Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-00990/USCOURTS-azd-2_05-cv-00990-3/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question: Securities Violation

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

PAMELA THOMPSON, an individual,

and as guardian of GABRIELLA

THOMPSON, MATTHEW THOMPSON,

MARCUS THOMPSON, MICHAEL

THOMPSON, and THE THOMPSON

GROUP, P.C., an Arizona professional

corporation,

Plaintiffs, 

vs.

George Paul and Karen Paul, husband and

wife; Tom Morgan, an individual; Scott

Dewald and Deborah Jamieson, husband

and wife; LEWIS AND ROCA LLP, an

Arizona Limited Liability Partnership;

CAPITOL DETECTIVE AGENCY, INC.,

an Arizona corporation; DOES 1 through

100, inclusive,

Defendants. 

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No. CV 05-990-PHX-MHM

ORDER

Currently before the Court is Defendant Capitol Detective Agency, Inc.’s Motion

to Dismiss (Dkt. #104), and Defendants Lewis and Roca LLP, George Paul, Tom

Morgan, and Scott Dewald’s (and their respective spouses) Motion to Dismiss (Dkt.

#105). Also before the Court are Plaintiffs’ Motion for Reconsideration (Dkt. #118) and

Motion for Leave to File a Second Amended Complaint (Dkt. # 119). After reviewing

the pleadings and hearing oral argument on May 20, 2009, the Court issues the following

order.

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1

When presented with a motion to dismiss for failure to state a claim under

Fed.R.Civ.P. 12(b)(6), the Court must assume all of the allegations in the complaint are true.

See, e.g., Wyler Summit Partnership v. Turner Broad. Sys. Inc., 135 F.3d 658, 661 (9th Cir.

1998) (“[A]ll well-pleaded allegations of material fact are taken as true and construed in a

light most favorable to the nonmoving party.”). As such, the factual background is taken

from the allegations in Plaintiffs’ complaint.

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I. FACTUAL BACKGROUND1

From January 2001 through May 2002, Plaintiff Pamela Thompson (“Thompson”)

worked as the Chief Financial Officer, Secretary, and Treasurer of YP.Net, Inc.

(intermittently referred to as “YP”), a publicly traded company. (First Amended

Complaint (“FAC”) ¶¶ 12, 19 (Dkt. #92)). In or around April 2002, Defendant George

Paul (“Paul”), an attorney from the Arizona law firm Lewis and Roca LLP (“L&R”), who

represented YP.Net and Angelo Tullo (“Tullo”), the Chief Executive Officer of YP.Net,

told Thompson that “we have been having you followed,” and he “showed [Thompson]

and two other witnesses a picture of her parked car.” (FAC ¶¶ 18, 91). The L&R

attorneys had hired Defendant Capitol Detective Agency, Inc. (“CDA”) to follow

Thompson and her children. (FAC ¶ 94). Thompson then resigned from YP.Net in May

2002 “because of questionable accounting and auditing practices at the company. More

specifically, . . . because of the refusal of YP.Net, its officers and directors, and its

professionals to make proper disclosures to the Securities and Exchange Commission.” 

(Id.). “When Thompson resigned from YP, she forwarded her resignation from YP to the

SEC Enforcement Division because of her concerns about the conduct at YP.” (FAC ¶

13).

YP.Net immediately filed a civil suit against Thompson in an attempt to protect

Tullo, who was then subject to criminal investigation by several federal agencies. (FAC

¶¶ 14, 23). In particular, the lawsuit allegedly “was initiated against Thompson as a form

of harassment to keep her from cooperating with [American Business Funding Corp.

(“ABF”)] in adversary proceeding . . . in Bankruptcy Court, to keep her from cooperating

with the defendants in the sham litigation that Tullo filed against ABF’s officers and

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directors (a total of sixteen separate lawsuits), and to keep [her] from cooperating with

federal and state law enforcement officials.” (FAC ¶ 21). Thompson filed counterclaims

in September 2003. (Id.).

In or around June 2000, while representing Commercial Finance Services, Inc.

