Xcentric Ventures, L.L.C. v. Borodkin

Citations: 908 F. Supp. 2d 1040; 2012 WL 5465000Docket: No. CV-11-01426-PHX-GMS

Court: District Court, D. Arizona; November 7, 2012; Federal District Court

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Defendant Lisa Borodkin’s Motion to Dismiss Xcentric Ventures, LLC’s Verified First Amended Complaint has been granted by District Judge G. Murray Snow. Xcentric operates the website Ripoff Report, an online forum for users to discuss businesses accused of wrongdoing. The lawsuit stems from a January 27, 2010, action initiated by Asia Economic Institute, LLC (AEI) and its principals against Xcentric in California, which included claims of RICO racketeering based on alleged extortion and wire fraud. AEI accused Xcentric of manipulating Ripoff Report to highlight negative posts about them and coercing AEI into paying for favorable treatment through its Corporate Advocacy Program (CAP).

Initially represented by Daniel Blackert, Borodkin joined the AEI Plaintiffs’ legal team in April 2010. During proceedings, the California court required the AEI Plaintiffs to provide declarations concerning alleged extortion. Mobrez's declaration claimed Magedson stated it would cost AEI $5,000 to remove negative posts and that joining the CAP was the only way to mitigate damage. Llaneras corroborated Mobrez’s account. However, Xcentric later revealed recorded conversations that contradicted the AEI Plaintiffs' claims, leading to accusations of perjury against them. Subsequently, Mobrez and Llaneras submitted corrected affidavits that omitted any mention of threats or demands for payment by Magedson but maintained that someone from Xcentric mentioned a fee related to CAP. Borodkin and Blackert were allegedly involved in drafting these revised statements.

Borodkin continued representing the AEI Plaintiffs in their California case, filing a Rule 56(f) motion for further discovery on July 9, 2010, just before a hearing on Xcentric's summary judgment motion. The District Court denied this motion and granted Xcentric's summary judgment regarding the RICO extortion claims, while dismissing the RICO wire fraud claims with leave to amend. Borodkin filed a First Amended Complaint on July 27, 2010, asserting multiple claims, including wire fraud under RICO and unfair business practices, alleging that Xcentric manipulated online reviews based on participation in a program called CAP and concealed high fees associated with it.

On September 27, 2010, Xcentric moved for summary judgment again. Two hours before a scheduled hearing on November 1, 2010, Borodkin filed another Rule 56(f) motion to delay the hearing for additional discovery concerning James Rogers, a former assistant to Magedson, claiming difficulties in arranging his deposition. Xcentric contested the accuracy of these statements. The District Court vacated the hearing, and by May 4, 2011, granted summary judgment to Xcentric on the remaining claims.

On July 18, 2011, Xcentric initiated a new action against AEI and several individuals, including Borodkin, alleging malicious prosecution and aiding and abetting tortious conduct. Following a court order for clarification, Xcentric filed a First Amended Complaint on March 16, 2012, which included claims against Borodkin for wrongful continuation of civil proceedings and aiding and abetting tortious conduct. Borodkin moved to dismiss these claims under Rule 12(b)(6) for failure to state a claim and requested judicial notice of certain documents referenced in the complaint.

The legal standard for dismissal requires a complaint to provide sufficient factual allegations to suggest a plausible right to relief, moving beyond mere labels or speculative claims, with the necessity of pleading enough facts to support reasonable inferences of the defendant's liability.

A complaint that does not allow the court to infer more than a mere possibility of misconduct fails to demonstrate entitlement to relief. In evaluating a complaint under Rule 12(b)(6), all material factual allegations are accepted as true and viewed favorably towards the nonmoving party. However, legal conclusions presented as factual allegations lack presumption of truth, and conclusory allegations or unwarranted inferences cannot defeat a motion to dismiss. Courts can only consider allegations in the pleadings or documents referenced within, with exceptions for documents whose contents are alleged in the complaint and not physically attached, and for public records. Judicial notice is limited to the authenticity and existence of public records, not the truth of their contents, focusing on facts not subject to reasonable dispute.

