Joaquin v. Directv Group Holdings, Inc. et al

RESPONSE in Opposition

D.N.J.September 21, 2018

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY ANGELA JOAQUIN, on behalf of herself and all others similarly situated, Plaintiff, v. LONSTEIN LAW OFFICES, P.C., a New York Professional Corporation; JULIE COHEN LONSTEIN; WAYNE LONSTEIN, SIGNAL AUDITING, INC., and STEVEN LEVINE, Defendants. Civil Action No. 3:15-cv-08194-MAS-DEA BRIEF IN OPPOSITION TO DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT Henry P. Wolfe, N.J. ID 031942005 The Wolf Law Firm, LLC 1520 U.S. Hwy 130, Suite 101 North Brunswick, NJ 08902 (732) 545-7900 hwolfe@wolflawfirm.net Attorneys for Plaintiff and the Putative Class Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 1 of 39 PageID: 2746 -i- CONTENTS STATEMENT OF FACTS ...................................................................................... 1 I. THE DEFENDANTS BEAR THE BURDEN AS THE MOVING PARTIES UNDER RULE 56, AND THE PLAINTIFF IS ENTITLED TO ALL FAVORABLE INFERENCES. ..............................................................................1 II. THERE ARE GENUINE ISSUES OF MATERIAL FACT WITH RESPECT TO THE PLAINTIFF’S NJRICO CLAIM, PRECLUDING SUMMARY JUDGMENT. ................................................................................................2 III. THE DEFENDANTS’ LITIGATION PRIVILEGE DEFENSE WAS NOT RAISED IN THEIR PLEADINGS OR IN THEIR PREVIOUS RULE 12(B)(6) MOTION, AND IS THEREFORE WAIVED. .........................................26 IV. THE DEFENDANTS’ OVERBROAD ASSERTION THAT THE NOERR-PENNINGTON DOCTRINE PRECLUDES IMPOSITION OF LIABILITY BASED ON AN ATTORNEY DEMAND LETTER FAILS TO ACKNOWLEDGE THAT THERE IS A SPLIT OF AUTHORITY ON THE ISSUE, AND THE THIRD CIRCUIT’S PRIOR PRONOUNCEMENTS SUGGEST THAT IT WOULD REJECT ANY SUCH BROAD IMMUNITY. .........................................................................................................................27 V. EVEN IF KNORR-PENNINGTON FIRST AMENDMENT PRINCIPLES DID APPLY TO THE DEFENDANTS’ LETTERS, THE PLAINTIFF HAS RAISED ISSUES OF BAD FAITH AND MISRERESENTATIONS THAT, IF TRUE, WOULD PRECLUDE THE DEFENSE. THEREFORE THE ISSUE CANNOT BE DECIDED ON A MOTION TO DISMISS, BUT MUST PROCEED TO DISCOVERY. ............34 CONCLUSION .......................................................................................................37 Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 2 of 39 PageID: 2747 -1- STATEMENT OF FACTS Plaintiff incorporates her Supplement Statement of Disputed Material Facts filed along with this brief as her statement of facts, as though fully restated here. I. THE DEFENDANTS BEAR THE BURDEN AS THE MOVING PARTIES UNDER RULE 56, AND THE PLAINTIFF IS ENTITLED TO ALL FAVORABLE INFERENCES. The summary judgment standard in the 3rd Circuit has been aptly summarized by the Court of Appeals as follows: "'Summary judgment should be granted if, after drawing all reasonable inferences from the underlying facts in the light most favorable to the non-moving party, the court concludes that there is no genuine issue of material fact to be resolved at trial and the moving party is entitled to judgment as a matter of law.'" Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir. 1997) (quoting Spain v. Gallegos, 26 F.3d 439, 446 (3d Cir. 1994)). "We have held repeatedly that the party moving for summary judgment under Fed.R.Civ.P. 56(c) bears the burden of demonstrating the absence of any genuine issues of material fact." Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080 (3d Cir. 1996). "When determining whether there is a triable dispute of material fact, the court draws all inferences in favor of the non-moving party." Country Floors, Inc. v. Partnership Composed of Gepner and Ford, 930 F.2d 1056, 1061 (3d Cir. 1991). Doeblers' Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 819-20 (3d Cir. 2006). Applying these standards, the Defendants have clearly failed to meet their burden of establishing the absence of material fact with respect to the Plaintiff’s claim. New Jersey Racketeer Influenced and Corrupt Organizations Act (NJRICO). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 3 of 39 PageID: 2748 -2- II. THERE ARE GENUINE ISSUES OF MATERIAL FACT WITH RESPECT TO THE PLAINTIFF’S NJRICO CLAIM, PRECLUDING SUMMARY JUDGMENT. A. There are genuine issues of material fact as to the Plaintiff’s claim under the NJRICO’s prohibition against “participation” in an enterprise through a pattern of racketeering activity. The New Jersey Racketeer Influenced and Corrupt Organizations Act (NJRICO), at N.J.S.A. 2C:41-2(c), makes it a violation for “any person” to simply “participate, directly or indirectly, in the conduct of the enterprise’s affairs through a pattern of racketeering activity.” Specifically, the statute provides as follows: It shall be unlawful for any person employed by or associated with any enterprise engaged in or activities of which affect trade or commerce to conduct or participate, directly or indirectly, in the conduct of the enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt. N.J.S.A. 2C:41-2(c).1 Thus, to prove a “participation” violation, the Plaintiff will be required to prove that the Defendants are “persons,” employed or associated with an “enterprise,” who participated in the enterprise through a “pattern” of “racketeering activity,” as each of those terms are defined by the NJRICO, at N.J.S.A. 2C:41-1: 1 As previously set forth in her opposition to the Defendants’ motions to dismiss, the Plaintiff is pursuing her NJRICO claim under the “participation” provision at N.J.S.A. 2C:41-2(a), and alternatively, under the “conspiracy” privision at N.J.S.A. 2C:41-2(d). She is not proceeding under N.J.S.A. 2C:41-2(a) “investment” or (b) “maintenance of interest or control,” and therefore, no response to the Defendants’ briefing on those issues is necessary. Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 4 of 39 PageID: 2749 -3- a. “Racketeering activity” means any of the following crimes which are crimes under the laws of New Jersey or are equivalent crimes under the laws of any other jurisdiction: *** (h) extortion *** (n) theft and all crimes defined in chapter 20 of Title 2C of the New Jersey Statutes (o) forgery and fraudulent practices and all crimes defined in chapter 21 of Title 2C of the New Jersey Statutes *** (2) any conduct defined as “racketeering activity” under Title 18, U.S.C. § 1961(1)(A), (B) and (D)[which includes mail fraud] b. “Person” includes any individual or entity or enterprise as defined herein holding or capable of holding a legal or beneficial interest in property. c. “Enterprise” includes any individual, sole proprietorship, partnership, corporation, business or charitable trust, association, or other legal entity, any union or group of individuals associated in fact although not a legal entity, and it includes illicit as well as licit enterprises and governmental as well as other entities. d. “Pattern of racketeering activity” requires: (1) Engaging in at least two incidents of racketeering conduct one of which shall have occurred after the effective date of this act and the last of which shall have occurred within 10 years (excluding any period of imprisonment) after a prior incident of racketeering activity; and (2) A showing that the incidents of racketeering activity embrace criminal conduct that has either the same or similar purposes, results, participants or victims or methods of commission or are otherwise interrelated by distinguishing characteristics and are not isolated incidents. Notably, the New Jersey Legislature has required that the “participation” provision, at N.J.S.A. 2C:41-2(c), and the foregoing definitions at N.J.S.A. 2C:41- Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 5 of 39 PageID: 2750 -4- 1 “shall be construed liberally to effectuate the remedial purposes of this chapter.” N.J.S.A. 2C:41-6. Thus, "[t]he gravamen of a RICO violation . . . is the involvement in the affairs of an enterprise through a pattern of racketeering activity." State v. Ball, 661 A.2d 251, (N.J. 1995) "A 'pattern of racketeering activity' requires '[e]ngaging in at least two incidents of racketeering conduct' that 'embrace criminal conduct' and are interrelated." Franklin Med. Assocs. v. Newark Pub. Schs., 828 A.2d 966 (N.J. App. Div. 2003) (alteration in original) (citing N.J.S.A. 2C:41-1(d)). Although the NJRICO is modelled from the federal