Hy Cite Corporation v. Badbusinessbureau.co, et al, No. 2:2004cv02856 - Document 44 (D. Ariz. 2005)
Court Description: ORDER granting in part and denying in part [19] Motion to Dismiss, granting [25] Motion for Partial Reconsideration, granting in part and denying in part [38] Motion to Dismiss; counts Six, Seven and Eight are dismissed for failure to state a claim; dft Ed Magedson shall not be required to pay pla all costs and fees incurred as a result of dfts avoidance of Service of Process . Signed by Judge Earl H Carroll on 12/27/05. (SBU, )
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Hy Cite Corporation v. Badbusinessbureau.co, et al 1 Doc. 44 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 a Wiscons in) ) ) Plaintiff, ) ) ) vs. ) ) badbusines s bureau.com, L.L.C., a St.) K i t t s / N e v i s C o r p o r a t i on d / b / a) b a d b u s i n e s s b u r e a u . c o m a n d / o r) rip off r ep o rt.com a n d / o r) b a d b u s i n e s s b u r e a u . c o m / R i p - O f f) ) Report.com; ) Xcent ric Ventures, L.L.C., an Arizona) limit ed liabil i t y c o m p a n y d/b/a) b a d b u s i n e s s b u r e a u . c o m a n d / o r) r ip offrep ort.com a n d / o r) b a d b u s i n e s s b u r e a u . c o m / R i p - O f f) ) Report.com; and ) ) Ed M agedson, an Arizona resident, ) ) Defendants. ) ) H y Cit e Corporation, corporation, ORDER Defendant Xcentric Ventures, L.L.C. filed a M otion t o D is mis s. [Dkt. 19]. Defendant 23 24 No. CIV 04-2856-PHX-EHC Ed M agedson filed a M otion to Dismiss [Dkt. 38]. Those M otions are fully briefed. 25 Defendants Ed M agedson and Xcentric Ventures filed a M ot ion for Partial 26 Reconsiderat ion. [Dkt. 25]. Pursuant to the Court's Order [Dkt. 26], Plaintiff filed a 27 Response [Dkt. 31] and Defendants filed a Reply [Dkt. 34]. 28 // Case 2:04-cv-02856-EHC Document 44 Filed 12/27/2005 Page 1 of 18 Dockets.Justia.com 1 Facts Alleged in Plaintiff's Amended Complaint 2 D efendant Ed M agedson manages Defendant Xcentric Ventures (Defendants). 3 Defendants operate a website known as the Rip-off Report.1 The website proclaims itself 4 as "a worldwide consumer reporting Website & Publication, by consumers, for consumers, 5 to file & document complaints about Comp anies or Individuals who ripoff consumers." 6 [Dkt. 7, ex. A, p. 1]. The websit e claims t o contain reports on "over 1,000 different Topics 7 & Categories." [Dkt, 7, ex. A, p. 1]. The website allows users t o p os t and view complaints, 8 so called "Rip -off Reports," about businesses. Website users may also post comments or 9 suggestions on complaints other users have posted. The website instructs its users that 10 complaints may be used as negotiating tools with businesses. Specifically, the website 11 states that a user may file a Rip-off Report detailing a complaint w it h a business, provide 12 the bus iness with notice of the Rip-off Report and advise the business that the user will 13 update the Rip-off Report to include positive information about t he business if the 14 business resolves the user's complaint. [D kt . 7, ex. A, p. 4]. The website states that media 15 attention may follow the filing of a Rip-off Report. The website gives law y ers and potential 16 plaintiffs instructions concerning how to use the information on the website to organize 17 and file class action lawsuits. [Dkt. 7, ex. A, pp. 2, 4-5]. 18 Defendants encourage users who want to do more than simp ly post complaints to 19 become "Rip-off Rep ort ers ." A Rip-off Reporter answers the public's "need [for] heroes 20 and heroines, w ho w [ill] expose bad business and get them to clean up their act." [Dkt. 7, 21 ex. C, p. 1]. Defendants outline the questions a Rip-off Reporter should investigate, and 22 invite Rip-off Reporters to contact Defendant s with questions about investigating 23 businesses. Rip-off Reporters are als o encouraged to provide their names when posting 24 on the website, which is otherwise done anony mous ly. Rip-off Reporters are not normally 25 compensated, but according to Defendants' website "once we see your work over a p eriod 26 27 28 1 The Rip-Off Rep ort website is located at the domain names www.ripoffreport.com and www.badbusinessbureau.com. Case 2:04-cv-02856-EHC Document 44 -2Filed 12/27/2005 Page 2 of 18 1 of time, we fee (s ic) [words missing in original] honest and dedicated, and depending on 2 the region you're in you will be considered for compensation." [Dkt. 7, ex. C, p. 2]. The 3 website includes a tab containing information for those w ho w is h to volunteer for the Rip- 4 off Report. 5 According to Plaintiff's Amended Complaint , D efendants contribute material to the 6 website. [Dkt. 7, pp. 6-7]. Defendants "produce original content contained in the Rip-Off 7 Reports."2 [Dkt. 7, p. 6]. 8 Reports posted by us ers of the website. Defendants exercise editorial control over the 9 website. Defendants use the website to solicit donations and sell the book, "Rip-Off 10 Defendants produce editorials and creat e titles to the Rip-off Report.com Do-It-Yourself Guide: How to get Rip-off Revenge." 