Affidavit of David Gingras Re: Ripoff Report's Response To Lisa Borodkin's Motion For Rule 11 Sanctions

Case 2:11-cv-01426-GMS Document 140-1 Filed 10/31/12 Page 1 of 84
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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, AZ 85048
David S. Gingras, #021097 Gingras Law Office, PLLC 3941 E. Chandler Blvd., #106-243 Phoenix, AZ 85048 Tel.: (480) 668-3623 Fax: (480) 248-3196 David@GingrasLaw.com Attorney for Plaintiff Xcentric Ventures, LLC
UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Xcentric Ventures, LLC, an Arizona limited liability company, Plaintiff, v. Lisa Jean Borodkin, et al., Defendants. Raymond Mobrez, Counterclaimant, v. Xcentric Ventures, LLC, and Edward Magedson, Counterdefendants. Case No.: 11-CV-1426-GMS AFFIDAVIT OF DAVID GINGRAS IN SUPPORT OF PLAINTIFF/ COUNTERDEFENDANT XCENTRIC VENTURES, LLCS RESPONSE TO LISA BORODKINS MOTION FOR RULE 11 SANCTIONS
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I, David S. Gingras declare as follows: 1. My name is David Gingras. I am a United States citizen, a resident of the State of Arizona, am over the age of 18 years, and if called to testify in court or other proceeding I could and would give the following testimony which is based upon my own personal knowledge unless otherwise stated.
AFFIDAVIT OF DAVID GINGRAS
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2.
I am an attorney licensed to practice law in the States of Arizona and
California, I am an active member in good standing with the State Bars of Arizona and California and I am admitted to practice and in good standing with the United States District Court for the District of Arizona and the United States District Court for the Northern, Central, and Eastern Districts of California. 3. I represented Xcentric Ventures, LLC and Edward Magedson in the lawsuit filed against them in California entitled Asia Economic Institute, LLC, et al. v. Xcentric Ventures, LLC, et al., Case No. 10-cv-1360 (the California litigation). I represented Xcentric and Mr. Magedson in the California litigation from the date the case began until the entry of final judgment and I was personally involved in every aspect of the case. 4. I drafted and filed both Xcentrics original Complaint and the First Amended Complaint in this matter. I electronically signed both of these pleadings, and I am aware that my signature on each represented a certification that both pleadings complied with the standards of Fed. R. Civ. P. 11. 5. At the time I signed both the original Complaint and the First Amended Complaint in this matter, I had a good faith belief, formed after an extensive inquiry, that each pleading complied with the standards of Rule 11. I maintain the same belief as of the date of this affidavit. 6. I have reviewed the Motion for Rule 11 Sanctions filed in this matter by Ms. Borodkin on October 17, 2012 (Doc. #134). This motion is actually the fifth version in a long series of numerous proposed Rule 11 motions served by Ms. Borodkin. 7. The first proposed Rule 11 motion I received from Ms. Borodkin, through her counsel Mr. Funkhouser, is attached hereto as Exhibit A (excluding exhibits). This first draft was sent to me more than a year ago on October 4, 2011. 8. After close scrutiny, I concluded that Ms. Borodkins first Rule 11 motion contained arguments which were seriously misleading and/or blatantly false. As such, I was concerned that Ms. Borodkins counsel, Mr. Funkhouser, may have been relying on inaccurate information provided by Ms. Borodkin. 2
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9.
For example, the draft motion attempted to minimize Ms. Borodkins role
in the California Litigation by stating (falsely) that she was only involved in litigating the prior California action for exactly three (3) months out of the cases eighteen (18) month span. Ex. A, Mot. at 2:23. I knew this assertion was false because I was personally present in court in California when Ms. Borodkin first appeared in the case on April 19, 2010, and I knew that she remained actively involved in the case for nearly 14 months until the entry of final judgment on June 15, 2011. 10. In addition, the first draft motion contained additional arguments that could not possibly have been presented in good faith. Upon reviewing these, I was concerned that if such points were left addressed, it might have needlessly expanded this litigation and caused it to become more acrimonious than it already was. 11. For example, on page 16 of the first draft motion, Ms. Borodkin falsely accused me of personally recording the phone calls between Mr. Mobrez and Mr. Magedson which were at issue in the prior California case. Based on this false claim, Ms. Borodkins motion argued that Gingras has contravened Arizonas ethics rules as well. Ex A., Mot. at 16:56. Ms. Borodkin further accused me of suppressing the existence of the recordings, and that [s]uch withholding of obviously pertinent information violates the duty of candor and forthrightness mandated by the Arizona Bar. Id. at 17:56. In closing, Ms. Borodkin asked this court to refer me to the Arizona and California Bars for disciplinary action. Id. at 17:1516. 12. The presence of these serious allegations in a Draft Rule 11 motion were astonishing because Ms. Borodkin knew they were completely false. She knew this because she made virtually the same arguments in the prior California action and her arguments were reviewed and then rejected by the district court which specifically found that the phone calls from Mr. Mobrez to Mr. Magedson were automatically recorded by a third-party vendor hired by Xcentric to record all telephone calls to Ripoff Report's main phone number. Asia Economic Institute, LLC v. Xcentric Ventures, LLC, 2010 WL 4977054, *10 (C.D.Cal. 2010). 3
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13.
Furthermore, as to Ms. Borodkins allegation that I should have disclosed
the audio recordings sooner and/or that I acted improperly with respect to disclosing the recordings, the California court also considered and then rejected that same argument: Plaintiffs assert that Defendants [Xcentric and Magedson] failed to disclose the recordings in their initial disclosures on April 21, 2010, as required under Rule 26(a), even though Defendants knew of such tape recordings before April 21, 2010. Instead, Defendants waited until May 7, 2010 to disclose the tape recordings at the deposition of Plaintiff Mobrez. This argument also fails. As Plaintiffs recognize in their briefs, Rule 26(a) does not require parties to disclose impeachment evidence in their initial disclosures. In the context of the present motion, Defendants seek to introduce the tape recordings only to impeach Plaintiffs accounts of the conversations between Mobrez and Magedson. At a minimum, the recordings are admissible for that limited purpose. Id., 2010 WL 4977054, *12 (emphasis added). 14. Because Ms. Borodkins first proposed Rule 11 motion was sent to me by her local counsel, and because I was concerned that Ms. Borodkins counsel may have relied on inaccurate information provided by Ms. Borodkin, although I was not required to respond to the allegations in the draft motion, I did so via letter dated October 10, 2011, a copy of which is attached hereto as Exhibit B (excluding exhibits). In my letter, I attempted to carefully address each major substantive point raised by the motion. 15. The arguments and information I provided to Mr. Funkhouser were apparently well-taken, but only in part. As a result, on November 23, 2011, I received a second proposed Rule 11 motion from Mr. Funkhouser, a copy of which (excluding exhibits) is attached hereto as Exhibit C. In this heavily revised motion, Ms. Borodkin abandoned several of the primary arguments contained in her first draft (such as her claim that I acted unethically by failing to disclose the recordings sooner, and her assertion that Arizona law does not recognize the tort of wrongful continuation of legal proceedings). 16. As to the remaining arguments, although I believed (and still do believe) 4
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they were without merit, I felt that trying to explain my views to Ms. Borodkin and Mr.
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Funkhouser was unlikely to resolve the issue. For that reason, I did not send another letter responsive to the second motion and Ms. Borodkin took no action with respect to the Rule 11 motion. 17. Several months later, in an order (Doc. #52) dated March 1, 2012, the Court denied Ms. Borodkins Motion to Dismiss. In that same order, the Court granted part of Ms. Borodkins request for a more definite statement. As a result, Xcentric filed a First Amended Complaint on March 16, 2012. 18. About a month later on April 26, 2012, Ms. Borodkin served a third variant of her proposed Rule 11 motion, a copy of which (excluding exhibits) is attached hereto as Exhibit D. Once again, I carefully reviewed this motion and although Ms. Borodkin did not provide a redline showing the differences between any of the three different versions, I reached the same conclusion with regard to both the merit of the motion and the value of attempting to discuss it further with Ms. Borodkin. As before, several more months passed with no further action from Ms. Borodkin with respect to the motion. 19. Finally, on July 31, 2011, Ms. Borodkin filed a fourth version of the Rule 11 motion (Doc. #100) which the court summarily denied (Doc. #105). Six weeks later, on September 19, 2012, Ms. Borodkin requested leave (Doc. #122) to file her (fifth) motion which the court granted over Xcentrics objection. 20. I understand from reviewing Ms. Borodkins current motion that she presents two main theories as to why she believes I violated Rule 11 in this matter. First, Ms. Borodkin argues that this action is frivolous. To support this, she offers evidence which she contends is proof that Gingras and Magedson maintained during the California Action that they believed Blackert and Ms. Borodkin were not aware that Mobrez and Llaneras May 3, 2010 declarations were purportedly inaccurate. Mot. at 7:1113 (empahsis added). Ms. Borodkins assertion is false and deliberately misleading. 21. First, it is totally false to claim that I said that I believed that Mr. Blackert and/or Ms. Borodkin were not aware that their clients lied about the factual basis of their extortion claim. I never said any such thing. 5
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22.
Rather, as reflected in the statements I made on the record at the conclusion
of Mr. Mobrezs deposition, what I actually said to Mr. Blackert was that I hoped and assumed that he did not know that his clients were lying. 23. Second, it is totally false to claim that Mr. Magedson testified on June 8, 2010 that he did not believe Blackert and Borodkin were aware of the alleged perjury. Mot. at 14:12. Mr. Magdesons actual testimony on this issue is reflected in Doc. #1223 on ECF pages 2930 of 89 wherein he stated: Ill assume, as nice as you are -- that I think the two of yous [sic] are nice people, that youre probably -- I would assume you werent aware of -- I dont know ... . (empahsis added). 24. At no time did I say that I actually knew or believed that Mr. Blackert or Ms. Borodkin were unaware of the truth or that they were innocent of wrongdoing. I did not make, and would not have made, either of these statements because at that time I simply did not have sufficient information upon which to form a belief as to either the guilt or innocence of Mr. Blackert or Ms. Borodkin. This is why I told Mr. Blackert that I assumed and hoped he was unaware of what his clients had done. In other words, I simply gave Mr. Blackert and Ms. Borodkin the benefit of the doubt until I had more information. 25. I understand that in her current motion Ms. Borodkin again suggests that in a letter dated May 11, 2010 (attached to Xcentrics original Complaint as Exhibit E) I took the position that she had done nothing wrong; Gingras reiterated this position in his May 11, 2010 letter to Blackert and Ms. Borodkin, when he stated: Of course, as I have already explained to Dan, my assumption thus far has been that both of you have been unaware of the truth. Mot. at 7:2325 (emphasis in original). 26. Although this is an accurate quote from that letter, it is taken out of context and has no bearing on my position during the year of litigation which followed after the letter was sent. Specifically, in that letter, I explained to Mr. Blackert and Ms. Borodkin my belief that they were ethically required to withdraw from the case. I then cautioned them as follows: Assuming that you do not withdraw, I believe that you may be 6