RICO, the New Jersey statute differs from the federal statute in several important respects. First, It is important to note that NJRICO is broader in scope than the federal RICO statute. The New Jersey courts take a liberal stance in permitting plaintiffs to plead NJRICO violations, rejecting the narrow construction of the federal statute that many circuits, including this one, have adopted. Ford Motor Co. v. Edgewood Props., 2012 U.S. Dist. LEXIS 125197, at *86 (D.N.J. Aug. 31, 2012) (citing State v. Ball, 632 A.2d 1222 (N.J. App. Div. 1993) aff'd, 141 661 A.2d 251 (N.J. 1995)). While the federal RICO’ stated purpose is to “eradicate organized crime,” the NJRICO was enacted to also eliminate “organized crime type activities” because the drafters “did not want to limit the scope of the bill to the traditional… notion of organized crime as either the Mafia or La Cosa Nostra [but also] to go into organized criminal activity, which could reach labor Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 6 of 39 PageID: 2751 -5- racketeering, traditional organized crime activities, business or commercial activities.” State v. Ball, 632 A.2d 1222, 1239-40 (N.J. App. Div. 1993)(citing Assembly Committee testimony). Thus, to achieve that expanded purpose, the NJRICO’s definitions of “person,” “enterprise” and “pattern of racketeering conduct” are broader than those ascribed in the federal statute, as discussed further under point heading II.C., infra. B. There is sufficient evidence to create a genuine issue of fact regarding predicate “racketeering activity” as to both the Lonstein Defendants and the SAI Defendants. The NJRICO defines “racketeering activity” to include, inter alia:  “fraudulent practices and all crimes defined in chapter 21 of Title 2C of the New Jersey Statutes.” N.J.S.A. 2C:41-1(a)(1)(n)  “extortion.” N.J.S.A. 2C:41-1(a)(1)(h)  “theft and all crimes defined in chapter 20 of Title 2C of the New Jersey Statutes.” N.J.S.A. 2C:41-1(a)(1)(n)  “any conduct defined as ‘racketeering activity’ under Title 18, U.S.C. § 1961(1)(A), (B), and (D) [of the federal RICO, which includes mail fraud, prohibited by 18 U.S.C. §1341].” N.J.S.A. 2C:41-1(a)(2). Thus, any one of the following offenses constitute racketeering activity as defined by the NJRICO:  Deceptive business practices - N.J.S.A. 2C:21-7(h) – “A person commits an offense if in the course of business he… makes a false or misleading written statement for the purpose of obtaining property or credit”; Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 7 of 39 PageID: 2752 -6-  Theft by extortion (attempted2) - N.J.S.A. 2C:20-5(b) and (c) - “A person is guilty of theft by extortion if he purposely and unlawfully obtains property of another by extortion. A person extorts if he purposely threatens to…. (b) Accuse anyone of an offense3 or cause charges of an offense to be instituted against any person, (c) Expose or publicize any secret or any asserted fact, whether true or false, tending to subject any person to hatred, contempt or ridicule, or to impair his credit or business repute”;  Theft by deception (attempted), N.J.S.A. 2C:20-4(a) - “A person is guilty of theft if he purposely obtains property of another by deception. A person deceives if he purposely …[c]reates or reinforces a false impression, including false impressions as to law, value, intention or other state of mind…”  Mail fraud, 18 U.S.C. § 1341, which prohibits use of the mails in furtherance of a "scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses”;  Attempted extortion under the Hobbs Act, 18 U.S.C. §1951(a), which prohibits “extortion or attempts or conspires so to do” and defining extortion as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” Reviewing the record “in the light most favorable to the non-moving party,” it is clear that the Defendants have failed to meet their “burden of demonstrating the 2 See N.J.S.A. 2C:5-1, providing that attempted offenses are chargeable as offenses; State v. Smart, 2013 N.J. Super. Unpub. LEXIS 1384, at *47-48 (N.J. Super. Ct. App. Div. June 7, 2013)(Holding that NJRICO “racketeering activity” includes inchoate versions of enumerated offenses, based on incorporated federal RICO’s definition of racketeering as including state law offenses “involving” murder, extortion, theft, etc.) 3 The letters accused the Plaintiff of violating statutes that provide for criminal prosecution. See 47 U.S.C. sec. 605(e)(1) (“Any person who willfully violates subsection (a) shall be fined not more than $2,000 or imprisoned for not more than 6 months, or both.”) Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 8 of 39 PageID: 2753 -7- absence of any genuine issues of material fact” with respect to their commission of one or more of the above-described racketeering activities. See Kornegay, 120 F.3d at 395; Aman, 85 F.3d, at 1080. The record, with all favorable inferences drawn in Plaintiff’s favor, could easily support findings that the Lonstein Defendants, with the aid of the SAI Defendants, engaged in conduct constituting “deceptive business practices” in violation of N.J.S.A. 2C:21-7(h)(“A person commits an offense if in the course of business he… makes a false or misleading written statement for the purpose of obtaining property or credit”). The summary judgment record clearly supports a finding that the Lonstein made the following “written statements” in the August 6, 2015 and August 17, 2015 “claim letters” to the Plaintiff “for the purpose of obtaining property or credit4”:  That there had been “unauthorized reception and commercial display of DIRECTV programming at your establishment in violation of the Federal Communications Act." August 6, 2015 letter.  “In order for you to have received the programming on your television, it had to have been by affirmative actions intended to purposely defraud DIRECTV, LLC.” August 15, 2015 letter. 4 “Property” as used in chapters 20 and 21 of the New Jersey criminal statues is broadly defined as “anything of value” including, without limitation, “tangible and intangible personal property,” “interests in or claims to wealth,” and “financial instruments...” N.J.S.A. 2C:20-1(g). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 9 of 39 PageID: 2754 -8-  “Said actions could only have been accomplished by overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment.” August 15, 2015 letter. Moreover, the summary judgment record, with all favorable inferences drawn in Plaintiff’s favor, could support findings that one or more of the above “written statements” were “false or misleading.” As set forth in the Plaintiff’s Supplemental Statement of Disputed Material Facts, the only information that the Lonstein firm and Julie Lonstein had from DirecTV5 regarding the Plaintiff was:  She had DirecTV television service at her beauty salon for viewing by customers;  The DirecTV television service was activated at the salon address in 2010 as a residential account;  DirecTV would periodically mail to the salon address a small-print, multipage, boilerplate “Customer Agreement” printed in English 5 The Lonstein firm’s purported client, DirecTV’s billing records for the Plaintiff’s account list the salon’s address as the account billing, and not Plaintiff’s home address, thus eliminating the possibility that she signed up for the account at her home and moved the equipment to her business, which is the primary form of commercial “misuse” of residential accounts, according to the DirecTV executive in charge of the Lonstein/SAI/DirecTV, Kent Mader. See Wolfe Decl., Exh. N. The Lonstein firm, however, insulates itself from any such exculpatory information before demanding $10,000 from small business owners, claiming it does not have “access” to these records, which apparently means it does not have direct access, but needs to ask DirecTV for them. J. Lonstein Decl, ¶¶ 19, 34 – 36. Moreover, there is evidence in the record to support a finding that the Lonstein firm and Julie Lonstein do not just act in reckless disregard of likely evidence that DirecTV retailers and installers often “authorize” residential accounts at small business establishments, but in fact attempt to suppress such evidence when confronted with it. See Wolfe Decl., Exh. K (Decl. of Craig Spencer in DirecTV v. Spina, which, contrary to the Defendants’ briefing was not stricken from the record in that case). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 10 of 39 PageID: 2755 -9- only that contained a non-conspicuous provision buried in the middle of the contract between other non-emphasized provisions that stated that exhibition of DirecTV programming in public areas was prohibited. By contrast, prior to sending the two claim letters, Julie Lonstein and the Lonstein firm had received the following information from sources other than DirecTV:  That the DirecTV services at the Plaintiff’s salon were sold to her as part of a Verizon triple-play package by a third-party retailer at her salon, who selected, installed, and authorized the DirecTV services at her salon without ever informing or consulting with Plaintiff regarding the type of subscription. Joaquin Decl., ¶¶ 5 - 11; Joaquin Dep. 55:4 – 55:23;  That other business accused of commercial misuse of a residential DirecTV account had made similar claims in the past, increasing the plausibility of Plaintiff’s claim. Wolfe Decl., Exh. G; see also Perez v. DirecTV Grp. Holdings, LLC, 251 F. Supp. 3d 1328, 1335 (C.D. Cal. 2017)(describing similar practices by DirecTV).  That the Plaintiff primarily spoke Spanish and was not fluent in English, and the “Customer agreement” that served as the only possible shred of evidence for a claim that she “intended to purposely defraud” DirecTV was not printed in Spanish.  DirecTV would periodically mail to the salon address a small-print, multipage, boilerplate “Customer Agreement” printed in English only that contained a non-conspicuous provision buried in the middle of the contract between other non-emphasized provisions that stated that exhibition of DirecTV programming in public areas was prohibited. It is evident that Julie Lonstein and the Lonstein firm could not, in good faith, infer from the information it received from DirecTV, that the Plaintiff had engaged in “affirmative actions intended to purposely defraud DIRECTV, LLC,” that she Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 11 of 39 PageID: 2756 -10- “overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment,” or even that there had been “unauthorized reception and commercial display of DIRECTV programming at your establishment in violation of the Federal Communications Act6." To make such serious statements of intentional wrongdoing, with no substantial information to support them, coupled with a demand for $10,000 (when the Plaintiff paid a total of only $2,500 less as a result of the incorrect subscription type, see J. Lonstein Dep., 124:2 – 124:21) and the threat of a ruinous lawsuit, easily qualify as “false” or at least “misleading” statements. The misleading nature of the statement that the Plaintiff “intended to purposely defraud DIRECTV, LLC” is highly relevant and material, because intent is crucial to a private action for statutory damages under 47 U.S.C. § 605. According to Lonstein, “[t]he August 17 letter specifically demanded a settlement 6 The Federal Communications Act, at 47 U.S.C. § 605, does not define “authorized,” and if Plaintiff’s and other business owners’ account of the sale and installation of DirecTV services by soliciting third-party retailers is true (which must be inferred in the context of a rule 56 motion) the service at their business establishments under residential subscription types was certainly “authorized” by a DirecTV representative. It is unlikely that a small print boilerplate, inconspicuous provision to the contrary in a bill stuffer document mailed after the installation is sufficient to withdraw that authorization. See Perez v. DirecTV Grp. Holdings, LLC, 251 F. Supp. 3d 1328, 1348 (C.D. Cal. 2017)(Holding that the same DirecTV customer agreement, mailed after the sale of services, was unenforceable with respect to an arbitration provision contained in contract). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 12 of 39 PageID: 2757 -11- proposal of no more than $10,000, which is the strict liability penalty under 47 U.S.C. §605(e)(3)(C)(i)(II).” J. Lonstein Decl. (ECF Doc 105-10), ¶ 44. This statement is simply incorrect. The statue provides for maximum statutory damages of $10,000, and in the absence of intent, permits the court to reduce the statutory damages to just $250. In any case where the court finds that the violator was not aware and had no reason to believe that his acts constituted a violation of this section, the court in its discretion may reduce the award of damages to a sum of not less than $ 250. 47 U.S.C. §605(e)(3)(C)(i)(II)(iii). Even if Lonstein had information to suggest an intentional violation, which, as explained earlier, she did not, in the absence of evidence of a willful violation, statutory damages are typically set at the difference in value obtained as a result of receipt of unauthorized services, which in the Plaintiff’s case was only $2,500. See J&J Sports Productions, Inc. v. Gallegos, 2008 U.S. Dist. LEXIS 61066, (D.N J. Aug. 5, 2008); Comcast Cable Comm. v. Bowers, 2007 U.S. Dist. LEXIS 38513 (D.N.J. May 25, 2007). Thus, the misleading and unfounded statements that “[i]n order for you to have received the programming on your television, it had to have been by affirmative actions intended to purposely defraud DIRECTV, LLC,” and “[s]aid actions could only have been accomplished by overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment” were intended to increase the apparent value of the threatened claim, and thus obtain Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 13 of 39 PageID: 2758 -12- more “property” from the Plaintiff, in violation of the deceptive business practices statute, at N.J.S.A. 2C:21-7(h). The analysis is the same for the other New Jersey predicate offices, including theft by extortion (attempted ), N.J.S.A. 2C:20-5(b) and (c), and theft by deception (attempted), N.J.S.A. 2C:20-4(a), which share essentially similar elements with the deceptive business practices office. Alleged attempts to wrongfully coerce money through threats of legal action have been held to support RICO predicates, including some of the same predicates alleged by the Plaintiff, even where the victim did not pay the demanded money. Desmond v. Siegel, 2012 U.S. Dist. LEXIS 109579, at *29 (D.N.J. Aug. 6, 2012)(finding prima facie RICO predicate violations of the Hobbs Act and the New Jersey Theft by Extortion statute where the defendant sent letters accusing the plaintiff “copyright theft” and demanding payment). While the facts of Desmond are admittedly not precisely the same as those presented here (the defendant also threatened to publically accuse the plaintiff of “financial rape”) the Court’s discussion is instructive: The Amended Complaint… sets forth acts of attempted extortion committed by Mr. Siegel against Mr. Desmond in violation of the Hobbs Act. To establish a violation of the Hobbs Act, there must be a showing that "(1) the defendant committed 'robbery or extortion' or attempted or conspired to do so, and (2) that the conduct 'obstruct[ed], delay[ed], or affect[ed] commerce or the movement of any article or commodity in commerce.'" United States v. Walker, 657 F.3d 160, 178-79 (3d Cir. 2011) (quoting 18 U.S.C. § 1951(a)). "The Hobbs Act defines the term Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 14 of 39 PageID: 2759 -13- 'commerce' broadly to include 'all . . . commerce over which the United States has jurisdiction." Id. at 179 (quoting 18 U.S.C. § 1951(b)(3)); see also Stirone v. United States, 361 U.S. 212, 215, 80 S. Ct. 270, 4 L. Ed. 2d 252 (1960) ("[The Hobbs Act] speaks in broad language, manifesting a purpose to use all the constitutional power Congress has to punish interference with interstate commerce by extortion…"). Mr. Siegel attempted to extort money from Mr. Desmond through fear. Specifically, On June 15, 2010, Mr. Siegel sent a letter on Globecon letterhead… stating that one of Mr. Desmond's companies stole intellectual property from Globecon and that "while I am not a speck as successful or powerful as you, I wager I am certainly one of the most tenacious people you would ever meet. Thus, my character requires me to achieve a just resolution on my own terms if I do not hear from you further." In a July 2, 2010 letter to Mr. Desmond, Mr. Siegel wrote: "when the facts of your financial rape and copyright theft are in the open there will be little denying it . . . light will truly be the best disinfectant," and "[i]f you cannot gather the courage to act like a man then you will do as you want, as will we." Defendants argue that these statements merely