11 Plaintiff sells dinnerware and cookware under the trademarked name "Royal 12 Prestige." On November 17, 2004, the Rip-off Report website included 35 Rip-off Reports 13 involving Royal Prestige. Those reports detail various complaints about Plaintiff's 14 business, including their sales tactics, misleading promotional offers, the quality of the 15 dinnerware and cookware, and Plaintiff's refusal to abide by the terms of its sales contracts. 16 [Dkt. 7, ex. G]. Plaintiff alleges that those reports contain "negative, fals e, mis leading, and 17 defamatory s t at ements." For example, the website contains the statements: "Royal 18 Prestige- Hy-Cite (sic) Liars, Thieves, Criminals ;" "Hy-Cite (sic) was fined by several AGS 19 around the country for their former scare tactics of telling people they would D IE if t hey 20 cooked in any other cookware;" "Royal Prestige ripoff Contract is not valid for cancelation 21 (sic)... I realized this was a crooked company ;" and "Royal Prestige- Hy Cite Corporation 22 ripoff and deceitful sales tactics." [Dkt. 7, p. 11]. 23 Concerned with the complaints and s t at ements appearing on the Rip-off Report 24 webs it e, P laintiff, through counsel, sent letters to the website on April 16, 2003 and April 25 26 27 28 2 Plaintiff does not des cribe specifically what original content Defendants produced. The exhibits attached to the Amended Complaint contain an Internet posting claiming that Defendant M ageds on posted a complaint on the Rip-off Report website using another person's name and address. [Dkt. 7, ex. K, p. 4]. Case 2:04-cv-02856-EHC Document 44 -3Filed 12/27/2005 Page 3 of 18 1 30, 2003, informing Defendants that they were publishing defamatory material and misusing 2 Plaintiff's trademark. [Dkt. 7, p. 11]. O n April 17, 2003 and M ay 28, 2003, Defendants' 3 website, through counsel, responded in letters, directing P laintiff to a mediation "program 4 by w hich it has assisted several companies in resolving complaints and has posted rep ort s 5 on the website praising the companies for t heir cooperation and excellent customer 6 service." [Dkt. 7, ex. I, p . 1]. The letter instructed Plaintiff that if it was interested in the 7 program, it should send a e-mail to the editor of t he Rip -off Report website. Plaintiff did so. 8 On July 11, 2003, after Plaintiff and Defendant M agedson had exchanged a series 9 of e-mails, Defendant M agedson described the mediation program and its cost. Under the 10 program, Defendants would e-mail "all the consumers who feel they were victimiz ed, 11 stating that they will get a full refund plus a min[imum] of 5% more for t heir inconvenience 12 explaining (something to the effect of) management did not realize this was going on, and 13 they are glad (as we discussed by phone) that these Rip-off Reports were there to let them 14 know of the problems." [Dkt. 7, ex. J, p. 1 (p arent het ical statements in original)]. Once a 15 us er's complaint reported in a Rip-off Report was resolved, Defendants would update t he 16 Rip-off Rep ort and its title to show the complaint was resolved. If a user did not respond 17 to Defendants' e-mail, Defendants would update the Report to "reflect H y Cit es (sic) 18 willingness to satisfy this customer, but apparently they eit her filed a bogus Report, or 19 they are a disgruntled employee, a competitor (sic) etc, what ever (sic) our findings, with 20 some assistance from y ou, as to the possibilities of why they did not respond, the Report 21 will reflect that and will definitely put you in a good light" [Dkt. 7, ex. J, p. 2]. D efendants 22 would add to each Rip-off Report a link to a st at ement, written by Plaintiff, explaining the 23 steps it took to resolve the complaint. 24 Before Defendants would e-mail the users who filed Rip-off Reports, Plaintiff would 25 have to s end a $30,000 check. Plaintiff would also have to provide Defendants with a 26 statement explaining the reasons for the complaints. Defendants would then "evaluate 27 your statement, to see if we can work with it to make this program work." [D kt . 7, ex. J, p. 28 Case 2:04-cv-02856-EHC Document 44 -4Filed 12/27/2005 Page 4 of 18 1 2]. Once all the Rep ort s were updated, Plaintiff would be required to provide another 2 $20,000. Thereafter, Plaintiff would be required to pay a $1,500 monthly retainer, in 3 exchange for Defendant notifying Plaintiff of any complaints, as long as there were no more 4 than four per month, and giving Plaintiff an opportunity to resolve the complaints before 5 allowing any new Rip-off Reports against Plaintiff to be posted. [Dkt. 7, ex. J, p. 3]. 6 Procedural History 7 On January 18, 2005, Plaintiff filed an Amended Complaint, alleging ten counts . [D kt . 