testimony is that it's just coincidence that these family partnerships happened to be created immediately after the two critical events in the Grokster case in the Supreme Court, correct? A. Correct. Q. Now, let's talk a little bit about the lawyer who assisted you here, Mr. Rubenstein. Why did you choose him in particular to help you set up these limited partnerships? A. He was recommended -- there was a friend of mine knew his brother who worked at Kaye Scholer who recommended him. Q. And your testimony is that you went to Mr. Rubenstein in January of 2005 just to receive traditional estate planning advice, correct? A. Correct. Q. You didn't go to him for asset protection advice? Is that what you're saying? A. Correct. Q. Now when you saw Mr. Rubenstein in 2005, were you aware that he wasn't just your ordinary estate planning lawyer? MR. SOMMER: Objection to the form. THE COURT: Sustained. Q. Did you know that he had expertises beyond estate planning? A. When I first met him I don't think I really particularly -SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 72 Gorton - direct MR. POMERANTZ: That just, in terms of the binder, that goes through tab 36. THE COURT: Thank you. MR. POMERANTZ: Those are all portions from Mr. Rubenstein's website. THE COURT: Thank you. Q. Now, Mr. Gorton, were you aware that your counsel told us and told the Court last week that you would be calling Mr. Rubenstein to come here and testify today? A. Yes. Q. And were you aware that they also told us that they would be waiving privilege and providing us with some additional documents? A. Yes. Q. And then were you aware that 72 hours ago or less we heard that you had decided not to call Mr. Rubenstein as a witness? A. Correct. Q. And you understand that you chose not to provide us with documents that might show what happened between you and Mr. Rubenstein? MR. SOMMER: Objection. We chose not to waive privilege. THE COURT: Sustained. Q. Were you aware of that? MR. SOMMER: The question -- sustained. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 07T9ARIH 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 97 07T9ARIH Gorton - cross Q. I want to draw your attention to the second page of the letter, and it's the bottom paragraph on the page, where the -in the middle of the paragraph it says, "Finally, as you are on notice of claims against you and your company." Do you see that? A. Yes. Q. Now is that the first time you had any inkling that someone might come after you individually? A. Yes. Q. Was your decision to meet with a lawyer to make plans for your estate related in any way to a concern on your part that you individually were going to get sued by the plaintiffs in this case? A. No. Q. How about that LimeWire was going to get sued? A. No. Q. Now, let's talk about the beginning of 2005 because that's when you first actually met with Mr. Rubenstein, correct? A. Correct. Q. Now, you talked this morning a little bit about following the Grokster case as it went through its various courts, correct? A. Yes. Q. And I think Mr. Pomerantz established that the district court decision was in April of 2003 and that was in favor of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 125 07T9ARIH Gorton - redirect thought what LimeWire was doing was completely within the bounds of the law, and that we were making a value neutral piece of software, and that we weren't inducing anyone's behavior. And that when I looked at the facts in the Grokster case and LimeWire's own behavior, I thought that we were very different. Q. Would you turn again to tab 14. I want to refresh your recollection one more time. This is the New York Times article in which you were quoted months before the Supreme Court handed down its decision in Grokster. A. Correct. Q. In this article it states, "The case is against other file-sharing services, Grokster and Morpheus, which won in lower courts. But Mr. Gorton said that if those rulings were overturned, it would make LimeWire vulnerable. 'If the Supreme Court says it is illegal to produce the software, LimeWire, the company, will cease to exist.'" You see that, don't you? A. Yes. Q. And that was your state of mind before the Supreme Court ruled, correct? A. Well, I would point out that -- I mean the Supreme Court did not say that it was illegal to produce the software. In fact, it says producing -- very clearly said producing the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 126 07T9ARIH Gorton - redirect software by itself is fine. And they created this whole other concept of inducement, which never occurred -- I mean occurred to me that such a thing could exist prior to that actual ruling. And, again, as I pointed out, it was my feeling -turns out incorrectly -- that LimeWire was not at great legal risk. Even, you know -- again, I'm obviously wrong about some of these things and in retrospect it's easy to look back and say how could I have not known. I'm certainly asked myself that question recently. But at the time I approached it very much with the mind-set of a technologist. I think I knew LimeWire from the inside. And it's a different LimeWire than gets painted by the selection of e-mails that are presented in court documents. And we are a technology company that makes a piece of software that transfers files. I still to this day have a hard time seeing that being an illegal thing or something for which I'm liable. I understand it's not worth rehashing, all of that. But in terms of my state of mind which I believe you were getting at, that is the state of mind I carried in my head right up until Judge Wood's ruling. Q. You knew you were inducing massive infringements before the Grokster ruling ever came down, didn't you? MR. SOMMER: Objection. Relevance. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 127 07T9ARIH 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. POMERANTZ: testimony he just gave. MR. SOMMER: Doesn't make this next question -THE COURT: Sustained. Q. After the Grokster decision came down, you didn't turn off LimeWire, did you? A. No. Q. You didn't stop distributing it, did you? A. No. Q. You testified about some new service you're creating. Do you remember that? A. Yes. Q. And you said it was going to be a service that was going to licensed recordings, from the owners of those recordings, correct? A. Correct. Q. You don't have a license from any of my clients for that service, correct? A. Certainly true. Q. You continue to distribute the LimeWire software, correct? A. Correct. Q. Now, you -- Mr. Sommer pointed you to a bunch of bank records to try to show that you actually had money in bank accounts that weren't in family limited partnerships or IRAs. Do you recall that testimony? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 Gorton - redirect Your Honor, I was responding to

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