In the analysis section, Xcentric alleges Borodkin for "wrongful continuation of civil proceedings," a form of malicious prosecution under California law, which is disfavored to promote access to courts. To survive a motion to dismiss, three elements must be established: (1) the prior action was initiated by the defendant and favorably resolved for the plaintiff; (2) it lacked probable cause; and (3) it was initiated with malice. Borodkin challenges the first element regarding wire fraud claims, arguing they were voluntarily dismissed, and claims Xcentric fails to show the remaining claims were brought without probable cause or were maliciously continued. A plaintiff can demonstrate a lack of probable cause if they rely on facts they have no reasonable basis to believe or pursue a legal theory that is untenable based on known facts. The determination of probable cause is a legal question for the court, with a high burden on the plaintiff to demonstrate a lack of it, as California law favors the defendant in malicious prosecution claims.

Xcentric alleges that Borodkin pursued the California Action without probable cause through two main arguments: factual and procedural. Firstly, Xcentric claims that Borodkin's clients, Mobrez and Llaneras, provided false statements in their declarations, which Borodkin should have recognized as baseless, particularly after the clients submitted corrected affidavits following notification from Xcentric’s counsel about a tape recording. Xcentric further argues that the extortion claim was unfounded due to AEI's lack of revenue. Secondly, Xcentric points to Borodkin's last-minute Rule 56(f) motions, asserting they contained false statements and served only to extend litigation, underscoring the meritlessness of the claims.

The court must assess the entirety of the claims pursued by Borodkin, noting that a malicious prosecution claim can be valid even if only some claims lack probable cause. Xcentric's focus is primarily on the extortion claims, contending that Borodkin lacked reasonable belief in the facts supporting these claims, particularly because Mobrez and Llaneras made false statements in May 2010 about conversations with Magedson. Although Borodkin only aided in filing corrected affidavits, Xcentric argues that the revisions should have alerted her to the falsity of the extortion claims. While attorneys can generally rely on client information, they must not rely on known falsehoods. Xcentric contends that Borodkin discovered the falsehoods in the clients' declarations yet continued to pursue the extortion claim based on those false declarations.

The excerpt identifies two key issues regarding Borodkin's involvement in a legal matter. First, the First Amended Complaint (FAC) does not establish that Borodkin participated in the initial declarations containing false statements; her role began with the corrected affidavits. Even if one were to infer her involvement earlier, the only evidence cited for her awareness of any falsehoods comes from communication between Xcentric’s counsel and her clients, which does not sufficiently demonstrate knowledge of false allegations. Second, the original complaint in the California action relied on various communications, not solely on conversations between Mobrez and Magedson. Xcentric contests the RICO claims, asserting they lacked probable cause due to Borodkin's inability to prove economic damages; however, the absence of revenue does not negate the possibility of economic damages. Xcentric's FAC suggests that Borodkin's legal theory aimed to bypass limitations imposed by the Communications Decency Act (CDA). The initial complaint referenced conversations supporting extortion claims against Xcentric, alleging threats and coercion related to their CAP program. A parallel case, Hy Cite Corp. v. badbusinessbureau.com, upheld a similar extortion claim, emphasizing that soliciting fees to remove false complaints does not legitimize such demands. Ultimately, the California District Court dismissed Borodkin’s claims for lack of evidence, noting that the communications did not imply that participating in the CAP program would lead to the removal of negative reports.

The Court assessed the allegations in Xcentric’s First Amended Complaint (FAC) and relevant judicial documents, concluding that Borodkin's legal theory was not so unreasonable that no reasonable attorney would have pursued it. The Hy Cite court deemed the theory tenable during a motion to dismiss, even though the California District Court later found insufficient evidence for Borodkin's clients. The absence of legal authority or presence of contrary decisions does not negate probable cause; a claim can still be valid without indisputable legal support. Xcentric's assertion that Borodkin's Rule 56(f) motion for additional discovery indicated a lack of legal basis for her claim was deemed implausible due to insufficient factual support. The purpose of discovery is to unearth facts to support a claim, and Xcentric did not demonstrate that Borodkin should have known her clients lacked a valid claim. The Court noted that the motion did not harm Xcentric and that the California District Court issued its summary judgment shortly after. Therefore, Xcentric's claim of malicious prosecution was insufficient as Borodkin had probable cause to pursue the extortion action.

Furthermore, regarding the RICO wire fraud and unfair business practices claims, Borodkin argued that Xcentric failed to state a malicious prosecution claim since she voluntarily dismissed the RICO/wire fraud claim. The initial element for a malicious prosecution claim requires that the prior proceeding concluded favorably for the plaintiff. Although the California District Court's summary judgment did not clarify which claims were rejected or dismissed, the Court accepted Xcentric's assertion that the claims were pursued to a legal termination in its favor.