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exposing yourself to significant liability if you continue to rely on and pursue your clients existing factual allegations regarding extortion/RICO knowing, as you now do, that those allegations are entirely false. 27. Despite this warning and despite Mr. Blackerts initial written statement to me expressing his intent to withdraw from the case, neither Mr. Blackert nor Ms. Borodkin withdrew from the case. On the contrary, they both continued to pursue the fabricated RICO/extortion claim until the district court entered summary judgment on that claim over Mr. Blackert and Ms. Borodkins objection on July 19, 2010. 28. In my May 11 letter, I further explained to Ms. Borodkin that Xcentric intended to take legal action against Mr. Mobrez and Ms. Llaneras and I made it extremely clear that we will not hesitate to include claims against either or both of you individually if you continue to prosecute any claims in this case which you know are factually untrue or if the evidence demonstrates that you brought this case knowing that the allegations contained in it were factually untrue. (emphasis added). 29. As did Mr. Blackert, Ms. Borodkin subsequently continued to prosecute claims which she knew to be factually untrue. For that reason, Xcentric has sued her in this matter for her conduct which Xcentric contends was unlawful. However, because there is currently no direct evidence showing that Ms. Borodkin was involved in the original decision to commence the California lawsuit, Xcentric has not included a cause of action against her for wrongfully commencing that case. Instead, Xcentrics allegations against Ms. Borodkin are limited to what the evidence showse.g.., that she wrongfully continued the case after becoming aware that it lacked probable cause and that she acted maliciously, and that Ms. Borodkin culpably aided and abetted her clients unlawful actions. 30. Based on my review of the law and my understanding of the evidence and the facts, the two causes of action presented against Ms. Borodkin in this matter are wellgrounded in law and fact and supported by significant evidence, and I therefore firmly believe a valid Rule 11 basis exists for each of these claims. 7
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31.
I am aware that Ms. Borodkin also claims that this action was filed The
primarily for an improper purpose; i.e., as leverage to intimidate Ms. Borodkin into providing negative information about John F. Brewington. Mot. at 14:1819. details of Xcentrics litigation with Mr. Brewington are explained in a recent decision from the Arizona Court of Appeals, Xcentric Ventures, LLC v. Brewington, 2011 WL 6747549 (Ariz.App. 2011). 32. In a nutshell, Mr. Brewington is an Arizona private investigator who Xcentric has sued for engaging in a lengthy series of actions intended to destroy the Ripoff Report website. Based on Mr. Brewingtons lengthy history of hostility toward Mr. Magedson and Xcentric, Xcentric believed (and later confirmed during Mr. Mobrezs deposition) that he was in contact with either Mr. Mobrez or Mr. Blackert at some point and had possibly attempted to assist them with the California proceeding against Xcentric. During the course of the California case, Ms. Borodkin also admitted to me personally that she had been in touch with Mr. Brewington, although she never revealed the substance of their discussions. 33. When it was initially discovered that Mr. Mobrez and Ms. Llaneras had lied about their extortion claims as a way of getting around Xcentrics immunity under the Communications Decency Act, I suspected based on many years of representing Xcentric in litigation that there was a very high probability that they did not come up with this plan on their own. Rather, I suspected that an unknown third party had either asked or encouraged them to bring the phony extortion claims or had otherwise assisted them after the fact in crafting specific factual and legal allegations which might be difficult to disprove (given the he-said/she-said nature of a telephone conversation) and which might be sufficient to cause major economic damage to Xcentric by forcing it to endure a long and expensive trial which could not be avoided due to the presence of factual disputes about the alleged conversations between Mr. Mobrez and Mr. Magedson. 34. For that reason and as explained in my May 11, 2010 letter, in the context 8
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of discussing a possible settlement, I explained that if Mr. Mobrez, Ms. Llaneras, or Ms.
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Borodkin had any such information and were willing to share it with Xcentric, this information would be extremely important to Xcentric and it might provide a basis to settle the case. 35. In response to my May 11, 2010, Ms. Borodkin denied that any third party Although I was had assisted or encouraged her clients in the California litigation. skeptical of that response, I accepted it at that time. 36. After the California case ended in favor of Xcentric in June 2011 and after reviewing the appropriate legal standards and the evidence in the case, a decision was made to file the present action against Mr. Mobrez, Ms. Llaneras, AEI, Mr. Blackert and Ms. Borodkin. Xcentric filed this case solely for legitimate reasons; i.e., to recover compensation for the significant financial damage caused by the defendants and to deter others from bringing future groundless lawsuits of a similar nature. 37. Shortly after this action was filed, I attempted to deliver a copy of the Complaint and Summons along with a request for waiver of service to Mr. Blackert at the only address I had for him which was a PO Box in Los Angeles, California. The package sent to Mr. Blackerts PO Box was returned to me by the post office with a note indicating that Mr. Blackert was not able to receive mail at that address. 38. Because I had no other address for Mr. Blackert, on August 3, 2011 I sent an email to Ms. Borodkin asking her if she knew where Mr. Blackert was and, if not, whether she had any objection to Xcentric requesting leave to pursue early discovery regarding Mr. Blackerts whereabouts. A copy of my email to Ms. Borodkin is attached hereto as Exhibit E. 39. Shortly after this email was sent, Ms. Borodkin called me. During the call, Ms. Borodkin said that she would like to discuss settlement of the case but that that she had no money and could not afford to pay anything to Xcentric. She stated that if the purpose of Xcentrics lawsuit was to obtain compensation from her, this was not likely to occur. After making these comments, Ms. Borodkin stated that she might know where Dan [Blackert] was, and she asked me if Xcentric would be willing to dismiss its claims 9
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against her in exchange for information about Mr. Blackerts whereabouts. As I would with any settlement offer, I told Ms. Borodkin that I would share her offer with Xcentric and get back to her. 40. After discussing Ms. Borodkins offer with Mr. Magedson, on August 8, 2011 I sent an email back to Ms. Borodkin which followed up on her settlement proposal. A copy of my email is attached hereto as Exhibit F. In my email, I explained to Ms. Borodkin that Xcentric was not willing to dismiss its claims in exchange for information about Mr. Blackerts location. However, because Ms. Borodkin had asked about the possibility of resolving the case on some type of non-monetary basis, I explained that as I had already discussed with Ms. Borodkin more than a year before, Xcentric wanted to know if she had any information showing that Mr. Brewington had engaged in or encouraged any unlawful actions against Xcentric. 41. Although Ms. Borodkin previously denied having any such information in response to my May 2011 letter, more than a year had passed since that letter was sent. During that time, Mr. Brewington was actively involved in investigating both Mr. Magedson and Xcentric and Mr. Brewington was actively involved in sharing information with Ms. Borodkin. As such, Mr. Magedson believed it was possible that Ms. Borodkin might have new information that she was willing to share, and he asked me to discuss that possibility with her which I attempted to do in my August 8, 2011 email. 42. On August 10, 2011, I sent a follow-up email to Ms. Borodkin, a copy of which is attached at page 87 of 91 to Doc. #122-1 filed in this matter on September 19, 2012. In my follow-up email, I attempted to clarify the settlement offer as follows: Although you havent responded to my [August 8, 2011] email below, I need to let you know that apparently I misunderstood Ed hes NOT willing to settle his claims against you based solely on information about Brewington. Instead, Ed said that his offer would require you to stipulate to a judgment for $100,000, and if you provided information that resulted in Ed collecting any damages from Brewington, that amount would be deducted from the judgment against you. Sorry about the miscommunication. 10
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43.
Later that same day, on August 10, 2011 Mr. Magedson sent an email
directly to Ms. Borodkin entitled Settlement offer, so we are all on the same page.., a copy of which is attached at page 85 of 91 to Ms. Borodkins declaration (Doc. #122-1) filed in this matter on September 19, 2012. In his email, Mr. Magedson further clarified that although he wanted to know if Ms. Borodkin had any information regarding Mr. Brewington, he was not willing to resolve the case unless Ms. Borodkin agreed to stipulate to a judgment in the amount of $100,000 and make monthly payments, among other things. To my recollection, Ms. Borodkin never responded to this email either in writing or by phone. 44. Contrary to Ms. Borodkins assertions, Xcentrics decision to file this action was not based in any way on a desire to pressure her into providing information about Mr. Brewington or anyone else. Indeed, Ms. Borodkin has consistently maintained that she had no such information. The only reason this issue was discussed in the context of settling this case was because Ms. Borodkin stated that she had no money and she asked whether this action could be resolved on some sort of alternative basis. Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. EXECUTED ON: October 31, 2012. /S/David S. Gingras David S. Gingras
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CERTIFICATE OF SERVICE I hereby certify that on October 31, 2012 I electronically transmitted the attached document to the Clerks Office using the CM/ECF System for filing, and for transmittal of a Notice of Electronic Filing to the following: John S. Craiger, Esq. David E. Funkhouser III, Esq. Quarles & Brady LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 Attorneys for Defendant Lisa J. Borodkin Raymond Mobrez Iliana Llaneras PO BOX 3663 Santa Monica, CA 90408 Defendants Pro Se And a courtesy copy of the foregoing delivered to: HONORABLE G. MURRAY SNOW United States District Court Sandra Day OConnor U.S. Courthouse, Suite 622 401 West Washington Street, SPC 80 Phoenix, AZ 85003-215 /s/David S. Gingras
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Exhibit A
Exhibit B
GINGRAS LAW OFFICE, PLLC
3941 E. Chandler Blvd, #106-243, Phoenix, AZ 85048 Tel: (480) 668-3623 Fax: (480) 248-3196
October 10, 2011 David E. Funkhouser III, Esq. Quarles & Brady LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 Re: Xcentric Ventures, LLC v. Borodkin, et al. U.S. District Court Case No. 11-CV-1426
Dear David: This letter is in response to yours dated October 4, 2011 in which you accuse me of violating Fed. R. Civ. P. 11, A.R.S. 12-349, and various uncited Rules of Professional Conduct. I have reviewed your letter closely, and I have studied your draft Rule 11 motion carefully. Based on this review, although Rule 11 does not require me to do so, I am writing to respond to your accusations. I realize that Ms. Borodkin has likely told you that the assertions contained in the motion were correct. However, as explained herein, the pleading contains numerous serious false, inaccurate, and misleading statements of fact/law. Because you will be responsible for the motion if it is filed in its present form, I wanted to ensure that you were provided with a chance to correct these matters before the motion was filed. 1. Statement re: Borodkin Involvement In California Action On page 2:23 of your motion, when discussing Ms. Borodkins involvement in the California proceeding, you assert: She litigated the purported cause of action complained of here for exactly three (3) months out of the cases eighteen (18) month span. This statement is false. Attached hereto as Exhibit A is a copy of the first several pages of the hearing transcript from the first substantive hearing held in the California action on April 19, 2010. As reflected in the transcript, Ms. Borodkin entered an appearance at the hearing on behalf of the plaintiffs. Although she had not yet appeared on the pleadings at that time, Ms. Borodkin made a formal written appearance in the case on April 27, 2010 by filing a Notice of Change of Attorney Information. This document (see Exhibit B) contains a statement which reads: I am counsel of record in the aboveentitled action and should have been added to the docket in this case. I made my first appearance in this case on April 19, 2010. The California action terminated on June 15, 2011 with the entry of a final judgment in favor of Xcentric as to all claims. As you must know, from the date she first appeared until the date the matter terminated, at no time did Ms. Borodkin ever withdraw from the case. As such, it is false for you to allege that Ms. Borodkin was only involved in the case for three months. In truth, she was actively and aggressively involved in every aspect of the case for more than thirteen (13) months.