(“CFS”), “an alter ego of YP, where YP funds were used to fund CFS ventures,” the L&R

attorneys became aware “that Tullo was a target of a criminal investigation with several

federal law enforcement agencies.” (FAC ¶ 16). Tullo’s “criminal matters were never

disclosed in any Securities and Exchange Commission filings.” (FAC ¶ 19). During the

pendency of the litigation between Thompson and YP.Net, Defendant Paul “denied any

and all knowledge of a criminal investigation including up through April of 2004 when

the Lewis and Roca Defendants withdrew from their representation based on their claim

that they had a conflict of interest.” (FAC ¶ 30).

Between April or May 2002, and February 2004, the L&R attorneys, by and

through CDA employees, “stalked and harassed” Thompson and her children. (FAC ¶¶

90-105). Specifically, on May 28, 2002, Thompson “was physically assaulted at the

Phoenix City Grill. . . . [T]he Lewis and Roca Defendants hired these individuals.” (FAC

¶ 95). Then, on August 26, 2002, “a man in a white vehicle approached Thompson’s

daughter on her way home from school and harassed her about her laptop computer,”

(FAC ¶ 96); in September 2002, “a man sat in a white four-door car in front of

Thompson’s house for several hours on three separate occasions” (id. ¶ 98); in November

2002, “a man sat in a white four-door car in front of Thompson’s house for several hours”

(id. ¶ 99); in December 2002, “a man sat in a blue SUV in front of Thompson’s house for

several hours” (id. ¶ 100). 

On April 26, 2003, Randy Papetti, an L&R attorney, allegedly confirmed that the

L&R attorneys were having Thompson and her children followed. (FAC ¶ 92). Also, in

September 2003, the L&R attorneys allegedly “sent a drunken process server to

Thompson’s house who assaulted one of her triplet sons by grabbing him.” (FAC ¶ 103). 

And finally, in February 2004, “a man in a blue SUV followed Thompson’s children

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home from the school bus stop, . . . . attempted to walk around to the back of the house

and then came to the front door and banged on it at 9:30 p.m. The man . . . followed the

children home from school several times that month and would sit in front of Thompson’s

house for hours on end.” (FAC ¶ 104). Moreover, Plaintiff alleges that Defendant Tom

Morgan, an L&R attorney, repeatedly referred to her children as “tar babies” throughout

this time period. (FAC ¶ 27). 

On April 22, 2004, Thompson and YP.Net “entered into a settlement

memorandum” to resolve YP.Net’s civil suit against Thompson, whereby Thompson was

to receive 255,000 shares of common stock in YP.Net. (Id. ¶¶ 32-33, 39). At that time,

Defendant Paul again acknowledged that the L&R attorneys had Thompson followed. 

(FAC ¶ 93). In addition, Thompson “made it clear to all parties including the Lewis and

Roca Defendants that she intended to sell the stock she received in the settlement as soon

as possible.” (FAC ¶ 35). The settlement was to be executed on April 26, 2004. (FAC ¶

32). 

In part, Thompson entered into the settlement agreement “ based upon” the

“representations by the Lewis and Roca Defendants” that “[t]here in fact was no criminal

investigation targeted at the CEO of YP, Angelo Tullo.” (FAC ¶¶ 32, 33, 43, 45). 

Thompson “had no knowledge of the status of any pending investigation of Tullo or even

if there was an investigation of Tullo at that time.” (FAC ¶ 32). Yet by April 22, 2004,

the L&R attorneys allegedly knew “there was a criminal investigation involving Angelo

Tullo” and that “it was foreseeable that if Tullo was indicted the stock price of YP would

be affected dramatically.” (FAC ¶¶ 34, 42, 44). Thus, the L&R attorneys allegedly made

their false representations “with knowledge of their falsity and knowingly omitted or

failed to disclose facts needed to cause their representations and communications to be

accurate and truthful.” (FAC ¶ 44). 