amount to a business dispute between Mr. Siegel and Mr. Desmond, for which Mr. Siegel was seeking a just resolution. While Mr. Siegel's letters stated that he sought to "resolve . . . [the] unfortunate situation[] in a reasonable manner" and that he "look[ed] forward to a fair commercial arrangement to resolve this matter, such statements are not inconsistent with an act of attempted extortion. Indeed, they serve to encourage Mr. Desmond to compensate Mr. Siegel for the alleged theft of intellectual property under threat of being subject to public allegations of "financial rape and copyright theft" and a "a just resolution on [Mr. Siegel's] own terms." ….These allegations also satisfy the elements of attempted extortion under New Jersey State Law. See N.J.S.A. 2C:20-5(c) (extortion) ("A person is guilty of theft by extortion if he purposely and unlawfully obtains property of another by . . . . Expos[ing] or publiciz[ing] any secret or any asserted fact, whether true or false, Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 15 of 39 PageID: 2760 -14- tending to subject any person to hatred, contempt or ridicule, or to impair his credit or business repute") Desmond, supra, 2012 U.S. Dist. LEXIS 109579, at *30-35. Despite the more colorful language of the letters in Desmond, Lonstein’s letters to the Plaintiff were arguably more egregious incidents of extortion, as they were directed to a small, sole proprietorship in a distressed, inner-city neighborhood threatening ruinous legal action on behalf of a large corporation. By contrast, the letters in Desmond were directed to a wealthy and powerful entrepreneur who was clearly not intimidated by them. Moreover, the Lonstein letters enclosed surveillance photos of the Plaintiff and her customers clearly intended to shock and frighten the recipient, disclosing that she had been secretly stalked, photographed, and videotaped by a stranger. The letters accused her of violating the anti-piracy provision of the Federal Communications Act, 47 U.S.C. sec. 605, which carries criminal penalties for knowing violations. One of the letters accuses the Plaintiff, without explanation or supporting facts, that “[i]n order for you to have received the programming on your television, it had to have been affirmative actions intended to purposely defraud DIRECTV, LLC. Said action could only have been accomplished by overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment.” These statements are clearly intended to intimidate, and Lonstien had no factual basis for making them, or for failing to consider the obvious alternative explanation that the choice of subscription was Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 16 of 39 PageID: 2761 -15- made by a DirecTV agent, for the perfectly rational purpose of making a sale and providing a revenue stream that the company would it would not have if it had charged a substantially higher price. The record also supports findings of violations of the mail fraud statute, which prohibits the use of the United States Postal Service in furtherance of “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations…” 18 U.S.C. §1341. This language has been interpreted as prohibiting a much broader range of conduct than ordinary common law fraud, similar to the CFA’s “unconscionable commercial practice” standard. Blachly v. United States, 380 F.2d 665, 671 (5th Cir. 1967)(“The crime of mail fraud is board in scope. The fraudulent aspect… is measured by a nontechnical standard. Law puts its imprimatur on the accepted moral standards and condemns conduct which fails to match the ‘reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society.’)(citations omitted). However, even though “[a] scheme or artifice to defraud need not be fraudulent on its face, [it] must involve some sort of fraudulent misrepresentation or omission reasonably calculated to deceive persons of ordinary prudence and comprehension.” Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 528 (3d Cir. 1998) (citation omitted). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 17 of 39 PageID: 2762 -16- Here, the Lonstien Defendants’ use of the mails to pressure the Plaintiff to pay $10,000 evinced a lack of “moral uprightness” as well as dishonesty and deception. The letter made unqualified and unfounded representations that the Plaintiff’s use of the subscription that was activated at her salon was “unauthorized” and necessarily “had to have been… intended to purposely defraud DIRECTV, LLC [and] could only have been accomplished by overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment” that Defendants had no knowledge or evidence to support. C. There is sufficient evidence to create a genuine issue of fact as to the existence of an “enterprise,” a “pattern of racketeering activity,” and violations of the NJRICO through “participation.” The Defendants’ arguments regarding the existence of an “enterprise” fail to account for the very broad meaning of the term under the NJRICO in comparison to the federal statute. Under the NJRICO, [t]he "enterprise" element will be satisfied if there exists a group of people, no matter how loosely associated, whose existence or association provides or implements the common purpose of committing two or more predicate acts. We go so far as to hold [that] the "enterprise" element is satisfied if the "enterprise" is no more than the sum of the racketeering acts. Thus, the "enterprise" does not have to be an organization whose purpose is greater than the predicate acts, nor does it have to evidence any definable structure. State v. Ball, 661 A.2d 251, 260 (1995)(citing and adopting the Appellate Division’s holding at 632 A.2d 1222] Clearly, the record could support a finding of the Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 18 of 39 PageID: 2763 -17- existence of such a “group of people, no matter how loosely associated, whose existence or association provides or implements the common purpose of committing two or more predicate acts.” Id. The existence of the Lonstien Law Firm, and its principals, Julie and Wayne Lonstien, whose demand letters and access to DirecTV customer lists allegedly implement the alleged extortion and other predicates, as well as SAI and Levine, whose role in soliciting strangers through internet advertisements to hunt down, spy on, and photograph beauticians and other small shop owners with non- commercial DirecTV subscriptions also “implements” the extortion and other predicates. Under the NJRICO, nothing else is required. Nor was the Plaintiff required to identify a RICO person” separate from the enterprise, as this requirement, called the “Enright Rule” or “distinctiveness rule,” is applicable only to the federal statute and not to the NJRICO, as observed by other judges in this district: Under the federal RICO statute, a plaintiff cannot name an enterprise as a defendant. Glessner v. Kenny, 952 F.2d 702, 711- 12 (3d Cir. 1991); Brittingham v. Mobil Corp., 943 F.2d 297, 300- 03 (3d Cir. 1991). This became known as the Enright rule, which was established to prevent the "persons" who make up the enterprise, from using the "enterprise" as a pass through to "extract money from third parties." Petro-Tech, Inc. v. Western Co. of North America, 824 F.2d 1349, 1359 (3d Cir. 1987). In stark contrast, the New Jersey courts have determined that NJRICO departs from its federal counterpart in defining "enterprise." Under N.J.S.A. 2C:41-1(b), a "'person' includes any Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 19 of 39 PageID: 2764 -18- individual, entity, or enterprise as defined [t]herein holding or capable of holding a legal or beneficial interest in property." Likewise, under N.J.S.A. 2C:41-1(c): "'Enterprise' includes any individual, sole proprietorship, partnership, corporation, business or charitable trust, association, or other legal entity, any union or group of individuals associated in fact, although not a legal entity, and it includes illicit as well as licit enterprises and governmental as well as other entities." The New Jersey courts have reasoned that since a "broader definition of 'person' eliminates the Enright distinctiveness rule for an action under New Jersey RICO," a plaintiff may name the enterprise and the various individuals who constitute that enterprise within the same count. Ball, 268 N.J. Super. at 107; Maxim Sewerage Corp., 273 N.J. Super at 95. Ford Motor Co. v. Edgewood Props., 2009 U.S. Dist. LEXIS 