David E. Funkhouser III, Esq. October 10, 2011 Page 2 of 7
2. Statement re: Arizona Does Not Recognize A Cause Of Action For Wrongful Continuation Of Legal Proceedings Turning to the argument section of your motion, on pages 1113 you allege that the second cause of action in Xcentrics Complaint (Wrongful Continuation of Civil Proceedings) violates Rule 11 because Arizona does not recognize such a tort. Your position is incorrect. First, the fact that no previous Arizona decision has been published endorsing a specific type of claim does not mean that such a cause of action does not exist. On the contrary, In the absence of controlling statutory or case authority, Arizona courts generally follow the Restatement of the Law on a particular subject, provided its application is logical, furthers the interests of justice, is consistent with Arizona law and policy, and has been generally acknowledged elsewhere. Continental Lighting & Contracting, Inc. v. Premier Grading & Utilities, LLC, 227 Ariz. 382, 15, 258 P.3d 200 (App. 2011) (emphasis added) (quoting Ramirez v. Health Partners of S. Ariz., 193 Ariz. 325, 26, 972 P.2d 658, 665 (App.1998)). Of course, in this instance, Section 674 of the Restatement expressly recognizes the exact tort asserted against Ms. Borodkin as Xcentrics second cause of action:
Restatement (Second) of Torts 674 (1977) One who takes an active part in the initiation, continuation or procurement of civil proceedings against another is subject to liability to the other for wrongful civil proceedings if (a) he acts without probable cause, and primarily for a purpose other than that of securing the proper adjudication of the claim in which the proceedings are based, and (b) except when they are ex parte, the proceedings have terminated in favor of the person against whom they are brought.
Comment c to this section further emphasizes the existence of the wrongful continuation theory: As in the case of criminal prosecutions, one who continues a civil proceeding that has properly been begun or one who takes an active part in its continuation for an improper purpose after he has learned that there is no probable cause for the proceeding becomes liable as if he had then initiated the proceeding. (emphasis added) (citing Laney v. Glidden Co., 239 Ala. 396, 194 So. 849, 851 (Ala. 1940) (holding, A suit for malicious prosecution may lie, not only for the commencement of the original proceeding, but for its continuance as well.) (citing authority for premise). Because the Restatement expressly recognizes liability under a theory of wrongful continuation of civil proceedings, and because Arizona applies the Restatement as our common law unless and until it is specifically rejected (which has not occurred) there is no basis for you to argue that Xcentrics Complaint violates Rule 11 by presenting such a claim (and even if you were correct, this type of argument should simply be raised in a motion under Rule 12(b)(6), not Rule 11).

Of course, the Restatement is not the only authority on this point. Specifically, the current Arizona Revised Jury InstructionsCivil, 4th ed.; Intentional Torts 19 (a copy of which is attached hereto as Exhibit C)likewise provides for liability where a defendant (in addition to other elements) initiated or took active part in the prosecution of a [civil proceeding] against [name of plaintiff]. These are exactly the allegations that Xcentric has made against Ms. Borodkin. Even assuming arguendo that Ms. Borodkin played no role in the decision to commence the underlying California proceeding (which may or may not be the case), there is no question that she took an active part in the prosecution of the case over a period of more than a year until the case was terminated in Xcentrics favor. Xcentrics Verified Complaint alleges these and other facts which are more than sufficient to establish every element of this tort under Arizona law. As such, there is no basis to argue that Rule 11 was violated by Xcentric presenting this legal theory. 3. Statement re: Gingras Believed Blackert was innocent On page 14:612, your motion suggests that Gingras filed a declaration stating that he believed Blackert was innocent. This assertion is based on a quoted portion of a comment I made at the end of Mr. Mobrezs deposition on May 7, 2010. What I actually said on that date was that I assumed and hoped he was innocent, but as subsequent events clearly showed, that assumption was unfortunately incorrect. Although I think the entire discussion on this point is completely inappropriate given that you do not represent Mr. Blackert and have no standing to assert a Rule 11 violation on his behalf, it is worth noting that Mr. Blackerts conduct after the May 7th deposition at which my statement was made is a compelling indication of his true knowledge, motives and intent. Specifically, as indicated in the Complaint, shortly after Mr. Mobrezs deposition, Mr. Blackert stated to me (in writing) that he was unaware that his clients had lied and that he believed he was ethically required to withdraw from the case. If Mr. Blackert had withdrawn from the case as he said he would, perhaps this might support a conclusion that he was telling the truth and that he really was not aware of his clients wrongful actions as I had initially hoped. Of course, this is not what happened. Even though he knew his clients had lied, Mr. Blackert did not withdraw from the case, nor did he cease prosecuting claims that he knew were clearly groundless. A fair inference to be drawn from this is that Mr. Blackert was not an innocent victim of his clients lies; he was a willing participant in them. Indeed, even after summary judgment was granted on the RICO/extortion claim, Mr. Blackert and Ms. Borodkin hardly abandoned this obviously groundless theory. Very much on the contrary, despite knowing that Mr. Mobrez had lied about the extortion, on August 16, 2010, Mr. Blackert and Ms. Borodkin filed a Motion for Reconsideration in an attempt to revive the RICO/extortion claim so they could continue their vendetta against Xcentric. These events (which took place long after the May 7, 2010 deposition of Mr. Mobrez) clearly reflect that Mr. Blackert was not an innocent victim of Mr. Mobrezs deception. On the contrary, he was an active and aggressive participant in that illegal conduct and he did everything he possibly could to ensure that the groundless action was prolonged as much as possible. Once again, a fair inference to be drawn from this is that Mr. Blackert was not an innocent victim.