8 7]. The Amended Complaint names badbusinessbureau.com, L.L.C., Xcentric Ventures, 9 L.L.C. and Ed M ageds on as D efendant s . T he docket indicates t hat 10 badbusinessbureau.com, L.L.C. has not been served and has not entered an ap p earance 11 in this case. 12 On M arch 13, 2005, Plaintiff filed a M otion for Alternat ive Service on Defendant 13 M agedson. [Dkt. 13]. Plaintiff alleged that it had unsuccessfully attempted to serve 14 Defendant M agedson at his last known residence and had watched his post office box 15 from February 16, 2005 to M arch 9, 2005, but had not seen Defendant M agedson. Plaintiff 16 did not allege that it had sent a waiver of service request to Defendant M agedson's 17 residence or his post office box. On A p ril 19, 2005, the Court ordered Defense Counsel to 18 accept service on D efendant M agedson's behalf and ordered Defendant M agedson to pay 19 Plaintiff's costs incurred as a result of his avoidance of service. [Dkt. 24]. Defendant 20 M agedson has been served [Dkt. 32], as has Defendant Xcentric Ventures [Dkt. 27]. 21 Motions to Dismiss 22 Defendants Xcentric Ventures [Dkt. 19] and M agedson [Dkt. 38] filed M otions to 23 Dismiss. Those M otions to Dismiss are entirely ident ical, with the exceptions that 24 Defendant M agedson's M otion adds an argument that Plaintiff does not adequately plead 25 wire fraud and dis cus s es a recent Ninth Circuit decision, Bosley M ed. Inst., Inc. v. Kremer, 26 403 F.3d 672 (9th Cir. 2005). Defendant Xcentric Ventures filed a Notice of Supplement al 27 28 Case 2:04-cv-02856-EHC Document 44 -5Filed 12/27/2005 Page 5 of 18 1 Authority regarding Bos ley M edical. [Dkt. 20]. The Court, therefore, will consider the 2 M otions together. 3 Legal S tandard 4 A court may dis mis s a complaint "only if it is clear that no relief could be granted 5 under any set of facts that could be proved consistent with the allegations." Swierkiewicz 6 v. Sorema N.A., 534 U.S. 506, 514 (2002) (citation omitted). All material allegations of the 7 complaint must be accepted as true and in a light most favorable to Plaintiff. In re 8 Broderbund/Learning Co. Securities Litigation, 294 F.3d 1201, 1203 (9th Cir. 2002). 9 A. Immunity Pursuant to the Communications Decency Act 10 Defendants argue that Count s Three through Eight and Count Ten of Plaintiff's 11 Amended Complaint are barred by the Communications Decency Act (CDA), 47 U.S.C. § 12 230. The CDA p rovides that "no provider or user of an interactive computer service shall 13 be treated as the publisher or s p eaker of any information provided by another information 14 content provider." 47 U.S.C. § 230(c)(1). The phrase "interactive computer s ervice is 15 defined as "any information service, system, or access software provider that p rovides or 16 enables computer access to the Internet and such systems operated or services offered by 17 libraries or educational institutions." 47 U.S.C. § 230 (f)(2). The phrase "information content 18 provider" is defined as "any p ers on or entity that is responsible, in whole or in part, for the 19 creation or development of information provided through t he Internet or any other 20 interactive computer service." 47 U.S.C. § 230 (f)(3). 21 In enacting the CDA, "Congress granted most Internet services immunit y from 22 liability for publishing false or defamat ory material so long as the information was provided 23 by another party. As a result, Internet publishers are treated differently from corresponding 24 p ublis hers in print, television and radio." Carafano v. M etrosplash.com, Inc., 339 F.3d 1119, 25 1122 (9th Cir. 2003). Congress found Internet services and publishers deserving of this 26 favorable treatment because the Internet has flourished "with a minimum of government 27 regulation," and has become "a forum for a true diversity of political discourse, unique 28 Case 2:04-cv-02856-EHC Document 44 -6Filed 12/27/2005 Page 6 of 18 1 opportunities for cultural development, and myriad avenues for intellectual activity." 47 2 U.S.C. § 230 (a)(4) & (5). 3 Bas ed on Congress' findings, "reviewing courts have treated § 230(c) immunity as 4 quite robust."3 Carafano, 339 F.3d at 1123 (citing cases). The Ninth Circuit has is sued two 5 decisions addressing claims of § 230(c) immunity. Both of those cases turned on whether 6 the defendants were "information content providers" of t he allegedly wrongful content 7 posted on their websites. 8 In Carafano, the Court held that the defendant, a computer match-making service, 9 was immune from liabilit y for false content in a dating profile posted on the defendant's 10 website because the critical information was provided by a third party and the defendant 11 transmitted the information without alteration. 