4172, at *40-42 (D.N.J. Jan. 20, 2009). See also Prudential Ins. Co. of Am. v. Credit Suisse Secs. LLC, 2013 U.S. Dist. LEXIS 142191, at *62 (D.N.J. Sep. 30, 2013)(“The weight of authority is that there is no distinctiveness requirement in New Jersey.”); New Jersey Reg'l Council of Carpenters v. D.R. Horton, Inc., 2011 U.S. Dist. LEXIS 109746, at *28 n.3 (D.N.J. Sept. 27, 2011)(“The New Jersey RICO statute has no distinctness requirement.”) The record is also sufficient to support a finding of a “pattern of racketeering activity,” which is also more broadly defined by the NJRICO, requiring two “incidents” of racketeering activity, rather than the two “acts” required by the federal statute. N.J.S.A. 2C:41-1(d); 18 USCS § 1961(5). This been interpreted to include two incidents of conduct undertaken in furtherance of the same crime as to Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 20 of 39 PageID: 2765 -19- the same victim over a short period of time, provided the incidents are sufficiently related, as explained by another judge of this district: Unlike the federal statute, NJRICO, as interpreted by the New Jersey courts, does not place as much emphasis on "continuity," but instead, focuses on the "relatedness" of the activity. Metz v. United Counties Bancorp, 61 F. Supp. 2d 364, 373 (D.N.J. 1999) (citing Ball, 141 N.J. at 166-69) The New Jersey Supreme Court, opining in Ball, interpreted NJRICO to include short-term patterns of racketeering activity: In the most likely setting, predicate incidents [acts] of racketeering conduct will occur sequentially over a period of time. New Jersey's legislative discussions, unlike Congress', do not indicate a concern for reaching only long-term criminal activity. But short-term criminal activity, to be covered, must encompass incidents of criminal conduct that are not disconnected or isolated. Incidents of racketeering that occur sequentially, to overcome any inference that they are totally disconnected or isolated, must exhibit some temporal connection or continuity over time. Ball, 141 N.J. at 169…. Ford argues that Edgewood cannot plead a NJRICO claim, since the grounds of the claim are based upon a "single incident" involving a "single victim." (Ford's Opp. Br. at 15). Ford further argues that the nine-month time frame in which the alleged acts took place was too narrow to be actionable under NJRICO. Id. at 16. The statute, it argues, requires multiple incidents to more than one victim over a longer stretch of time, and in support of their position cite cases from this circuit interpreting federal RICO in that vain. Id…. This Court takes note that where the New Jersey courts are silent on a particular part of NJRICO, courts will look to Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 21 of 39 PageID: 2766 -20- federal law. But, there is guidance from the New Jersey courts on this issue. In Ball, liberally interpreting NJRICO, established that the statute permits short-term patterns of activity, provided that the related incidents are not disconnected or isolated. Ball, 141 N.J. at 169 Ford Motor Co. v. Edgewood Props., 2009 U.S. Dist. LEXIS 4172, at *44-48 (D.N.J. Jan. 20, 2009). There is sufficient evidence to support a finding of the occurrence of the two incidents necessary to qualify as a “pattern of racketing activity” under the RICO. These include the mailing of a letter on August 6, 2015 and another letter on August 16, 2015 by the Lonstein Law Firm and Julie Lonstein in furtherance of the alleged attempted extortion and other predicate crimes. . Moreover, the record could support a finding that SAI and Levine, as officers of SAI, took possession of a DirecTV commercial customer list for the purpose of identifying the Plaintiff, as well as other small business owners, as a target of the extortion and other predicates, advertised for and hired a person to spy on and photograph the Plaintiff and her customers, and, through its agent, spied on and photographed and the Plaintiff and her customers. Even under the federal RICO standard, the Plaintiff has sufficiently alleged a pattern by identifying another, similar incident in which the Defendants attempted to extort money from another small business owner by accusing him of “unauthorized” commercial use his DirecTV subscription, but Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 22 of 39 PageID: 2767 -21- whose subscription had in fact been installed, activated, and authorized for use in a commercial setting by DirecTV through its agent. Finally, the record could support a finding that the Defendants violated the NJRICO, at N.J.S.A. 2C:41-2(c), which prohibits any person from participating in racketeering activity in the conduct of an enterprise. “In order to prove a violation of N.J.S.A. 2C:41-2(c), a plaintiff must allege: ‘(1) the existence of an enterprise; (2) that the enterprise engaged in or its activities affected trade or commerce; (3) that defendant was employed by, or associated with the enterprise; (4) that he or she participated in the affairs of the enterprise; and (5) that he or she participated through a pattern of racketeering activity.’ Shan Indus., LLC v. Tyco Int'l (US), Inc., 2005 U.S. Dist. LEXIS 37983, at *46-47 (D.N.J. Sep. 9, 2005)(citing State v. Ball, supra, 661 A.2d at 271). As discussed earlier, the record could amply support a finding of the existence of an enterprise, and each Defendants’ participation through a pattern of racketeering activity. The other elements are easily met, and unlike its federal counterpart, the NJRICO does not limit “participation” violations to managers and supervisors: [W]e conclude that the New Jersey statute does not contain a requirement that in order "to conduct or participate in an enterprise," a defendant must be found to exercise responsibilities of "operation or management." We hold that under N.J.S.A. 2C:41-2c, a person is "employed by or associated with an enterprise" if he or she has a position or a functional connection with the enterprise that enables him or her to engage or participate directly or indirectly in the affairs of the Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 23 of 39 PageID: 2768 -22- enterprise. Further, we hold that to conduct or participate in the affairs of an enterprise means to act purposefully and knowingly in the affairs of the enterprise in the sense of engaging in activities that seek to further, assist or help effectuate the goals of the enterprise. Those activities may include acts that are managerial or supervisory or exercise control and direction over the goals, or over the methods used to achieve the goals, of the enterprise. Participatory conduct or activities also may be found in acts that are below the managerial or supervisory level, and do not exert control or direction over the affairs of the enterprise, as long as the actor, directly or indirectly, knowingly seeks to carry out, assist, or further the operations of the enterprise or otherwise seeks to implement or execute managerial or supervisory decisions. State v. Ball, at 267-268. The above requirements for association and participation are supported by the record as to all Defendants D. There is sufficient evidence to create a genuine issue of fact regarding Plaintiff’s standing to bring a claim for treble damages under the NJRICO. The NJRICO provides a right of action for treble damages and attorney’s fees to “[a]ny person damaged in his business or property by reason of a violation…” N.J.S.A. 2C:41-4. Here the Plaintiff has sufficiently alleged such damage caused by the Defendants’ attempted extortion and other predicate acts, including the imposition of wrongful debt, attorney’s fee obligations incurred to address the threats of legal action, and the disconnection of satellite television services for which she had paid. Courts have found sufficient damages and standing in cases of attempted extortion, even where the victim refused to pay the money demanded. See, e.g., Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 24 of 39 PageID: 2769 -23- Desmond v. Siegel, 2012 U.S. Dist. LEXIS 109579, at *19-22 (D.N.J. Aug. 6, 2012); Northeast Women's Center, Inc. v. McMonagle, 689 F. Supp. 465, 473-74 (E.D. Pa. 1988). In Northeast Women’s Center, the court recognized that requiring victims of to pay the wrongful demands before suing would subject them to untenable hardship and subvert the statue’s purpose: Defendants claim that the court erred by instructing the jury that a conspiracy to commit extortion or attempted extortion may be proper predicate offenses under RICO, since, by definition, the required impact on plaintiffs' business and property is absent. This court disagrees. Sufficient evidence was adduced at trial and the jury so found that plaintiffs' property and business was harmed due to the actions of the defendants -- whether the actions go under the label of actual extortion, attempted extortion, or conspiracy to commit extortion. If defendants' assertion was correct, innocent parties would have to be completely driven out of business in order to collect damages under RICO, rather than obtaining relief from, and damages for the actions of violators when they are ongoing and continuous. Interpreting the law as defendants assert would reward them for their valiant but unsuccessful attempts. Northeastern Woman’s Center, at 473-74. In Desmond v. Siegel, 2012 U.S. Dist. LEXIS 109579 (D.N.J. Aug. 6, 2012), the court held that damages in cases of attempted extortion may include “costs associated with remediating or taking legal action against RICO conduct amount to an "out-of-pocket loss" that is actionable under RICO.