“Moments before the final settlement documents in the YP litigation could be

executed, the Lewis and Roca Defendants withdrew from the YP litigation due to an

undisclosed conflict that they had purportedly just discovered.” (FAC ¶ 36). Because of

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the last minute withdrawal, “YP had to retain new counsel” and postpone the execution of

the settlement. (FAC ¶ 37). “The settlement was ultimately finalized on May 24, 2004,” 

(Id.).

“[T]hree days later, on May 27, 2004, Tullo was indicted on 29 counts of fraud,

conspiracy, money laundering, and orchestrating a ponzi scheme.” (FAC ¶ 38). “As a

result of Tullo’s indictment,” the value of YP.Net’s common stock that Thompson

received under the settlement, which had been “valued at more than one million dollars”

at the time of the settlement, “plummeted in value from more than $5.00 per share to less

than $1.00 per share.” (FAC ¶¶ 39, 43).

II. PROCEDURAL HISTORY

On April 1, 2005, Plaintiffs filed a complaint against the law firm of Lewis &

Roca LLP, three individual partners in the firm (the “L&R attorneys”), two spouses of

those partners (collectively “the L&R Defendants”), and the Capitol Detective Agency

(“CDA”), alleging claims for: 1) violation of Section 10(b) of the Securities Exchange

Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (“the Section

10(b) claim”); 2) abuse of process; 3) wrongful institution of civil proceedings; 4)

fraudulent misrepresentation; 5) negligent misrepresentation; 6) third party professional

negligence; 7) tortious interference with contractual relations; 8) intentional infliction of

emotional distress (“IIED”); and 9) negligent infliction of emotional distress (“NIED”)

(collectively “the state law claims”). (Compl. ¶¶ 46-131 (Dkt. #1)). Defendant CDA

was named only in Counts Eight (IIED) and Nine (NIED). 

On June 6, 2005, the L&R Defendants moved to dismiss all of the claims in

Plaintiffs’ complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). (Dkt. #11). 

The Court granted in part and denied in part the L&R Defendants’ Motion to Dismiss on

December 5, 2005. (Dkt. #33). The Court dismissed with prejudice Plaintiffs’ Section

10(b) claim and related state law claims for fraudulent and negligent misrepresentation,

and third party professional negligence, as well as the claim for tortious interference with

contractual relations; any amendment would have been futile. (Id., pp. 10-11). The Court

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2

In its December 6, 2005 order, the Court inaccurately stated that Defendant Capitol

Detective Agency (“CDA”) did not join in the L&R Defendants’ Motion to Dismiss. (Dkt.

#33, p.1 n.1). As stated in the Court’s February 1, 2006 order, the Court overlooked CDA’s

joinder in the L&R Defendants’ Motion to Dismiss as CDA waited until October 21, 2005,

the day after oral argument had been presented on the L&R Defendants’ Motion, to file their

joinder. (Dkt. #26).

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dismissed without prejudice Plaintiffs’ state law claims for abuse of process, wrongful

institution of civil proceedings, and NIED. (Id., p.11). In addition, although the Court

determined that Plaintiffs adequately pled their IIED claim, the Court declined to exercise

supplemental jurisdiction over that one remaining state law claim pursuant to 28 U.S.C. §

1367(c). (Id., p.10).

On December 7, 2005, Defendant Capitol Detective Agency filed a Motion for

Clarification, noting that the Court incorrectly stated that CDA had not joined in the L&R

Defendants’ Motion to Dismiss,2

 and asking that the Court clarify that CDA was also

entitled to the relief granted to the L&R Defendants, or in the alternative to dismiss

Plaintiffs’ state law IIED and NIED claims for lack of subject matter jurisdiction. (Dkt.

#34). The Court granted CDA’s Motion for Clarification on February 1, 2006, dismissing

without prejudice Plaintiffs’ NIED claim against CDA, and declining to exercise

supplemental jurisdiction over Plaintiffs’ IIED claim, the sole remaining state law claim. 

(Dkt. #34). 