339 F.3d at 1125. The informat ion given in 12 the dat ing p rofile was formulated in response to the defendant's questionnaire, which the 13 defendant used to gather standariz ed information for the dating profiles it posted on its 14 website. The Court concluded that soliciting data through a questionnaire did not 15 constitute "a s ignificant role in creating, developing or 'transforming' the relevant 16 information." Ibid. 17 In another case, the Court considered whether § 230(c) immunity applied to the 18 defendant operator of an electronic newsletter who p ublished in the newsletter an allegedly 19 defamatory e-mail sent to him by a third party. Batzel v. Smith, 333 F.3d 1018, 1021 (9th Cir. 20 2003). In t hat case, the Court found that the defendant's website and electronic newsletter 21 fit "the broad statutory definition of 'interactive computer service.'" Id., 333 F.3d 1030. The 22 Court stated that "the pertinent question is whether [t he t hird party] was the sole content 23 provider of his e-mail, or whether [the defendant] can also be cons idered to have 24 25 26 27 28 3 A commentator has argued that § 230(c) immunity should be narrowly construed because in enacting the CDA Congress did not consider the potential harms t o the s ubject s of false or defamatory material posted on the Internet. Susan Freiwald, Comparative Institutional A nalysis in Cyberspace: The Case of Intermediary Liability for Defamation, 14 Harv. J.L. & Tech. 569, 631-42 (2001). Case 2:04-cv-02856-EHC Document 44 -7Filed 12/27/2005 Page 7 of 18 1 "creat [ed]" or "develop[ed]" [the third party's] e-mail message." Id., 333 F.3d at 1031. The 2 Court found that the defendant was not a cont ent p rovider because he "did no more than 3 select and make minor alterations to [the third party's] e-mail." Ibid. The Court, however, 4 remanded the case to determine whether the allegedly defamatory e-mail was "provided by 5 another information content provider" because the sender of the e-mail maintained that he 6 did not send the e-mail intending it for publication on the Internet. Id., 333 F.3d at 1032. 7 T urning to this case, Defendants are alleged to be "provider[s]... of an interact ive 8 computer service." See 47 U.S.C. § 230(c). Plaintiff alleges that Defendants operate a 9 website known as the Rip-off Report and that persons using the Internet have access to 10 the website. See 47 U.S.C. § 230(f)(2). Persons acces s ing the website may view so-called 11 Rip-off Reports, make comments on those Reports, or post their own Rip-off Reports. A s 12 in Carafano and Batzel, t he pertinent question is whether users posting on Defendants' 13 website are the sole providers of the allegedly wrongful content, or whether Defendants 14 can be considered to have created or developed any of the allegedly wrongful cont ent 15 posted on the Rip-off Report website. 16 Defendants argue that they did not create or develop any of t he allegedly wrongful 17 content, although they provided other content on the Rip-off Report website, because the 18 allegedly wrongful content appears in Rip-off Reports 19 website. This argument ignores Plaintiff's allegations that wrongful cont ent appears on the 20 Rip-off Report website in editorial comments created by Defendants and titles to Rip-off 21 Reports, which Defendants allegedly provide. M oreover, Plaintiffs allege that Defendants 22 "produce original content contained in the Rip-off Rep orts." Plaintiffs further allege that 23 Defendants "solicit individuals to submit reports with the promise that individuals may 24 ultimately be compensated for their rep ort s ." These allegations arguably could support a 25 finding that Defendants are "respons ible... for the creation or development of information" 26 provided by individuals submitting Rip-off Reports in resp ons e t o Defendants' solicitation. authored by users access ing the 27 28 Case 2:04-cv-02856-EHC Document 44 -8Filed 12/27/2005 Page 8 of 18 1 See 47 U .S.C. § 20(f)(3). Taking Plaintiff's allegations as true, In re Broderbund, 294 F.3d 2 at 1203, Defendants are not entitled t o immunity under the CDA at this stage of the case. 3 B. Racketeer Influenced and Corrupt Organizations Act (RICO) 4 Counts One and Two allege violat ions of RICO, which makes it "unlawful for any 5 person employed by or associat ed w it h any enterprise engaged in, or the activities of 6 which affect, interst ate or foreign commerce, to conduct or participate, directly or indirectly, 7 in the conduct of such enterprise's affairs through a pattern of racketeering activity." 18 8 U.S.C. § 1962(c). "Racketeering activity" includes extortion, both actual or threatened, and 9 wire fraud. 18 U.S.C. § 1961(1)(A ) & (B). To show a "pattern of racketeering activity" a 10 plaintiff must show at least two racket eering acts. 18 U.S.C. § 1961(5), Sedima v. Imrex Co., 11 473 U.S. 479, 496, n. 14 (1985) ("while two acts are neces sary, they may noy be sufficient"). 12 Simply stated, "RICO prohibits engaging in a pattern of 'racketeering activity,' defined as 13 violating certain laws; as such, a predicate illegal act must be alleged." M endoza v. Zirkle 14 Fruit Co., 301 F.3d 1163, 1168 (9th Cir. 2002) (citation omitted). In this case, Plaintiff alleges 15 threatened extortion and wire fraud. 