Xcentric's First Amended Complaint (FAC) claims that Borodkin knowingly presented groundless allegations without providing factual support for this assertion. The primary issue is whether Borodkin's wire fraud theory was unreasonable. Unlike the extortion claim, Xcentric’s FAC lacks allegations explaining why the wire fraud claim was deemed groundless. Borodkin, representing her clients in the California FAC, detailed how Ripoff Report allegedly manipulated HTML coding to commit fraud. Despite the wire fraud claim being dismissed, there was probable cause for Borodkin to pursue it, supported by California legal precedent such as Levitt v. Yelp, which allowed similar claims under the unfair competition statute. Although the evidence presented may not have been sufficient to prove wire fraud, it did not lack probable cause necessary to support a malicious prosecution claim.

Xcentric's argument regarding Borodkin's last-minute motion does not demonstrate a lack of probable cause for the wire fraud claim, nor does it prove that her discovery requests were irrelevant or harassing. The inconvenience of Xcentric’s attorney traveling for a hearing does not meet the burden needed for malicious prosecution. Therefore, Xcentric's FAC fails to adequately allege facts supporting its malicious prosecution claim related to wire fraud and unfair business practices.

Additionally, the remaining derivative claims—defamation, intentional and negligent interference with economic relations, deceit, and fraud—also lack sufficient factual basis to question the truthfulness of Borodkin’s claims. The California District Court determined that these claims were barred by the Communications Decency Act (CDA) since Xcentric acted as an information service provider, not a publisher of the content. While a plaintiff had previously sought injunctive relief against a Ripoff Report author, the Northern District of Illinois ruled that this judgment could not compel Xcentric to remove the report, as it was not a party to that lawsuit. In her November 2010 motion, Borodkin acknowledged that while plaintiffs have remedies against the authors of the reports, the defendants were obstructive in revealing authors' identities and complying with court orders.

Joining Defendants is essential for Plaintiffs to ensure Defendants are bound by any court orders granting relief. Defendants, as seen in Blockowicz v. Williams, argue that without being parties to a defamation case, they lack notice and the opportunity to be heard, thus are not bound by court orders to remove defamatory content. Borodkin may have included derivative claims against Xcentric to secure content removal from the original authors, which she maintained during the summary judgment stage. She had a plausible legal basis for these claims under the generous probable cause standard, despite their historical ineffectiveness against Xcentric alone. Xcentric's First Amended Complaint (FAC) fails to substantiate any allegation that Borodkin lacked probable cause for pursuing the derivative claims, necessitating dismissal of the malicious prosecution claim without needing to review the third element.

Most allegations in Xcentric's FAC focus on extortion but do not substantiate a malicious prosecution claim. Similarly, the FAC does not provide adequate allegations to support a claim for aiding and abetting malicious prosecution against Borodkin, leading to the dismissal of this claim as well. The court concluded that Xcentric has not stated a viable claim against Borodkin, resulting in the dismissal of all claims against her. Borodkin’s Motion to Dismiss is granted, and she is removed from the action. The parties' requests for oral argument are denied as unnecessary. The court takes judicial notice of various related documents and decisions from the California District Court, including a prior summary judgment decision and a Rule 56(f) motion. Default judgment has been entered against Blackert and AEI.

Xcentric's argument that probable cause is a subjective inquiry inappropriate for resolution at the 12(b)(6) stage is deemed incorrect by the Court. Borodkin appears to have moved away from relying on oral conversations post-May 2010 to substantiate the extortion claim. The Plaintiffs, as indicated in their Opposition, do not depend on the substance of phone calls for their attempted extortion claims; instead, they focus on emails from Magedson to Mobrez and content from the Defendants’ website. Previous cases cited by Borodkin, including Giordano v. Romeo and Levitt v. Yelp! Inc., are noted to be irrelevant as they primarily discuss immunity under the Communications Decency Act (CDA) without substantiating extortion claims against Xcentric. Additionally, the Court refuses to consider a colloquy from a July 12, 2010, hearing included in Xcentric's Response, as it was not part of the First Amended Complaint (FAC), nor will the Court convert Borodkin’s motion to dismiss into a summary judgment motion.