(citing Weiss v. First Unum Life Ins. Co., 482 F.3d 254, 258 n. 2 (3d Cir. 2007)). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 25 of 39 PageID: 2770 -24- Recently, the 2nd Circuit has held that “[t]he imposition of a wrongful debt7 constitutes an injury to one's business or property” even if it has not been paid. Chevron Corp. v. Donziger, 833 F.3d 74, 135 (2d Cir. 2016). In Chevron, the plaintiff was subjected to a fraudulent lawsuit in a corrupt, foreign court and incurred a substantial wrongful debt. Id. The Court held that this “imposition of wrongful debt” constituted sufficient damage to confer standing under RICO, notwithstanding that the plaintiff did not pay or intend to pay it. Id. The Court also identified as injuries the plaintiff’s temporary loss of use of funds as a result of attachments issued on the wrongful judgment, as well as legal fees incurred by the plaintiff in defending the wrongful lawsuit and in the federal suit against the defendant. Id. Thus, there is ample authority to support the damages alleged by the Plaintiff as “damage to property or business” caused by the Defendants’ extortion to confer standing to sue under the NJRICO. In the context of the New Jersey Consumer Fraud Act (NJCFA), which imposes an essentially similar standing requirement for private actions8, the 7 The term “wrongful debt” is intended in the ordinary sense, and is not to be confused with “unlawful debt” which is a specifically defined term of art in the NJRICO, at N.J.S.A. 2C:41-1 meaning debt imposed by illegal gambling or usury. 8 NJCFA standing requires that the claimant “suffer ascertainable loss of moneys or property… as a result” of a violation, similar to NJRICO standing, which requires that the clamaint be “ damaged in his business or property by reason of a violation.” NJSA 2C:4-4(c). Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 26 of 39 PageID: 2771 -25- Appellate Division has recently reaffirmed longstanding precedent that imposition of improper debt constitutes sufficient ascertainable loss to confer NJCFA standing, even if the claimant did not pay the improper debt prior to filing suit. Atlantic Ambulance Corp. v. Cullum, 166 A.3d 260, 264 (N.J. Super. Ct. App. Div. 2017), cert. denied, 177 A.3d 124 (N.J. 2017). In Cullum, the Appellate Division rejected the trial court’s ruling that the plaintiffs’ failure to pay allegedly unlawful ambulance bills precluded class certification of their NJCFA claim, explaining: The judge ruled that appellants did not suffer an ascertainable loss under the CFA because [the plantiffs] failed to pay Atlantic's bill. The judge expressly rejected appellants' argument that an excessive bill from Atlantic was sufficient to prove an ascertainable loss. On appeal, Cullum and Hitti argue the judge erred in denying class certification based upon his determination that they were unable to prove an ascertainable loss to sustain a CFA claim. We conclude that the judge's denial of class certification on that basis was flawed because appellants were not required to have paid Atlantic's bill to demonstrate an ascertainable loss. The certainty implicit in the concept of an "ascertainable" loss is that it is quantifiable or measurable. Moreover, it need not yet have been experienced as an out-of-pocket loss to the plaintiff. An "estimate of damages, calculated within a reasonable degree of certainty" will suffice to demonstrate an ascertainable loss. [Thiedemann v. Mercedes-Benz USA, LLC, 183 N.J. 234, 248-49, 872 A.2d 783 (2005) (quoting Cox v. Sears Roebuck & Co., 138 N.J. 2, 22-23, 647 A.2d 454 (1994)).] In the seminal CFA case, Cox v. Sears Roebuck & Company, the Supreme Court held that non-payment did not preclude the plaintiff from establishing an ascertainable loss. Cox, supra, 138 N.J. at 22, 647 A.2d 454 ("[T]o demonstrate a loss, a victim must simply supply an estimate of damages, calculated within Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 27 of 39 PageID: 2772 -26- a reasonable degree of certainty. The victim is not required actually to spend the money for the repairs before becoming entitled to press a claim."). Cullum, 166 A.3d at 264. Given the similar standing requirements, similar remedies, and similar public purposes of the NJCFA and the NJRICO, there is no reason to conclude that the New Jersey courts would not interpret the NJRICO to similarly provide for standing on the basis of imposition of improper debt. In fact, in cases in which claimants bring both NJRICO and NJCFA claims, the standing is often treated with one analysis. are often See Dist. 1199P Health & Welfare Plan v. Janssen, L.P., 784 F. Supp. 2d 508, 530-31 (D.N.J. 2011)(collecting cases). III. THE DEFENDANTS’ LITIGATION PRIVILEGE DEFENSE WAS NOT RAISED IN THEIR PLEADINGS OR IN THEIR PREVIOUS RULE 12(b)(6) MOTION, AND IS THEREFORE WAIVED. Rule 12(b) requires that “every defense to a claim for relief in any pleading must be asserted in the responsive pleading if one is required.” Litigation privilege was not listed as an affirmative defense or raised in the Defendants’ prior motion to dismiss under Rule 12(b)(6).. Moreover, “immunity is an affirmative defense and generally must be included in a responsive pleading or may be considered waived.” Sharp v. Johnson, 669 F.3d 144, 158 (3d Cir. 2012). While there are exceptions to this rule “were the facts are not clear,” Id., that is not the case here. There was simply no justification for the Defendants to delay raising this defense Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 28 of 39 PageID: 2773 -27- for three years of litigation, involving extensive, costly, motion practice and discovery, to the prejudice of the Plaintiff. It is clear that the Defendants waived this defense. Moreover, the litigation privilege is subject to similar “sham” exception principles applicable to the Noerr-Pennington doctrine, and so even if the Defendants’ had not waived the litigation privilege, it would not apply to their demand letters to the Plaintiff seeking $10,000 for “intentional” violations of the Federal Communications Act,, which were sent in bad faith and without objective bases. See discussion under point heading V, infra. IV. THE DEFENDANTS’ OVERBROAD ASSERTION THAT THE NOERR- PENNINGTON DOCTRINE PRECLUDES IMPOSITION OF LIABILITY BASED ON AN ATTORNEY DEMAND LETTER FAILS TO ACKNOWLEDGE THAT THERE IS A SPLIT OF AUTHORITY ON THE ISSUE, AND THE THIRD CIRCUIT’S PRIOR PRONOUNCEMENTS SUGGEST THAT IT WOULD REJECT ANY SUCH BROAD IMMUNITY. Contrary to the Defendants’ suggestion that attorney demand letters have been universally granted broad immunity from liability under the Noerr- Pennington doctrine, there has in fact been little consensus and relatively scarce authority on the issue. The doctrine “originated in the anti-trust context” and initially was limited to protecting “joint efforts to influence public officials” with “antitrust ‘immunity’ [based] on two principles: first, the First Amendment right of citizens to petition the government and participate in the legitimate processes of government, and second, a statutory interpretation of the Sherman Act under which Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 29 of 39 PageID: 2774 -28- Congress is viewed as not intending the Act to reach the