16 1. Predicate Acts: Threatened Extortion and Wire Fraud 17 In defining extortion, the RICO statute refers to 18 U.S.C. § 1951, which in 18 subsection (b)(2) defines extortion as "the obtaining of property from another, with his 19 consent, induced by wrongful use of act ual or threatened force, violence, or fear." 20 Obtaining property by threatening economic los s can constitute extortion if the person 21 making the threat does not have a right to the property. See, e.g., United States v. Katter, 22 840 F.2d 118, 122-24 (1st Cir. 1988) (threat to defame if money owed under a contract was 23 not paid constituted extortion), United States v. Cerilli, 603 F .2d 415, 418-19 (3d Cir. 1979) 24 (grant of government 25 extortion), but see Rothman v. Vedder Park M gmt., 912 F.2d 315, 318 (9t h Cir. 1990) (no 26 extortion where defendants threatened to raise rent becaus e, as landlords, they had a right 27 to raise rent ). Here, Defendants argue that Plaintiff does not properly allege threatened cont racts conditioned on making political contributions was 28 Case 2:04-cv-02856-EHC Document 44 -9Filed 12/27/2005 Page 9 of 18 1 extortion because Defendants conduct, as alleged, is "nothing more than an offer to 2 provide services for compensation;" and thus there is no allegation of a wrongful threat 3 of economic loss. [Dkt. 38, p. 12]. 4 In the Amended Complaint, Plaintiff alleges that Defendants solicit and create Rip- 5 off Reports with "negative, mis leading, false, and defamatory content." [Dkt. 7, p. 2]. 6 Plaintiff further alleges that Defendant s will only remove or modify those wrongful reports 7 if paid a fee of $50,000 and a monthly ret ainer of $1,500. Stated in full, Plaintiff alleges that, 8 aft er receiving a $30,000 check, Defendants would contact users who filed Rip-off Reports 9 agains t Plaintiff with an offer that Plaintiff would refund their money paid to Plaintiff plus 10 five percent. Defendants would then update the Rip-off Report and its title to show that 11 the complaint was resolved. Plaintiff further alleges that if t he aut hor of a Rip-off Report 12 did not resp ond t o Defendant's e-mail, Defendants would update the Report to "reflect Hy 13 Cites (sic) willingness to s at is fy t his customer, but apparently they either filed a bogus 14 Report, or they are a disgruntled employee, a competitor (sic) et c, what ever (sic) our 15 findings, with some as s is t ance from you, as to the possibilities of why they did not 16 respond, the Report will reflect that and will definitely put you in a good light " [D kt. 7, ex. 17 J, p. 2]. 18 include a link to a s t at ement , w ritten by Plaintiff, explaining the steps it took to resolve the 19 complaint. Plaintiff alleges that it would be required to provide another $20,000 once all the 20 Rip-off Reports agains t P laintiff were updated. Plaintiff further alleges that Defendants 21 would require Plaintiff to pay a $1,500 monthly retainer, in exchange for Defendant 22 notifying Plaintiff of any new complaints and giving Plaintiff an opportunity to resolve the 23 complaints before allowing any new Rip-off Reports against Plaintiff to be pos t ed. [Dkt. 7, 24 ex. J, p. 3]. Plaintiff alleges that Defendants have threatened other businesses with this 25 scheme. Plaintiff alleges that in exchange for the $30,000 check, Defendant would also 26 Those allegations of Defendants' conduct distinguishes this case from Rothman. 27 There, the defendants owned and op erated a mobile home park. As landlords, the 28 Case 2:04-cv-02856-EHC Document 44 - 10 Filed 12/27/2005 Page 10 of 18 1 defendants had the right to set the price of rent in the park. Because the defendants had 2 the right to raise the rent, it w as not unlawful for them to threaten raising the rent for 3 tenants who refused to enter a lease agreement. Id., 912 F.2d at 318. H ere, D efendants 4 operate a website. Plaintiff alleges that Defendants create and solicit false and defamatory 5 complaints against businesses, but will cease this conduct for a $50,000 fee and $1,500 6 monthly retainer. Remedying the publication of false and defamatory complaints, which 7 Defendants allegedly created and solicited, does not give Defendant s the right to collect 8 fees. See K at t er, 840 F.2d at 122-24 (RICO claim allowed where the defendant threatened 9 defamation if not paid money, even though the plaintiff owed the defendant money under 10 a contract). Plaintiff has properly alleged threatened extortion. 11 Plaintiff has also properly alleged wire fraud. Wire fraud occurs when a person "(1) 12 devis ed or intending to devise any scheme or artifice... for obtaining money... by means of 13 false or fraudulent pretenses, representations or promises, (2) transmits or causes to be 14 transmitted by means of wire... any writings... for the purp os e of executing such scheme 15 or artifice." 