On December 19, 2005, Plaintiffs moved the Court to reconsider its December 5,

2005 dismissal of Plaintiffs’ claims arising out of the alleged fraudulent statements made

by the L&R Defendants, and to certify a question of state law to the Arizona Supreme

Court pursuant to A.R.S. § 12-1861. (Dkt. #35). However, as the request for certification

was untimely, and the motion lacked merit and only asked the Court to rethink what it had

already thought, the Court denied the motion. (Dkt. #48).

On March 13, 2006, Plaintiffs filed a Notice of Appeal of the December 5, 2005

and February 13, 2006 orders. (Dkt. #51). Plaintiffs raised two issues on appeal,

“relevant only to possible liability of the L&R defendants”: “First, Thompson contends

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that the district court erred in dismissing her claim under Section 10(b) because it

incorrectly relied on state rather than federal law. Second, Thompson contends that the

district court erred in denying her request to certify the question of state law.” Thompson

v. Paul, 547 F.3d 1055, 1058 (9th Cir. 2008). 

On October 27, 2008, the Ninth Circuit reversed and remanded in part, and

affirmed in part, this Court’s December 5, 2005, and February 13, 2006 orders. Id. at

1065. The Ninth Circuit noted that “the district court was not well served by the

attorneys who appeared before it”; “by erroneously framing the question of attorney

liability under Section 10(b) as one basically controlled by state law and then failing to

cite the federal cases on point, the parties invited the district court to engage in [ ] state

law analysis.” Id. at 1060. Nonetheless, the Ninth Circuit reversed the dismissal of

Plaintiffs’ Section 10(b) claim, holding that “Thompson’s complaint states a claim upon

which relief can be granted under Section 10(b),” and that Plaintiffs’ complaint satisfies

the heightened pleading requirements of the PSLRA. Id. at 1063, 1065. The Ninth

Circuit then affirmed the denial of Plaintiffs’ motion to reconsider and to certify a

question of state law to the Arizona Supreme Court. Id. at 1065.

After receiving the Ninth Circuit mandate, the Court held a telephonic status

hearing with the parties on December 8, 2008. (Dkt. #86). The Court directed counsel to

meet and confer both prior to and subsequent to the filing of any amended complaint. 

(Id.). And on January 5, 2009, Plaintiffs filed a First Amended Complaint, reasserting

every claim in their original complaint, save NIED. (FAC ¶¶ 40-116). Plaintiffs also

reasserted their IIED claim against the Capitol Detective Agency. (FAC ¶¶ 89-116). The

Court then held a Rule 16 Case Management Conference on February 9, 2009, and

advised counsel that discovery would commence at that time on Plaintiffs’ Section 10(b)

claim. (Dkt. #99). The Court issued its Scheduling Order on February 12, 2009. (Dkt.

#102).

On February 13, 2009, the L&R Defendants moved to dismiss Plaintiffs’ First

Amended Complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). (Dkt. #105). 

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3

LRCiv. 7.2(g)(2) provides, in pertinent part, that “no motion for reconsideration may

be granted unless the Court provides an opportunity for response.” Although the Court did

not direct the L&R Defendants to file a response to Plaintiffs’ Motion for Reconsideration

pursuant to LRCiv. 7.2(g)(2), it will consider the motion as the L&R Defendants have

substantively responded to the motion for reconsideration in both their Reply in Support of

the Motion to Dismiss Plaintiffs’ First Amended Complaint (Dkt. #126, pp. 4-6) and their

Response to Plaintiffs’ Motion for Leave to File a Second Amended Complaint (Dkt. #127,

p.8).

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Defendant CDA also moved to dismiss Plaintiffs’ IIED claim against them at that time. 

(Dkt. #104).

On March 23, 2009, Plaintiffs responded to Defendants’ respective Motions to

Dismiss, and also moved the Court for leave to file a second amended complaint (Dkt.

#119), and to reconsider the Court’s December 5, 2005 order to dismiss with prejudice

Plaintiffs’ claims for fraudulent misrepresentation (Count 4) and negligent

misrepresentation (Count 5). (Dkt. #118). Plaintiffs, through their proposed second

amended complaint seek to, among other things, dismiss their claims of third party

professional negligence (Count 6) and tortious interference with contractual relations and

business expectancy (Count 7). (Dkt. #s 92, 120).