political process.” WE, Inc. v. City of Phila., Dep't of Licenses & Inspections, 174 F.3d 322, 326 (3d Cir. 1999). Since then, the Third Circuit “along with other courts, has by analogy extended the Noerr-Pennington doctrine to offer protection to citizens' petitioning activities in contexts outside the anti-trust area as well.” WE, Inc., at 326-327. In these cases, unlike anti-trust cases, the defense is derived entirely from the First Amendment right to petition clause, and so the purpose of Noerr-Pennington as applied in areas outside the antitrust field is the protection of the right to petition. Immunity from liability is necessary so as not to chill the exercise of that right. WE, Inc. v. City of Phila., Dep't of Licenses & Inspections, 174 F.3d 322, 327 (3d Cir. 1999). Although courts applying Noerr-Pennington outside of the anti-trust context have generally recognized the First Amendment “right to petition government” to include petitioning the courts through lawsuits, there has not been consensus regarding the degree to which demand letters threatening litigation, by themselves, qualify for protection. The Defendants rely entirely on Sosa v. DIRECTV, Inc., 437 F.3d 923 (9th Cir. 2006), which held that sending a pre-suit demand letter is Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 30 of 39 PageID: 2775 -29- conduct incidental to a lawsuit and therefore “petitioning” for Noerr-Pennington purposes in a federal RICO action.9 However, in the 10th Circuit came to the opposite conclusion in Cardtoons, L.C. v. Major League Baseball Players Ass'n, 208 F.3d 885, 887 (10th Cir. 2000), a case in which the Major League Baseball Players Association (MLBPA) sent a cease-and-desist letter to a novelty card company threatening suit if the company continued to print cards with caricatures of Major League players, the card company ceased printing the cards and sued the MLBPA for tortious interference with its contract with its printer, and the MLBPLA raised Noerr-Pennington in defense. The district court held that the defense applied to the demand letter, a panel of the 10th Circuit Court of Appeals affirmed, and on rehearing, the 10th Circuit, en banc, reversed. After noting that applications of “Noerr-Pennington” outside of the anti-trust context is based purely on the First Amendment right to petition clause (citing the Third Circuit in We, Inc., supra), the Court explained, the right to petition is not an absolute protection from liability. In McDonald [v. Smith, 472 U.S. 479, 482, 86 L. Ed. 2d 384, 105 S. Ct. 2787 (1985)], petitioner wrote a letter to President Reagan accusing respondent of fraud, blackmail, extortion, and the violation of various individuals' civil rights. Respondent was being considered for the position of United States Attorney but was not appointed. He brought 9 The other three cases cited in Defendants brief on this point, Giles v. Phelan, Hallinan & Schmieg, LLP, 11-6239, 2013 U.S. Dist. LEXIS 78161 (D.N.J. June 4, 2013), Brownsville Golden Age Nursing Home, Inc. v. Wells, 839 F.2d 155 (3d Cir. 1988), and We, Inc., supra, did not involve claims based on demand letters threatening litigation. Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 31 of 39 PageID: 2776 -30- a libel suit against petitioner, who claimed that the right to petition gave him absolute immunity in his statements to the president. The Supreme Court disagreed. To accept petitioner's claim of absolute immunity would elevate the Petition Clause to special First Amendment status. The Petition Clause, however, was inspired by the same ideals of liberty and democracy that gave us the freedoms to speak, publish, and assemble. These First Amendment rights are inseparable, and there is no sound basis for granting greater constitutional protection to statements made in a petition to the President than other First Amendment expressions. McDonald, 472 U.S. at 485 (citations omitted). The Court affirmed the lower courts in allowing the libel action to proceed. "The right to petition is guaranteed; the right to commit libel with impunity is not." Id. See also [Martin v.] City of Del City, 179 F.3d 882, 889 [(10th Cir. 1999)] (holding that right to petition is not absolute, and in state employment context, employee must demonstrate that petition for which he was fired involved matter of public concern). If MLBPA were being sued for libelous statements made in a litigation document filed with the court, McDonald would clearly allow the libel suit to continue as a matter of constitutional law. Compare Restatement (Second) of Torts § 587 (1977) ("A party to a private litigation . . . is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of or during the course and as a part of, a judicial proceeding in which he participates, if the matter has some relation to the proceeding."). Likewise, statements made in a letter threatening litigation are not absolutely protected by the petition clause of the First Amendment and are subject to the principles of state common law and state statutory law. However, even in the context of Cardtoons non-libel claims, it is clear that the right to petition simply does not grant MLBPA immunity from suit. The plain language of the First Amendment Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 32 of 39 PageID: 2777 -31- protects only those petitions which are made to "the Government."… A letter from one private party to another private party simply does not implicate the right to petition, regardless of what the letter threatens. Even the antitrust text cited by the panel majority notes that "a mere threat directed at one's competitor to sue or to seek administrative relief does not involve or 'petition' the government . . . ." Philip E. Areeda & Herbert Hovenkamp, Antitrust Law, § 205e at 237. See also Rodime PLC v. Seagate Technology, Inc., 174 F.3d 1294, 1307 (Fed. Cir. 1999) (noting that meetings at which defendant persuaded potential licensees to end license negotiations with the plaintiff "had nothing to do with petitioning the government."). Cardtoons, L.C. v. Major League Baseball Players Ass'n, 208 F.3d 885, 891-92 (10th Cir. 2000). Several courts outside of the 10th Circuit have followed Cardtoons in denying Neorr-Pennington immunity to attorney demand letters threatening lawsuits. In DIRECTV, Inc. v. Cavanaugh, 321 F. Supp. 2d 825, 830 (E.D. Mich. 2003), DirecTV sent Cavanaugh a letter accusing him of owning a signal piracy device and of signal theft, and threatening suit for $10,000 per device plus attorney’s fees. “According to Cavanaugh [DirectTV] instructed its investigators to demand payment of $ 3,500 per individual regardless of the facts or circumstances of each case. Cavanaugh also alleges DIRECTV utilized this settlement ‘strategy’ to force individuals to subscribe to lengthy subscription packages as a condition for settlement” Id. at 830. DirecTV sued, Cavanaugh countersued, claiming deceptive practices under the Michigan Consumer Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 33 of 39 PageID: 2778 -32- Protection Act (MCPA). The court rejected DirecTV’s motion to dismiss based on Noerr-Pennington, citing Cardtoons, and emphasizing that the purpose of providing immunity based on the First Amendment right to petition clause – the prevision of chilling of the exercise of that right – would not be served by providing DirecTV immunity for sending letters accusing people of serious misconduct without qualification and without investigation, to extract money from them: Pursuant to the McDonald and Cardtoons decisions, DIRECTV should not be allowed to violate the Michigan Consumer Protection Act with impunity. Cavanaugh is not foreclosed from challenging DIRECTV's use of the EUDG demand letters simply because DIRECTV made references to the validity of its legal claim and threatened litigation. If DIRECTV were being sued properly for libelous statements it had made in the demand letters, it is clear the libel suit should be permitted to proceed as in McDonald. Similarly, Cavanaugh's claim under Michigan statutory law should be allowed to proceed. Lastly, it is difficult to see how subjecting DIRECTV to liability under the MCPA would chill its right to petition the government and seek redress. At issue in this motion is not DIRECTV's right to use demand letters as a means of encouraging settlement, but rather its use of false or misleading statements in the demand letters. If Cavanaugh's allegations are proven