18 U.S.C. § 1343 (numbers added). As discussed above, Plaint iff alleges that 16 Defendant s intentionally used their website as a scheme to obtain money from Plaintiff and 17 other businesses by means of false and defamatory complaints created and solicited by 18 Defendants. Plaintiff also alleges that Defendants posted fals e and defamatory complaints 19 and s ent e-mails requesting that Plaintiff pay a $50,000 fee and $1,500 monthly retainer 20 before Defendants would take any action related t o the materials on the website. Both 21 posting complaints on the website and sending e-mails requires transmitting writings by 22 means of wire. See United States v. Pirello, 255 F.3d 728, 729 (9th Cir. 2001) (affirming 23 sentence imposed after the defendant "pled guilty to using the Internet to commit wire 24 fraud in violation of 18 U.S.C. § 1343"). 25 2. Injury Actionable under RICO 26 RICO provides a civil action for "any p erson injured in his business or property by 27 reason of" a p at t ern of racketeering activity. 18 U.S.C. § 1964(c). Defendants argue that 28 Case 2:04-cv-02856-EHC Document 44 - 11 Filed 12/27/2005 Page 11 of 18 1 Plaintiff has not alleged injury to business or property and that any injury alleged by 2 Plaintiff was caused by users of Defendants' website, 3 racketeering activity. not by Defendants' alleged 4 Plaintiff alleges t hat it has lost customers, that customers have rescinded sales 5 contracts, and t hat Plaintiff's reputation has been injured as a result of the contents of 6 Defendants' website. Plaintiff further alleges that us ers of Defendants' website have 7 expressly stated on the website that they withheld busines s from Plaintiff after viewing the 8 w ebsite. That allegation distinguishes this case from Imagineering, Inc. v. Kiewit Pacific 9 Co., 976 F.2d 1303, 1309-12 (9th Cir. 1992), where the plaintiffs alleged only speculative 10 injuries, having failed to allege any specific bids they lost due to t he defendants' 11 racketeering activity. 12 used in 18 U.S.C. § 1964(c), the Court will look to state law. See Diaz v. Gates, 420 F.3d 897, 13 899 (9th Cir. 2005) (en banc) (in the RICO cont ext , "we typically look to state law to 14 determine whet her 15 Interference with contractual relationships is actionable in Arizona, Safeway Ins . Co. v. 16 Guerrero, 106 P .3d 1020, 1025, __ Ariz. __ (2005) (insurance company did not have a claim 17 for interference with contract against attorney rep res ent ing an opposing party in other 18 litigation), as is interference with a business relationship, Antwerp Diamond Exch. v. Better 19 Business Bureau, 637 P.2d 733, 740, 130 Ariz. 523, 529 (1981)(disapproved on unrelated 20 grounds in Dun & Bradstreet, Inc. v. Greenmos s Builders, Inc., 472 U.S. 749, 753, n. 1 21 (1985)) ("dampening sales or other business transaction" w as cognizable injury). Damage 22 to reputation is compensable under those causes of action. REST A T EM ENT (SECOND) 23 OF T O RT S, § 774A(1)(c) (1979). As alleged, Plaintiff's injuries are to their "business or 24 property." In determining whether an injury is to "business or p roperty" as a particular interest amounts to property"(quotation omitted)). 25 Plaintiff's injuries, as alleged, were caused by Defendants racketeering activity. 26 Plaintiff alleges that Defendant intentionally used its webs it e as a scheme to obtain money 27 from Plaintiff and other businesses. Plaintiff alleges that Defendant s did so by creating and 28 Case 2:04-cv-02856-EHC Document 44 - 12 Filed 12/27/2005 Page 12 of 18 1 soliciting cont ent injurious to Plaintiff's business and offering to alter the content to 2 portray Plaintiff in a good light if Plaintiff payed a $50,000 fee and $1,500 monthly retainer. 3 C. The Lanham Act 4 The Lanham Act, 15 U.S.C. §§ 1051 et seq., "is designed to protect consumers who 5 have formed particular associat ions w it h a mark from buying a competing product using 6 the same or substantially similar mark and to allow t he mark holder to distinguish his 7 product from that of his rivals." Bosley M ed. Inst., Inc. v. Kremer, 403 F.3d 672, 676 (9th Cir. 8 2005). To state a Lanham Act claim, Plaintiff must allege that it has suffered a competitive 9 injury. See Coastal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 10 1999) (seeking to divert business from p laintiff to defendant was competitive injury alleged 11 to support false advertising claim). In contradistinction, making a false representation for 12 a purpose other than comp et ition is not actionable under the Lanham Act, otherwise the 13 Lanham Act would create a federal tort of mis representation. Bosley M edical, 403 F.3d at 14 679-80 (no Lanham Act claim because defendant's "use of the [plaintiff's] mark simply 15 cannot mislead consumers into buying a competing product"), Halicki v. United Artists 16 Communications , Inc., 812 F.2d 1213, 1214 (9th Cir. 1987) (no Lanham Act claim for false 17 advertising where movie theaters advert is ed a movie rated R although it was actually rated 18 PG). 