4. Statement re: Complaint Brought For An Improper Purpose On pages 1415, your motion argues that Xcentrics Complaint was brought for an improper purpose based on an email that Mr. Magedson sent to Ms. Borodkin on August 10, 2011. This is so, you claim, because in his email, Mr. Magedson stated that he wanted information about another individual (John Brewington) in exchange for a possible settlement with Ms. Borodkin. While I believe your motion grossly misconstrues what Mr. Magedson actually said, a more important question is thiswhy do you believe that you are entitled to use this settlement offer in attempt to show that Xcentrics claims are not legitimate when Fed. R. Evid. 408 prohibits using settlement offers for this purpose? Aside from that issue, it appears that Ms. Borodkin has failed to explain to you the context in which this discussion occurred. Specifically, as indicated in my email to Ms. Borodkin dated August 8, 2011 (attached to her declaration as Exhibit 2), I had a telephone conversation with Ms. Borodkin the week before. This conversation occurred because Ms. Borodkin called me in response to an email I had sent her on August 3, 2011 (also attached to her declaration as Exhibit 2) in which I explained that I had been unable to locate Mr. Blackert for service of Xcentrics Complaint. For that reason, I contacted Ms. Borodkin to see if she would be willing to tell me where Mr. Blackert was and, if not, whether she had any objection to Xcentric seeking early discover on this issue. Rather that responding to my August 3, 2011 email, Ms. Borodkin called me on the phone. During that conversation, she stated she had no money and that if Xcentric was suing her in an effort to recover money damages from her, this was a waste of time. In that same conversation, after claiming poverty, Ms. Borodkin told me that she might have information about Mr. Blackerts whereabouts, and she asked me if Xcentric would be willing to dismiss its claims against her in exchange for that information. As with any settlement offer, I told her I would speak to the client about it, which I subsequently did. Based on my discussions with my client, I wrote back to Ms. Borodkin on August 8, 2011 and I informed her that Mr. Magedson was not willing to drop the case against Ms. Borodkin in exchange for information about Mr. Blackert. However, because Ms. Borodkin had broached the idea of resolving the case based on some type of non-monetary basis, I told her that Mr. Magedson might be willing to consider some sort of alternate resolution if Ms. Borodkin was able to provide truthful, verifiable information about John F. Brewington. As reflected in my email, this was not a new issue; it was something that was discussed during the prior proceedings, and it was something that was also discussed (in more general terms) on page 4 of my May 11, 2010 letter to Ms. Borodkin (Exhibit E to Xcentrics Complaint). This was also discussed several other times during the case. Although Rule 408 clearly prohibits you from using settlement discussions in an effort to show that a claim is invalid (which is exactly what your motion attempts to do), the mere fact that Mr. Magedson suggested an alternative option for resolving the case in response to Ms. Borodkins request for a non-monetary resolution does not in any way establish that Xcentrics Complaint was brought for an improper purpose. Indeed, Mr. Magedson stressed in his email that he was not willing to dismiss this case solely in exchange for information about Mr. Brewington because he also wanted compensation for his damages.

David E. Funkhouser III, Esq. October 10, 2011 Page 5 of 7 5. Allegation Of Unethical Recording On page 16 of your motion, you assert that Gingras has contravened Arizonas ethics rules as well. (emphasis added). To support that strong allegation, you imply, but never specifically state, that I was personally involved in recording the telephone conversations between Mr. Magedson and Mr. Mobrez. Indeed, not only do you imply this, you specifically cite a case in which a lawyer was disbarred for secretly recording conversations. As such, there is no question that you are implying that I personally recorded these calls myself. You further accuse me of acting unethically by withholding these recordings in violation of my duty of candor and forthrightness. These allegations are completely false, outrageous, and unethical (see ER 3.3(a)(1) and 4.4(a)). First and foremost, it was already established in the prior action that I did not create these recordings; they were created by a third party vendor to Xcentric; The remaining six calls were automatically recorded by a third-party vendor hired by Xcentric to record all telephone calls to Ripoff Report's main phone number. Asia Economic Institute, LLC v. Xcentric Ventures, LLC, 2010 WL 4977054, *10 (C.D.Cal. 2010) (emphasis added). Second, Ms. Borodkin previously argued that the recordings were required to be disclosed sooner than they were and the district court specifically rejected her argument: Plaintiffs assert that Defendants failed to disclose the recordings in their initial disclosures on April 21, 2010, as required under Rule 26(a), even though Defendants knew of such tape recordings before April 21, 2010. Instead, Defendants waited until May 7, 2010 to disclose the tape recordings at the deposition of Plaintiff Mobrez. This argument also fails. As Plaintiffs recognize in their briefs, Rule 26(a) does not require parties to disclose impeachment evidence in their initial disclosures. In the context of the present motion, Defendants seek to introduce the tape recordings only to impeach Plaintiffs' accounts of the conversations between Mobrez and Magedson. At a minimum, the recordings are admissible for that limited purpose. Id., 2010 WL 4977054, *12 (emphasis added) (citing Gribben v. United Parcel Service, Inc., 528 F.3d 1166, 1172 (9th Cir.2008)). Honestly, although it is not necessary to defend myself against such deliberately false allegations, I feel it is important for you stop and consider the facts. Once you understand the truth, you will realize how totally improper and offensive Ms. Borodkins non-disclosure argument is. As I have explained to Ms. Borodkin on numerous prior occasions, when Asia first filed its lawsuit against Xcentric, the factual details of the RICO/extortion claim were essentially non-existent. Although the Complaint contained a bare recitation of the elements of a RICO/extortion claim (which were copied verbatim from a prior lawsuit against Xcentric), the Complaint did not specifically explain what events constituted the predicate act of extortion. For that reason, in conjunction with Xcentrics first Anti-SLAPP motion filed on March 22, 2010 (Doc. #9), I also asked the court to require Asia to file a RICO Case Statement which would have required it to disclose additional details about the RICO/extortion claim; i.e., who, what, where, why & when.

David E. Funkhouser III, Esq. October 10, 2011 Page 6 of 7 Although the district court did not require Asia to file this statement, the judge did order the plaintiffs to file affidavits which contained most of the same information. As you know, these affidavits were filed by Mr. Mobrez and Ms. Llaneras on May 3, 2010 (Doc. #s 27 & 28). As you also know, before these affidavits were filed on May 3rd, I had absolutely no idea what facts the extortion allegations were predicated upon because that information was totally absent from Asias Complaint and was not disclosed elsewhere in the case. Nothing in any pleading prior to May 3, 2010 identified the specific date/time/manner in which the extortion allegedly occurred, so before May 3, I simply had no reason to believe that Mr. Mobrez was alleging that the extortion took place during the recorded phone calls. Until Mr. Mobrez and Ms, Llaneras provided their affidavits detailing these allegations with the specific dates/times/facts of the alleged extortion, I did not believe and I had no reason to believe that the recorded calls would be relevant to the case. Prior to May 3, it was just as likely that Mr. Mobrez could have alleged that the extortion occurred in some other way, such as in a series of emails. Given these facts, although I did listen to the recorded calls on April 20, 2010 when they were first retrieved from Xcentrics records, the fact that they did not reveal any extortion was hardly surprising. At that time, Mr. Mobrez had not accused Mr. Magedson of committing extortion on the phone, so the fact that the recordings revealed no extortion was entirely consistent with Xcentrics position that no extortion had occurred. Indeed, if Mr. Mobrez had not lied about the substance of these calls, the recordings would never have been needed. This is why they were not disclosed as part of Xcentrics initial Rule 26 disclosures. Again, I have repeatedly explained this issue to Ms. Borodkin, but she continues to refuse to accept that my conduct was entirely proper. As for any suggestion that I should have disclosed the recordings before the deposition of Mr. Mobrez on May 7th, this position is simply groundless. As the district court already determined, because the only evidentiary value of the recordings was to impeach Mr. Mobrez, I was not required to disclose them and, on the contrary, I was fully within my rights to take his testimony, confirm his allegations, and then impeach him with the recordings. 6. Conflict of Interest In your letter but not your motion, you state that because I was involved in the prior California case and I am also Xcentrics general counsel, this represents a conflict of interest which will result in you bringing a Motion to Disqualify me in the future. You cite no authority for this position, and it is unclear why you believe any conflict exists here. Presumably you might believe that I could be a necessary witness in Xcentrics case against Ms. Borodkin. While I do not believe this is true, even if it was, this does not represent a conflict. At best, this would simply implicate ER 3.7(a) which provides that a lawyer shall not act as an advocate at trial if the lawyer is also a necessary trial witness. Again, despite my participation in the prior case, I do not believe that I am a necessary witness in this case. However, if that changes, this does not mean I am barred from representing Xcentric. Rather, the only limitation is that I would not be allowed to act as Xcentrics counsel at trial. As such, if I do become a witness in this matter then I assure you I will not act as trial counsel; Xcentric will simply retain other counsel to try the case.