at trial, punishing DIRECTV will not deter future use of demand letters. At best, it will encourage the company to investigate carefully its accusations and to be precise in the language it uses when attempting to settle with suspected signal pirates. DIRECTV, Inc. v. Cavanaugh, 321 F. Supp. 2d at 842. Similarly, in Shirokov v. Dunlap, Grubb & Weaver PLLC, Civil Action No. 10-12043-GAO, 2012 U.S. Dist. LEXIS 42787 (D. Mass. Mar. 1, 2012), the court, following Cardtoons, Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 34 of 39 PageID: 2779 -33- declined to apply Noerr-Pennington to a demand letter threatening litigation, observing that doing so would not further the purpose of the First Amendment right to petition clause: Here, it is difficult to see how subjecting the defendants to liability for their conduct, if appropriate, would satisfy the policy objectives of the doctrine. At issue in this motion is not the defendants' right to use demand letters as a means of encouraging settlement, but rather their use of false or misleading statements in the demand letters. If Shirokov's allegations were to be proven at trial, punishing the defendants will not deter future use of demand letters. At best, it will encourage the defendants to investigate carefully their accusations and to be precise in the language they use when attempting to settle with suspected infringers. Accordingly, this Court finds that the Noerr-Pennington doctrine does not apply under the circumstances of this case at this time. Id. at *56-57. The opinion in WE, Inc. suggests that the Third Circuit would, if faced with the question, would hold in accord with Cardtoons. In WE, Inc., the Court held that outside of the anti-trust context, Noerr-Pennington was based on the First Amendment right to petition, and that that right did not rise to the level of provide broad immunity from suit for petitioning activity, but instead served as an ordinary defense, such that a defendant may not immediately appeal an order denying immunity until the case is over. In rejecting the defendant’s argument that the First Amendment right to petition would be unduly burdened by subjecting a petitioner to a lawsuit, the Court in WE, Inc., like the Court in Cardtoons, emphasized that Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 35 of 39 PageID: 2780 -34- while “ [i]mmunity from liability is necessary so as not to chill the exercise of th[e] right [to petition],” …the Petition Clause of the First Amendment neither enjoys "special First Amendment status" nor confers an "absolute immunity" for privilege. McDonald v. Smith, 472 U.S. 479, 484-85, 86 L. Ed. 2d 384, 105 S. Ct. 2787 (1985). As the Court held in McDonald, the Petition Clause is on a par with the freedoms to speak, publish, and assemble. It follows that the protection afforded by Noerr-Pennington is no more absolute or extensive than that provided by other First Amendment guarantees. WE, Inc. v. City of Phila., Dep't of Licenses & Inspections, 174 F.3d 322, 327 (3d Cir. 1999). V. EVEN IF KNORR-PENNINGTON FIRST AMENDMENT PRINCIPLES DID APPLY TO THE DEFENDANTS’ LETTERS, THE PLAINTIFF HAS RAISED ISSUES OF BAD FAITH AND MISRERESENTATIONS THAT, IF TRUE, WOULD PRECLUDE THE DEFENSE. THEREFORE THE ISSUE CANNOT BE DECIDED ON A MOTION TO DISMISS, BUT MUST PROCEED TO DISCOVERY. Even if Noerr-Pennington principles did apply to the demand letters threatening litigation, the Defendants alleged conduct here fall under exceptions to First Amendment right to petition immunity, such as the sham litigation exception, and misrepresentation exception, that would preclude application of the defense. Plaintiff alleges that the Lonstein Defendants, with the aid of the SAI Defendants, attempted to intimidate her to pay $10,000 by sending her letters accusing her of signal theft in violation of the federal communications act, enclosing pictures that Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 36 of 39 PageID: 2781 -35- SAI had secretly taken of her and her customers, and threatening to initiate an action for penalties and attorney’s fees if she did not pay. The Plaintiff further alleges that the Defendants knew or purposefully disregarded evidence that her use of the DirecTV subscription at her business establishment was authorized because DirecTV records show that the receivers were installed and the subscription activated and authorized at that location by a DirecTV agent. One of the letters accuses the Plaintiff, without explanation or supporting facts, that “[i]n order for you to have received the programming on your television, it had to have been affirmative actions intended to purposely defraud DIRECTV, LLC. Said action could only have been accomplished by overt acts done to avoid paying the legal subscription rate for a business viewing account within a commercial establishment.” These statements are clearly intended to intimidate, and Lonstien had no factual basis for making them Moreover, the Plaintiff alleges that the Defendants have initiated this scheme, including the claim of piracy against the Plaintiff, in the context of the considerable autonomy DirecTV provided to them in policing genuine cases of piracy of their services, and not at the specific direction of their client, contrary to the Lonstein Defendants’ position that they were merely attorneys negotiating a dispute between their client and the Plaintiff. Finally, the Plaintiff has alleged that in at least one past instance the Defendants were made aware of the fact that an Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 37 of 39 PageID: 2782 -36- accused consumer had been authorized by a DirecTV agent to use the services at issue, and proceeded to seek money from the consumer. Compl, Exh. A. These allegations, if true, would preclude application of First Amendment right to petition immunity. The most common exception to the right to petition immunity, developed in the anti-trust context, is what is known as the sham litigation exception, which requires that the threatened litigation be both “objectively baseless” and that the threat be made with in subjective bad faith. In re Gabapentin Patent Litig., 649 F. Supp. 2d 340, 362 (D.N.J. 2009)(citing Professional Real Estate Investors v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60, 113 S. Ct. 1920, 123 L. Ed. 2d 611 (1993)). The “objectively baseless” prong is satisfied if a court finds that the defendant lacked “probable cause to [threaten] the litigation being challenged as sham. In re Gabapentin at 362. Notably, Courts have rejected claims of Noerr-Pennington immunity made through motions to dismiss in situations similar to that now before this Court. In Hoffman-LaRoche, Inc. v. Genpharm, Inc., for example, the court determined that: The resolution of the question whether plaintiffs' suit is objectively baseless as to Genpharm involves the determination of whether plaintiffs undertook a reasonable investigation before filing suit, whether plaintiffs knew or should have known that Genpharm had not infringed the Syntex process patents, and whether a reasonable litigant could Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 38 of 39 PageID: 2783 -37- have realistically expected success on the merits at the time the suit was filed. Reasonableness is a question of fact, and the Court cannot make such factual determinations on a factual controversy roiled by a motion to dismiss. 50 F. Supp. 2d 367, 380 (D.N.J. 1999). In re Gabapentin at 363-64 (emphasis added). Here, the record shows that the Defendants did not conduct reasonable investigation before sending the letters, and knew or should have known that the Plaintiff had been authorized to use the installed services. Therefore, the issue of the Defendant’s right to immunity from liability under the First Amendment right to petition clause cannot be decided at this early stage of the litigation. Otsuka Pharm. Co. v. Apotex Corp., 143 F. Supp. 3d 188, 196 (D.N.J. 2015)(“The inquiry into Otsuka's Noerr-Pennington immunity requires a detailed consideration of fact-sensitive issues, which cannot be resolved in the context of a motion to dismiss, and prior to discovery.”) CONCLUSION For all of the reasons set forth herein, the Plaintiff requests that the Defendants’ motions be denied. Respectfully submitted, THE WOLF LAW FIRM, LLC Dated: September 20, 2018 s/ Henry P. Wolfe Henry P. Wolfe Case 3:15-cv-08194-MAS-DEA Document 120 Filed 09/21/18 Page 39 of 39 PageID: 2784