19 In this case, Plaintiff alleges that the statements on Defendants' website concerning 20 Plaintiff's dinnerware, cookware, and business practices constitute unfair competition, false 21 advertising and disparagement (Counts Six through Eight) in violation of the Lanham Act. 22 Plaintiff alleges that it suffered a competitive injury becaus e those statements "are used 23 to promote goods and services sold by D efendants." [Dkt. 7, p. 23]. The only goods of 24 Defendants mentioned in the Amended Complaint are Defendants' book, "Rip-Off 25 Report.com Do-It-Yourself Guide: How to get Rip-off Revenge." [Dkt. 7, p. 6]. T he only 26 services mentioned in the Amended Complaint are the mediation program- where 27 28 Case 2:04-cv-02856-EHC Document 44 - 13 Filed 12/27/2005 Page 13 of 18 1 Defendants update the content of the Rip-Off Reports to portray businesses in a good 2 light- which Plaintiff alleges is an extortionate scheme. [Dkt. 7, p. 15]. 3 The situation Plaintiff alleges differs from Coastal Abstract, 173 F .3d at 734, because 4 Plaint iff's business selling dinnerware and cookware cannot be diverted to Defendants, 5 whose business is criticizing ot her businesses. In Coastal Abstract, an officer of the 6 defendant title company argued that he could not be liable "under the Lanham Act because 7 he, as an individual, is not in competition with [the plaint iff] Coas tal," an escrow agency. 8 Ibid. The Court found the defendant corporation's officer could be liable under the Lanham 9 Act because he "sought by his s t at ements to divert business from [the plaintiff] Coastal 10 to [the defendant] First American," t hereby causing plaintiff a competitive injury. Ibid. In 11 this case, Plaintiff's injuries as a result of Defendants' website are not competitive injuries 12 because sales of dinnerware and cookware cannot be diverted to sales of Defendants' book 13 or remediation program. 14 The situation alleged in this case is akin to that presented in Bosley M edical, 403 15 F.3d at 674, where the defendant created a website to publicize his complaints about the 16 plaintiff's business and t o strengthen his negotiating position with the plaintiff. The 17 plaintiff in that case argued that its allegations of extortion and preventing "users from 18 obtaining the plaintiff's goods and services" sufficed under the Lanham Act. Id., 403 F.3d 19 at 678-80. The Court held that the defendant's activities did not constitute actionable 20 conduct under the Lanham Act. Although Plaintiff in this case alleges Lanham Act claims 21 for unfair competition, false advertis ing and disparagement, while Bosley M edical involved 22 Lanham Act claims for trademark infringement and dilution, the holding in Bos ley M edical 23 was not bas ed on t he p articularities of those claims, but on the purposes of the Lanham 24 Act. The Court stated: 25 26 27 28 The dangers that the Lanham Act was designed to address are simply not at issue in this case. The Lanham Act, expressly enacted to be applied in commercial contexts, does not prohibit all unauthorized uses of a trademark. [The defendant] Kremer's use of the [plaintiff's] Bosley M edical mark simply cannot mislead consumers into buying a competing product - Case 2:04-cv-02856-EHC Document 44 - 14 Filed 12/27/2005 Page 14 of 18 1 6 - no customer will mistakenly purchase a hair replacement service from Kremer under the belief that the service is being offered by [the plaintiff] Bosley. Neither is Kremer capitalizing on the good will Bosley has created in its mark. Any harm to Bosley arises not from a competitor's sale of a similar product under Bosley's mark, but from Kremer's criticism of their services. Bosley cannot use the Lanham Act either as a shield from Kremer's criticism, or as a sword to shut Kremer up. Id., 403 F.3d at 679-80. Similarly , in t his case no one will mistakenly purchase cookware or 7 dinnerware from Defendants in the mistaken belief that it is Plaintiff's cookware or 8 dinnerware. The criticism of Plaintiff's business appearing on Defendants' website is not 9 a competitive injury actionable under the Lanham Act. 2 3 4 5 10 D. Common Law Trademark Infringement and Unfair Competition 11 Defendants argue that Count Nine alleging common law trademark infringement and 12 unfair competition must be dismissed because Plaintiff has not alleged that the appearance 13 of Plaintiff's mark on Defendant s ' website is likely to cause confusion as to Plaintiff's 14 relationship with the website. The "likelihood of confusion" standard is found in the 15 Lanham Act, 15 U.S.C. § 1125(a)(1)(B), and in common law unfair competition, see 16 RESTATEM ENT (T H IRD) OF UNFAIR COM PETITION, § 2 (1995) ("likely to deceive or 17 mis lead"). Common law unfair competition, however, is broader than the Lanham Act 18 because the common law imposes liability for a false or misleading representation that "is 19 t o t he likely commercial detriment of another." RESTATEM ENT (THIRD) OF UNFAIR 20 COM PETITION, § 2. As previous ly mentioned, the Amended Complaint alleges that 21 Defendants' website contains fals e 22 Plaintiff's business. Plaintiff has alleged common law unfair competition. and defamatory statements which have injured 23 Motion for Partial Reconsideration 24 On April 19, 2005, the Court ordered alt ernative service on Defendant M agedson 25 and ordered that "Defendant M agedson shall pay Plaintiff all cos t s and fees incurred as 26 a result of Defendant M agedson's avoidance of Service of Process." [Dkt. 24, p. 2]. 