David E. Funkhouser III, Esq. October 10, 2011 Page 7 of 7 7. Additional Comments The above issues are not the only inaccuracies in your motion, but this letter is not intended to be a full or complete response to that motion. Rather, I simply wanted to ensure that you were placed on notice of these serious factual and legal errors in your proposed motion before it was filed. In the event you chose to move forward with the motion, which I hope you will seriously reconsider, Xcentric will submit a more thorough response as necessary.
VERY TRULY YOURS,
David Gingras, Esq.
Exhibit C
Exhibit D
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Iverson, Yoakum, Papiano & Hatch

633 West Fifth Street, Suite 6400 Los Angeles, CA 90071
TELEPHONE: 213.624.7444
Lisa J. Borodkin (CA Bar #196412) lborodkin@iyph.com Admitted Pro Hac Vice
Quarles & Brady LLP
Firm State Bar No. 00443100 Renaissance One, Two North Central Ave. Phoenix, AZ 85004-2391
TELEPHONE 602.229.5200
John S. Craiger (#021731) John.Craiger@quarles.com David E. Funkhouser III (#022449) David.Funkhouser@quarles.com Attorneys for Defendant Lisa Jean Borodkin IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA XCENTRIC VENTURES, LLC, an Arizona limited liability company, Plaintiff, v. LISA JEAN BORODKIN and JOHN DOE BORODKIN, husband and wife; RAYMOND MOBREZ and ILIANA LLANERAS, husband and wife; DANIEL BLACKERT and JANE DOE BLACKERT, husband and wife; ASIA ECONOMIC INSTITUTE, LLC, a California limited liability company; DOES 1-10, inclusive, Defendants. No. 2:11-CV-01426-PHX-GMS DEFENDANT LISA JEAN BORODKIN'S MOTION FOR SANCTIONS PURSUANT TO FED. R. CIV. P. 11 (Assigned to the Honorable G. Murray Snow) (Oral Argument Requested)
Pursuant to Federal Rule of Civil Procedure 11 and the Court's inherent power, Defendant Lisa Jean Borodkin moves this Court to sanction Plaintiff Xcentric Ventures, L.L.C., its manager, Edward Magedson, and its counsel, David Scott Gingras, for signing, verifying and filing the Verified Complaint and Verified First Amended Complaint (collectively, the Complaint) in this action asserting frivolous claims against her for an
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improper purpose. This Motion is supported by the attached Memorandum of Points and Authorities, the accompanying Request for Judicial Notice, the Declaration of Lisa Jean Borodkin and the entire record in this action. MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Defendant Lisa Jean Borodkin ("Borodkin") was one of the attorneys who represented several plaintiffs in a case against Xcentric Ventures, L.L.C. ("Xcentric") and Ed Magedson (Magedson) in the Central District of California. Borodkin joined the California case already substantially in progress, and was involved in litigating the RICO/attempted extortion claim complained of in the Complaint for approximately three (3) months out of the case's eighteen (18) month history. The rest of Borodkin's
involvement with the case focused on other claims not complained of in the Complaint. The California case was eventually resolved via two separate summary judgment orders in favor of the defendants. Xcentric now has sued Ms. Borodkin in Arizona, on vague, frivolous claims, for a patently improper purpose to extract from Ms. Borodkin information she does not have about things an unrelated third party did wrong. Plaintiff, through its manager, Magedson, has telegraphed to Ms. Borodkin, in no uncertain terms, it will not dismiss the Complaint unless she provides information on things this unrelated third party did wrong. Moreover, the Complaints factual allegations are contradicted by prior sworn statements of Xcentrics counsel and Magedson in the California case. Yet even with this information, Xcentric and its counsel refuse to dismiss the Complaint. Pursuant to Federal Rule of Civil Procedure 11, Xcentric, its counsel, and Magedson should be sanctioned for their outrageous conduct. Moreover, the Complaint against Ms. Borodkin should be dismissed, with prejudice, and Plaintiff should be ordered to pay Ms. Borodkin's attorneys' fees and costs incurred herein.
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II.
FACTUAL BACKGROUND. A. The Plaintiff And Its Principals.
Xcentric operates a for-profit website known as "Ripoff Report." Magedson is Ripoff Report's manager. Xcentric's counsel in this matter, David Gingras ("Gingras"), is both General Counsel for Xcentric and was also one of the attorneys of record for Xcentric in the California case. Ripoff Report solicits and publishes negative reviews of businesses and people. Ripoff Report earns revenues from services including the "Corporate Advocacy Program" (CAP).1 Members of CAP receive preferential treatment.2 For example, negative
reports about CAP members are less prominent in internet searches.3 In order to join CAP, a company must pay a fee to Xcentric.4 CAP costs an initial flat fee of $7,500, as well as a monthly fee.5 The Florida Court of Appeals described the CAP as follows: Xcentric describes a "service" it provides to people and entities who wish to challenge false postings on Xcentric's website. This "service" is called the "Corporate Advocacy Program" by Xcentric. Individuals or businesses who believe they have been defamed by a posting on Xcentric's website must, according to the amicus brief filed in this case, "pay a tidy sum to be investigated by Xcentric's management." Moreover, "[i]n addition to a steep upfront charge, the business is required to make periodic payments to keep its status in the program." See Giordano v. Romeo, 76 So. 3d 1100, 1102 and fn.1 (Fla. Dist. Ct. App. 3d Dist. 2011) B. The California Action.
Xcentric, Magedson and Doe Defendants were defendants in an action litigated 22 in the Central District of California, styled as Asia Economic Institute, L.L.C. et al. v. 23 24 25 26 27 28 -3QB\145800.00002\14788045.1
See Asia Econ. Inst. v. Xcentric Ventures, LLC, 2010 U.S. Dist. LEXIS 133370 (C.D. Cal. July 19, 2010) (the July 19, 2010 Order) at *11. 2 See Asia Econ. Inst. v. Xcentric Ventures LLC, 2011 U.S. Dist. LEXIS 145380 (C.D. Cal. May 4, 2011) (the May 4, 2011 Order) at *8. 3 See id. 4 See id. 5 See July 19, 2010 Order, at *13.
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Xcentric Ventures, L.L.C. et al., C.D.Cal. No. 10-cv-1360 ("the California Action"). The California Action had been commenced by defendant Daniel F. Blackert ("Blackert") on January 27, 2010 on behalf of Asia Economic Institute, L.L.C. (AEI), Raymond Mobrez and Iliana Llaneras (collectively with AEI, the "AEI Parties). It is undisputed that Borodkin had no role in preparing or signing the original complaint. See Compl. 31.6 The initial complaint filed by Blackert contained numerous claims under both state and federal law. See Compl. 29 and Ex. A thereto. Xcentrics first response was to file an Anti-SLAPP motion under California Civil Code 425.16. It claimed, unsuccessfully, that the California Action was filed to chill Ripoff Reports First Amendment rights. On April 19, 2010, the Court denied Xcentric's first anti-SLAPP motion in a 33-page opinion.7 It found that Ripoff Report complaints were not a matter of public concern.8 At the April 19, 2010 hearing, the Court bifurcated the action and set an early trial on one of the claims in the initial complaint - the RICO claim predicated on attempted extortion. See Compl. 32 and Ex. B thereto. After bifurcating the RICO/attempted extortion claim, the Court ordered the parties to submit declarations describing all meetings with each other.9 See id. Thereafter, on May 3, 2010, Blackert filed declarations for Mobrez and Llaneras per the Court's Order. See Compl. 33 and Exs. C-D thereto. On May 11, 2010, Gingras also filed a declaration for Magedson per the Courts Order.10 On May 7, 2010, Gingras took the deposition of Mobrez. After eliciting testimony, Gingras produced and played unauthenticated recordings of conversations that he alleged were all the telephone conversations between Mobrez and Magedson.11 It is undisputed Citations to Compl. _ are to the Complaint in this action. See AEI v. Xcentric, C.D. Cal No. 10-cv-1360 DN-23, available at: https://ecf.cacd.uscourts.gov/doc1/031110016999 (the "Apr. 20, 2010 Order"). 8 See id. Xcentric and Magedson later filed a second unsuccessful anti-SLAPP motion towards the end of the case. See May 4, 2011 Order, at *33. 9 It is undisputed that Ms. Borodkin only became involved in the California Action after April 19, 2010, long after the proceeding had been initiated. See Compl. 31. 10 See AEI v. Xcentric, C.D. Cal No. 10-cv-1360 DN-31 (May 11, 2010), available at https://ecf.cacd.uscourts.gov/doc1/031110147370. 11 Borodkin was not present for this portion of the deposition.
6 7
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that the recordings were made without Mobrez knowledge. See Compl. 41. The unauthenticated recordings were inconsistent with Mobrez and Magedson's prior declarations. On May 10, 2010, Blackert and Ms. Borodkin consulted the California State Bar Ethics Hotline and read the authorities recommended by the Ethics Hotline, particularly California State Bar Formal Ethics Opinion No. 1983-74. See Declaration of Lisa J. Borodkin (Borodkin Decl.) at 2-3; Request for Judicial Notice ("RJN"), filed concurrently herewith, at Exhibit "1". After counseling Mobrez and Llaneras, and consistent with California Ethics Opinion No 1983-74, defendants Blackert and Borodkin honored the clients informed decision to continue with the case after taking corrective measures. As such, Blackert filed corrected declarations for both Mobrez and Llaneras on May 20, 2010. Compl. 49 and Exs F-G thereto. Mobrez and Llaneras did not refer to the corrected testimony and did not rely on evidence of oral threats in the case thereafter. See Asia Econ. Inst. v. Xcentric Ventures, LLC, 2010 U.S. Dist. LEXIS 133370 (C.D. Cal. July 19, 2010) at *46. Importantly, for purposes of this Motion, Gingras, too, had to correct the testimony of his client. On May 11, 2010 Gingras filed a new declaration for Magedson, recanting Magedson's false statements in declarations filed on both March 22, 2010 and April 5, 2010, alleging that Mobrez had "threatened" him in a telephone conversation. See RJN, at Ex. 2. Notwithstanding the foregoing, Gingras insisted repeatedly that Blackert and Ms. Borodkin faced serious ethical consequences with the California State Bar by continuing to represent the AEI Parties after taking corrective action. See Compl. 44 and Ex. E. However, in a letter dated May 11, 2010, Gingras states that Xcentric would not agree to settle the case unless the AEI Parties agreed to the following terms: The first point is that [the AEI Parties] would need to retract their prior testimony and admit that they were never asked for money, etc., and immediately agree to the dismissal of their lawsuit with prejudice. -5QB\145800.00002\14788045.1
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12
The second point is that your clients would agree to pay all of the attorneys fees and costs incurred by Xcentric to date which we believe are probably less than $25,000 (though this number is increasing with each passing day). The third point is that your clients would provide a full, complete, and truthful explanation of each and every third party who aided, solicited, and/or encouraged them to make their false extortion claims in this case. See Compl. 44 and Ex. E thereto at 4. Blackert and Ms. Borodkin were not authorized to agree to a settlement that required the AEI Parties to pay all Xcentric's fees. Borodkin Decl. 4. On May 24, 2010, Xcentric moved for summary judgment on the RICO claim based on attempted extortion.12 Gingras attempted to offer the recordings that were purportedly all the conversations between Mobrez and Magedson, in support of the defendants' first motion for summary judgment.13 In the July 19, 2010 Order, the Court excluded the recordings from evidence. RJN, Ex. 3, at 21. The Court found that the recordings had been obtained in violation of Californias wiretapping law, Penal Code Section 632(a): [I]t is undisputed that Mobrez was unaware that his calls with Magedson were being recorded and that Mobrez did not give consent . . . some of the recordings that Defendants seek to admit were obtained in violation of California Penal Code 632(a). RJN, Ex. 3, at 21:25-22:4. The Court also found that the recordings may not be accurate, finding: Defendants have refused to reveal the name of the third party vendor to the Plaintiffs despite the Plaintiffs' reasonable request . . . and have not offered any declarations from the third party vendor or any information about the method of recording, the equipment used, or how the recordings are kept in the ordinary course of the vendor's business.. . .Further, the foundational shortcomings are especially problematic here because Plaintiffs have Xcentric also moved for summary judgment on the other claims. The Court found the motion "inappropriate given the Court's prior Order bifurcating the RICO/extortion claims." See July 19, 2010 Order at *26. 13 See id. at *29.
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presented facts indicating that the recordings may not be accurate or trustworthy. Specifically, Mobrez's phone records indicate the duration of each of the calls made from Mobrez to Magedson in March and April 2009. . . . In most instances, the duration of the calls is considerably longer than the length of the recorded conversation submitted to the Court. RJN, Ex. 3, at 26:9-22 (emphasis added). Moreover, the Court found that California law would apply in a choice-of-law analysis: [I]f the Court were to engage in a choice-of-law analysis between Arizona and California law, the Court undoubtedly would apply California law, given California's strong public interest in protecting the confidentiality of certain communications. RJN, Ex. 3, at 22:4-9. In addition, Gingras and Magedson maintained during the California Action that they believed Blackert and Ms. Borodkin were not aware that Mobrez and Llaneras May 3, 2010 declarations were purportedly inaccurate. On June 24, 2010, Gingras filed a declaration in support of Xcentrics motion for summary judgment explaining that he was trying to "warn" Blackert of potential ethics pitfalls. To show this, Gingras quoted from his own statement at the May 7, 2010 deposition of Mobrez: GINGRAS: I want your [Mobrez's] lawyer has certain obligations under his duties to the State Bar and to our court, and I do not want to put him in a position, assuming, as I hope, that he is an innocent victim of your conduct and your crimes, I do not want to put him in a position where he will lose his license if he continues to represent you knowing, as he knows now, that you have committed perjury in this case. RJN, Ex. 4, at 4:19-27 (emphasis added). Gingras reiterated this position in his May 11, 2010 letter to Blackert and Ms. Borodkin, when he stated: Of course, as I have already explained to Dan, my assumption thus far has been that both of you have been unaware of the truth. Compl. 44 and Ex. E thereto at 5 (emphasis added). Likewise, Magedson testified at his June 8, 2010 deposition that he "assumed" Blackert and Ms. Borodkin "weren't aware" of lies against him:
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Q:
Why do you think that?
MAGEDSON: Because people who I'm sure you've already reached out to and that have been mentioned are people who are directly connected, and all have helped other people to perform DDoS attacks, gotten people to try to -like Mr. Mobrez, to lie, which I'll assume, as nice as you are -- that I think the two of you's [Borodkin and Blackert] are nice people, that you're probably -- I would assume you weren't aware of -- I don't know. I don't want to really just say anymore. See Borodkin Decl. 5, Ex.1 at 72:19-73:3 (emphasis added). From May 20, 2010 to its conclusion in July 2011, Blackert and Ms. Borodkin litigated the California Action without referring to the corrected testimony. The RICO claim predicated on attempted extortion was dismissed on July 19, 2010.14 The RICO Claim based on wire fraud was voluntarily dismissed on September 20, 2010.15 The rest of the case concerned claims for unfair competition, tortious interference with economic advantage, fraud, deceit, defamation,16 false light and injunction. However, Xcentric kept trying to revive the issue of the recordings. Xcentric made two unsuccessful Rule 11 motions, one of which claimed, falsely, that: [I]t was proven that the individual Plaintiffs (Mr. Mobrez and Ms. Llaneras) committed perjury in this case by manufacturing and presenting sworn false testimony accusing Mr. Magedson of demanding $5,000 in order to make negative information disappear from the Rip-Off Report website.17 Of course, no perjury was ever proven. As explained above, the Court had
commented that the recordings violated Californias Penal Code and that may not be accurate or trustworthy. See RJN, Ex. 3, at 21, 26 (emphasis added). The Court denied all of Xcentrics Rule 11 Motions, as well as Xcentrics second unsuccessful anti-SLAPP motion. See RJN, Ex. 5, at 12-14.
See July 19, 2010 Order at *79. AEI v. Xcentric, AEI v. Xcentric, C.D. Cal No. 10-cv-1360 DN-144, available at https://ecf.cacd.uscourts.gov/doc1/031110926415 (the "Sept. 20, 2010 Order"). 16 The defamation claims were asserted primarily against Doe defendants. 17 AEI v. Xcentric, AEI v. Xcentric, C.D. Cal No. 10-cv-1360 DN-135 at 2:12-15, available at https://ecf.cacd.uscourts.gov/doc1/031110823447 (the "Sept. 3, 2010" Order).
15
14
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C.
The Complaint.
On July 18, 2011, Gingras signed and filed the Complaint in the District of Arizona. The Complaint alleged, in a conclusory fashion: "[Before filing the California Action] BLACKERT knew that they could not legitimately present [a RICO/extortion] theory because at no time was AEI actually extorted by XCENTRIC or Magedson." Compl. 24. "At the time the [California Action] was commenced, Defendants AEI, MOBREZ, LLANERAS and BLACKERT each knew the action was factually groundless in particular as to the allegations of RICO/extortion[.]" Compl. 70. That Defendants [including Borodkin] "engaged in . . . multiple/repeated violations of the California Rules of Professional Conduct including, but not limited to, Rule 3-200 (prohibiting a lawyer from bringing an action or asserting any position in litigation without probable cause and for the purpose of harassing or maliciously injuring any person); Rule 3-210 (prohibiting a lawyer from advising a client to violate the law); and Rule 5-200 (B) (prohibiting a lawyer from misleading a court by making a false statement of fact)." Compl. 2. That Defendants (including Ms. Borodkin), and each of them, wrongfully continued the [California Action] without probable cause and knowing that the action was brought primarily for a purpose other than that of securing the proper adjudication of the claims in which the proceedings were based. Compl. 82. Moreover, and despite the fact that the California Action did not actually contain a claim for extortion (only RICO predicated on a pattern of attempted extortion) the Complaint further alleged: "As of no later than May 7, 2010, Defendants BORODKIN and BLACKERT knew, with absolute certainty, that Defendants MOBREZ and LLANERAS had committed perjury and that their claims of extortion were totally fabricated and false." Compl. 77. And, although the AEI Parties did not refer to any phone calls between Mobrez and Magedson after May 7, 2010, the Complaint further alleged in a conclusory fashion: "MOBREZ further perjured himself [in his May 20, 2010 declaration] by testifying for the first time, 'In addition, there were a number of incoming calls to me from Ripoff Report.'" Compl. 50 "Upon information and belief, Defendants BORODKIN and BLACKERT assisted Defendant MOBREZ with the creation of his "Corrected declaration" and in doing so, BORODKIN and BLACKERT intentionally suborned perjury from MOBREZ." Compl. 51.