27 Defendants filed a M otion for Partial Reconsideration [Dkt. 25] of the portion of the Order 28 requiring Defendant M agedson to pay Plaintiff's costs and fees. Case 2:04-cv-02856-EHC Document 44 - 15 Filed 12/27/2005 Page 15 of 18 1 "[A] motion for reconsideration should not be granted, absent highly unusual 2 circumstances, unless the district court is presented with newly discovered evidence, 3 committed clear error, or if there is an intervening change in t he controlling law." 389 4 O range Street Partners v. Arnold, 179 F.3d 656, 665 (9th Cir. 1999) (no clear error w here 5 district court did not redesignate a cross-claim as an affirmative defense because party did 6 not raise the issue until after grant of summary judgment). 7 Defendants argue that Defendant M agedson should not be required to pay 8 Plaintiff's costs and fees incurred as a result of his avoidance of service of p rocess because 9 Plaintiff did not send him a waiver of service pursuant to Fed. R. Civ. P. 4(d). The Federal 10 Rules of Civil Procedure impose a duty on certain defendant s "to avoid unnecessary costs 11 of serving the summons." Fed. R. Civ. P. 4(d)(2). That duty is only imp os ed on a defendant 12 "that receives notice of an action in the manner provided in this paragraph," which is by 13 mailing a notice of the action and a "request that the defendant w aive service of a 14 summons." Ibid. If a defendant fails to waive the service of a s ummons, "the court shall 15 imp ose the costs subsequently incurred in effecting service on the defendant unless good 16 cause for the failure be shown." Fed. R. Civ. P. 4(d). 17 Plaint iff does not argue that Defendant M agedson failed to waive the service of a 18 summons and that Plaintiff was awarded its costs and fees based on the failure to waive 19 service. Plaintiff argues the Court properly required Defendant M agedson to pay its costs 20 and fees as an exercise of t he Court's inherent power to sanction parties to litigation. 21 Plaintiff further argues a sanction is proper in this case because Defendant M agedson 22 avoided service of process, indicating that a request for w aiver of service would have been 23 futile. 24 Plaintiff fails to point to any authority- and the Court can find no authority- for the 25 proposition t hat the alleged futility of requesting a waiver of service justifies shifting the 26 costs and fees of the service of process. Neither is there any reason Plaint iff could not 27 have mailed a waiver of service reques t t o D efendant M agedson. Plaintiff had Defendant 28 Case 2:04-cv-02856-EHC Document 44 - 16 Filed 12/27/2005 Page 16 of 18 1 M agedson's post office box address, a proper address for sending a waiver of service 2 request. Compare Fed. R. Civ. P. 4(d)(2)(A) (waiver of service request "shall be addressed 3 directly to the defendant") with Fed. R. Civ. P. 4(e)(2) (s ummons and complaint shall be 4 served personally or "at the individual's dwelling house or usual place of abode"). P laintiff 5 had 6 M agedson represented that residential address on his application for a post office box, 7 which requires him to immediately update his residential address up on a change. Plaintiff 8 mailed the Summons, Complaint, and Court Order authorizing alternative service to that 9 residential address in satisfaction of Ariz. R. Civ. P. 4.1(m) (allowing alternative service, but 10 requiring summons and pleading to be sent to last known residence of t he person to be 11 served). Becaus e Plaintiff did not mail a waiver of service to Defendant M agedson as 12 required under Fed. R. Civ. P. 4(d), it was clear error to require Defendant M agedson t o p ay 13 Plaintiff's costs and fees incurred as a result of Defendant M agedson's avoidance of 14 service of process. Defendant M agedson's last known residential addres s . [Dkt. 17]. Defendant 15 Accordingly, 16 IT IS ORDERED that Defendant Xcentric Ventures, L.L.C.'s M otion to Dismiss [Dkt. 17 19] is GRANTED IN PART and DENIED IN PART; 18 19 IT IS FURTHER ORDERED that Defendant Ed M agedson's M otion to Dismiss [Dkt. 38] is GRANTED IN PART and DENIED IN PART; 20 21 IT IS FURTHER ORDERED that Counts Six, Seven and Eight of Plaintiff's Amended Complaint are DIS MIS S ED for failure to state a claim upon which relief can be granted. 22 IT IS FURTHER ORDERED that Defendant 's M otion for Partial Reconsideration 23 [Dkt. 25] is GRANTED; 24 // 25 // 26 // 27 // 28 Case 2:04-cv-02856-EHC Document 44 - 17 Filed 12/27/2005 Page 17 of 18 1 IT IS FURTHER ORDERED that Defendant Ed M ageds on shall not be required to 2 pay Plaintiff all costs and fees incurred as a result of Defendant Ed M agedson's avoidance 3 of Service of Process. 4 DATED this 27th day of December, 2005. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case 2:04-cv-02856-EHC Document 44 - 18 Filed 12/27/2005 Page 18 of 18
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