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D.
The Demand.
After filing the Complaint, on August 10, 2011, Magedson sent Ms. Borodkin an email making outrageous and improper demands, using the Complaint as leverage. That email stated, in pertinent part, that: To be clear,. NO MONEY WOULD BE DEDUCTED for any information on Brewington. Not a dime. The only benefit to you would be, if you do provide information to us that you know would help us with Brewingtons other alleged activities to hurt Ripoff Report and myself.. the only thing that would get you is the following. I would consider settling with you out of court, but, I would require you to stipulate to a judgment for $100,000 as well.. Benefit to you, you would not have to go thru a long court battle. This amount will be much less than what I will be suing for. This is one court battle I will be looking forward to. I will be on a mission to get courts to punish lawyers like you and Blackert. What you did is disgusting, despicable and unforgivable. Courts need to start coming down on lawyers like you as well as prosecutors for misconduct. . . . What I am offering you will get you to avoid a long drawn out legal battle and will only make you look worse than you already do. You can also start focusing on looking for a job instead of a legal battle. In order to get me to settle out of court with you, you would also need to provide info on things you know John F Brewington did wrong. I know you can help in this area. You would also need to start, immediately paying on that judgment, $10,000 down and $5,000 a month. If not, I will see you in court. Borodkin Dec. 6, Ex. 2 (emphasis added). Moreover, Gingras sent Ms. Borodkin an email on August 8, 2011 stating that evidence about Brewington might provide a basis for resolving Ed's claims against you." Borodkin Dec., at Ex. 2. John Brewington is an unrelated third party who was neither a party nor a witness in the California Action. On March 1, 2012, this Court granted in part Ms. Borodkins motion to strike and motion for a more definite statement, striking paragraph 2 of the Complaint and ordering Xcentric to provide a more definite statement regarding Borodkins alleged improper motives and purposes. See Doc. 52 at 19:12-14; 20:16.
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On March 16, 2012, Xcentric filed a Verified Amended Complaint. The Verified First Amended Complaint did not retract any of the allegations in the Complaint except for Paragraph 2, which had been stricken by the Court. The Verified First Amended Complaint pleaded Ms. Borodkins purported malice in wholly conclusory terms, collectively with Blackerts and without any new accompanying factual allegations to support them. Based on the foregoing, this Motion follows. ARGUMENT. A. The Standards Imposed By Rule 11.
By signing the Complaint, Gingras certified for himself and on behalf of Xcentric that to the best of their "knowledge, information, and belief, formed after an inquiry reasonable under the circumstances" that: (1) [The Complaint is] not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law...; [and] (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after reasonable opportunity for further investigation or discovery ... . Fed. R. Civ. Proc. 11(b). And, by signing the verification, Magedson subjects himself to sanctions also. See Business Guides v. Chromatic Communications Enters., 892 F.2d 802, 809 (9th Cir. 1989). Sanctions are especially appropriate when the party is sophisticated, representing itself as having extensive litigation experience. See id. at 812. Sanctions under Rule 11 are appropriate in either of the following instances: (a) "when a pleading is frivolous, i.e., both baseless and made without a reasonable and competent inquiry"; or (b) when a pleading is filed for an improper purpose. See
Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1991) (en banc); In re Pozsga, 158 F.R.D. 435, 437 (D. Ariz 1994). Determining if a pleading is frivolous
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does not depend on a lawyer's subjective belief, but rather is judged by an objective standard of whether a "competent attorney would believe it was well-grounded in fact and warranted by law." Adriana Intel Corp. v. Thoeren, 913 F.2d 1406, 1415 (9th Cir. 1990); see also Yagman v. Republic Ins., 987 F.2d 622, 628 (9th Cir. 1993); Pozsga, 158 F.R.D. at 437. Here, the Complaint is both frivolous and has been filed for an improper purpose. Accordingly, the Court should impose sanctions against Xcentric, its counsel, and Magedson, pursuant to Rule 11. B. Plaintiff's Complaint Is Frivolous.
Plaintiff's Complaint asserts two claims against Ms. Borodkin: (1) Wrongful Continuation of Civil Proceedings; and (2) Aiding and Abetting Tortious Conduct. Here, Plaintiff has not pled, nor does Plaintiff (or Plaintiff's counsel) have any objectively reasonable reason to believe, that Ms. Borodkin's representation in the California Action was "motivated by malice" or not "primarily to help the client obtain a proper adjudication of the client's claim." The California Action alleged, among other things, that Ripoff Report's activities constituted unfair and deceptive trade practices, fraud and racketeering. Until July 19, 2010, the California Action included causes of action under the RICO statutes, 18 U.S.C. 1962(c)-(d) predicated on attempted extortion.18 Indeed, a similar claim of RICO against Ripoff Report predicated on threatened extortion had survived a motion to dismiss in Hy Cite Corp. v. Badbusinessbureau, 418 F. Supp. 2d 1142, 1150 (D. Ariz. 2005). There, the Court had written: Defendants operate a website. Plaintiff alleges that Defendants create and solicit false and defamatory complaints against businesses, but will cease this conduct for a $50,000 fee and $ 1,500 monthly retainer. Remedying the publication of false and defamatory complaints, which Defendants allegedly created and solicited, does
Contrary to the allegations, the California Action had no claim for "extortion" and did not claim that Magedson "extorted" the AEI Parties. See Compl. 29 Ex. A, at 63.
18
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not give Defendants the right to collect fees. . . . Plaintiff has properly alleged threatened extortion. 418 F. Supp. 2d 1142. Hy Cite was eventually dismissed by stipulation.19 Additionally, in California, the recent case, Monex Deposit Co. v. Gilliam, 666 F. Supp. 2d 1135 (C.D. Cal. 2009), recognized a private cause of action for attempted extortion under Penal Code 523 even if no money changed hands. See id. at 1136. Thus, Ms. Borodkin had no improper motives, and was merely litigating claims for her clients that were supported by California law. In addition, Xcentric cannot show that Ms. Borodkin did anything other than observe her ethical duties to follow her clients instructions in declining to dismiss the California Action upon Gingras demand that the AEI Parties pay all of Xcentrics fees. Compl. 44 and Ex. E at 4 thereto. Where a lawyers client is willing to dismiss the action but instructs the attorney not to agree to a settlement that requires the client to pay the adversarys attorney's fees, the attorney is ethically required to follow the clients instructions. See Smith v. Lucia, 173 Ariz. 290, 296 (App. 1992). In Smith, the Court found that the adversary was more concerned with preserving a claim for malicious prosecution against the lawyer than in resolving the case. The record here would support the same finding. C. Plaintiffs Complaint Lacks Evidentiary Support.
This is not a case in which a party filed a pleading with the reasonable belief that the allegations would find evidentiary support once discovery was conducted. Gingras and Magedsons statements show that they already know that they will not find evidentiary support for the allegations. On June 24, 2010, Gingras filed a declaration in the California Action stating that he believed Blackert was innocent of the alleged
Hy Cite had contained allegations that Ripoff Report created and solicited reports; however, no case had tested RICO predicated on attempted extortion alleging solely that Ripoff Report solicited reports.
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perjury. RJN Ex. 4 at 4:19-27. Likewise, Magedson testified on June 8, 2010 that he did not believe Blackert and Borodkin were aware of the alleged perjury. No evidence has come to light indicating that Borodkin was aware of any purported perjury. Nor does the Complaint refer to any newly-discovered evidence since Gingras and Magedson made these sworn statements that they believed Blackert and Borodkin were innocent of the alleged perjury. Yet Gingras and Magedson continue to use the alleged inconsistencies shown by the illegally-made recordings to harass Blackert and Borodkin, even after the conclusion of the California Action. Plaintiff, its counsel and Magedson therefore cannot claim absentmindedness or mistake as an excuse for filing the frivolous Complaint. See Smith v. Ricks, 31 F.3d 1478, 1488 (9th Cir. 1994), cert. denied, 514 U.S. 1035 (1995). At a minimum, the facts demonstrate that Plaintiff and its counsel filed the challenged allegations without reasonable inquiry. That, alone, is enough for sanctions under Rule 11. See Terran v. Kaplan, 989 F. Supp. 1025, 1026 (D. Ariz. 1997). D. Plaintiff's Complaint Is Brought for an Improper Purpose.
Plaintiff, Magedson and Gingras filed the Complaint for an improper purpose. Magedson's August 10, 2011 communication evidences, without a doubt, that he intends to use the Complaint as leverage to intimidate Ms. Borodkin into providing negative information about John F. Brewington. Indeed, Magedson wrote to Ms. Borodkin that he "would not settle out of court unless you also provide information of what John F. Brewington did wrong." See Borodkin Dec. Ex. 2 (emphasis added). This is an
unequivocal threat and an improper reason to refuse to settle a case. Magedson's August 10, 2011 email also threatened that the lawsuit will make Ms. Borodkin look "worse than you already do" and subject her to a costly "long drawn out court battle." See id. Where litigants act willfully and in bad faith in filing a complaint, "including to circumvent a court order in another case and to harass and intimidate witnesses," the sanction of attorneys fees and dismissal is appropriate. See Hussein v. Frederick, 2011
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U.S. App. LEXIS 11722 (9th Cir. June 8, 2011) at *4; see also Buster v. Greisen, 104 F.3d 1186, 1190 (9th Cir. 1997) (Buster's efforts to relitigate the prior case similarly support a finding of harassment); In re Grantham Bros., 922 F.2d 1438, 1443 (9th Cir. 1991) (filer sought to harass or intimidate adversary through frivolous collateral attack of prior proceeding). A lawyer may not file a baseless complaint to be vindictive against counsel in a prior action. See Townsend, 929 F.2d at 1363 ("the court inferred from the fact that the allegations were frivolous and from the fact that Wilson & Reitman had been the law firm which opposed Wright in the state court action that the naming of Wilson was essentially vindictive.") That is what Gingras has done here, and should therefore be sanctioned. III. XCENTRIC, ITS COUNSEL, AND MAGEDSON HAVE ACTED EGREGIOUSLY, AND THEREFORE SHOULD BE SANCTIONED FOR THE ATTORNEYS' FEES THAT MS. BORODKIN HAS INCURRED AND THE ACTION SHOULD BE DISMISSED. A competent attorney would not file a complaint which is contradicted by both his own and his client's prior statements under oath, use the complaint to harass and coerce testimony about an unrelated third party. One federal court has already found the recordings troublingly unreliable and made in violation of Californias Penal Code. See RJN, Ex. 3, at 21:25-22:4. In sum, the Complaint focuses almost entirely on certain unauthenticated recordings which, the court noted were missing substantial chunks of time -- as a pretext to harass Ms. Borodkin into paying Xcentrics attorney fees and intimidate her into providing testimony in an unrelated matter. IV. CONCLUSION. For the foregoing reasons, Ms. Borodkin requests, pursuant to Rule 11, that the Court sanction Gingras and Magedson as follows: (1) require Magedson and Gingras to pay all of Ms. Borodkin's attorneys' fees, costs, and expenses associated with her defense; and (2) dismiss the action with prejudice as against Ms. Borodkin.
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RESPECTFULLY SUBMITTED this
day of May, 2012.
IVERSON, YOAKUM, PAPIANO & HATCH th 633 West 5 Street, 64th Floor Los Angeles, CA 90071 By /s/ Lisa J. Borodkin Lisa J. Borodkin Admitted Pro Hac Vice QUARLES & BRADY LLP Renaissance One, Two North Central Avenue Phoenix, AZ 85004-2391 John S. Craiger David E. Funkhouser III Attorneys for Defendant Lisa Jean Borodkin
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CERTIFICATE OF SERVICE I hereby certify that on May __, 2012, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: David S. Gingras, Esq. (David@GingrasLaw.com) Attorneys for Plaintiff Raymond Mobrez (Raymond@asiaecon.org) Pro se Iliana Llaneras (iliana@asiaecon.org) Pro se
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Exhibit E
Page 1 of 1 Case 2:11-cv-01426-GMS Document 140-1 Filed 10/31/12 Page 82 of 84 David Gingras
From: Sent: To: Cc: Subject: Lisa, Im sorry to be reaching out to you this way, but I have a question for you. By now, I assume youre aware of the lawsuit that Xcentric has commenced here in Arizona. Because I have no physical address for Dan, I mailed a copy of the Complaint, Summons, and a request for waiver of service to the PO box address that Dan has listed on the State Bar of Californias website. As reflected in the attached PDF, I just received notice from the post office that Dans address is invalid. Because I have no other way of contacting him (I understand that the email address listed on the bars website is also invalid, and I called the phone number they have for him but I got a strange voicemail recording that didnt sound anything like Dan), I wanted to see if you would be willing to provide me with whatever other address you may have for him. Obviously I cant require you to provide this, but I wanted to ask anyway. If you dont have any other contact information for Dan or youre not willing to provide it to me, please let me know if you have any objection to Xcentric seeking leave from the court to perform early discovery on this issue. My thinking is that the California bar probably has a non-public address for Dan that I could obtain with a subpoena, so thats what I would seek leave to do. Thank you. David S. Gingras, Esq. David@GingrasLaw.com Tel.: (480) 668-3623 Fax: (480) 248-3196 David Gingras [david@gingraslaw.com] Wednesday, August 03, 2011 4:32 PM 'lborodkin@gmail.com' 'lisa_borodkin@post.harvard.edu' ROR Lawsuit
Attachments: Blackert Returned Mail.pdf
10/30/2012
Exhibit F
Page 1 of 3 Case 2:11-cv-01426-GMS Document 140-1 Filed 10/31/12 Page 84 of 84 David Gingras
From: Sent: To: Cc: Lisa, To follow up on our phone conversation last week, I have talked to Ed and hes not willing to resolve his claims against you in exchange for information about Dans location. He also understands that obtaining money from you or Mr. Mobrez might be impossible, but thats not the sole point of the lawsuit. Ed feels he has to send a strong message to all the haters out there telling them that if they break the law when pursing ROR, that conduct will have serious consequences. Standing alone, if we can prevent even one other person from bringing a case based on fabricated claims against ROR, this will have significant value to Ed. Having said that, as much as Ed feels that it is important to send a message by making an example here, after talking about it, he said that it is possible we could reach an alternative resolution. How? Simple Ed wants to know if you have any evidence that would implicate John Brewington in any sort of unlawful conduct. I understand you previously answered that question by saying no, but that was a long time ago, and maybe new information has come to light. I know youre aware of the long history with Brewington, so theres no need to discuss all the details. It suffices to say that if you had solid, reliable information (really, it would have to be documents/emails/etc.) showing that Brewington did something unlawful either in connection with the Asia litigation or otherwise, that information could be extremely valuable to Ed and it might provide a basis for resolving Eds claims against you. Of course, if the honest answer is that you have no such information, then thats finewe have no interest in anything but discovering the truth. For my part, I am not now nor have I ever been very closely involved in any of Eds disputes with Brewington (this is mainly Marias thing), so I really dont know what information might be out there, but anything that shows Brewington participating in or encouraging any sort of unlawful conduct would probably be of the highest value to Ed. Because I know we talked about this before, I assume that you might have the same practical concerns i.e., if you did have information to share, how could you know whether Xcentric would simply review the information and then say: Yeah, thats not good enough. No Deal.? My answer to that is pretty simple you would simply have to make a generalized proffer which described the type of information at issue, and wed have to see if it sounded interesting enough to proceed. I think this could be done in such a way that Xcentric would not be able to burn you by taking the information, using it to our advantage, but then refusing to resolve the case against you. In other words, I would envision an arrangement wherein Xcentric agrees that it cannot use any of the information you provide for any purpose unless we reach a resolution on Xcentrics claims against you. This is sort of what FRE 408 says anyway. Of course, because you have always said that there wasnt any helpful information to give, I dont want to belabor this topic, but if you think you might want to discuss it as a possible way of resolving the case, I would be happy to hear whatever you have to say. David S. Gingras, Esq. David@GingrasLaw.com Tel.: (480) 668-3623 Fax: (480) 248-3196 David Gingras [david@gingraslaw.com] Monday, August 08, 2011 9:58 AM 'lborodkin@gmail.com' 'lisa_borodkin@post.harvard.edu'
Subject: RE: ROR Lawsuit
10/30/2012

Affidavit of David Gingras Re: Ripoff Report's Response To Lisa Borodkin's Motion For Rule 11 Sanctions

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Affidavit of David Gingras Re: Ripoff Report's Response To Lisa Borodkin's Motion For Rule 11 Sanctions

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I am an attorney licensed to practice law in the States of Arizona and

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Furthermore, as to Ms. Borodkins allegation that I should have disclosed

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Rather, as reflected in the statements I made on the record at the conclusion

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GINGRAS LAW OFFICE, PLLC

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VERY TRULY YOURS,

David Gingras, Esq.

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