III. MOTION FOR RECONSIDERATION3

Pursuant to LRCiv 7.2(g), Plaintiffs move the Court for relief from its previous

order dismissing Plaintiffs’ claims of fraudulent and negligent misrepresentation against

the L&R Defendants. (Dkt. #118). Plaintiffs contend that their motion is appropriate

because a recent decision by the Arizona Court of Appeals – Chalpin v. Snyder, 2008 WL

4659438 (Ariz. App. Div. 1 2008) – constitutes a “showing of new facts or legal authority

that could not have brought to [the Court’s] attention earlier with reasonable diligence.” 

LRCiv. 7.2(g)(1). Defendants label Plaintiffs motion as “bizarre” and argue that any

reconsideration is foreclosed by “the principle of res judicata, which bars parties from

reasserting claims that are dismissed with prejudice and not appealed.” (Dkt. #127, p.8;

Dkt. #126, pp. 5-6). Plaintiffs reply that “Defendants’ invocation of [ ] post-judgment

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4

Fed.R.Civ.P. 60(b)(5) is inapplicable: (1) “changes in the law are insufficient to

trigger Rule 60(b)(5), as the ‘relation between the present judgment and the prior judgment

must . . . be closer than that of a later case relying on the precedent of an earlier case’”; (2)

“[b]ecause [Plaintiffs] failed to preserve their challenges to the adverse judgments, they could

not subsequently move for relief under Rule 60(b)(5).” California Medical Ass’n v. Shalala,

207 F.3d 575, 578 (9th Cir. 2000) (quoting Tomlin v. McDaniel, 865 F.2d 209, 211 (9th Cir.

1989))

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rules and doctrines as res judicata and Federal Rule of Civil Procedure 60(b) are,

however, misplaced. . . . the applicable rule is that of law of the case.” (Dkt. #135, p.11)

(emphasis in original).

Motions for relief from judgments or orders (commonly referred to as

“reconsideration”) are authorized by Fed.R.Civ.P. 60(b) and LRCiv 7.2(g). The Court’s

December 5, 2005 order constitutes a judgment on the merits as to those issues not raised

or reversed on appeal. See Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3

(1981) (“The dismissal for failure to state a claim under Federal Rule of Civil Procedure

12(b)(6) is a ‘judgment on the merits.’”). Plaintiffs did not appeal their claims of

fraudulent and negligent misrepresentation. Thompson, 547 F.3d at 1058. As such,

Plaintiffs’ “Motion for Reconsideration” is necessarily brought pursuant to Rule 60(b),

presumably subsection (b)(6): “On a motion and just terms, the court may relieve a party

or its legal representative from a final judgment, order, or proceeding for the following

reasons: . . . (6) any other reason that justifies relief.” Fed.R.Civ.P. 60(b)(6).4

The doctrine of res judicata does not bar Plaintiffs’ motion for relief under

Fed.R.Civ.P. 60(b)(6). Res judicata provides that “[a] final judgment on the merits of an

action precludes the parties or their privies from relitigating issues that were or could

have been raised in that action.” Moitie, 452 U.S. at 398 (citations omitted). However,

res judicata applies only when there is a second action; it does not apply to continuing

proceedings in the same litigation. In re Freeman, 489 F.3d 966, 968 n.1 (9th Cir. 2007). 

Although this case is on remand and the Court’s December 5, 2005 order constitutes a

judgment on the merits on those issues not appealed, this case involves a single

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“The difference between the law of the case and res judicata is that ‘one directs

discretion, the other supersedes it and compels judgment.’” United States v. Miller, 822 F.2d

828, 832 (9th Cir. 1987) (quoting Southern Railway Company v. Clift, 260 U.S. 316, 319

(1922)).

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continuing lawsuit, not separate, parallel lawsuits. Thus, as this case is proceeding on

remand in the same case, the doctrine of res judicata does not apply. See Arizona v.

California, 460 U.S. 605, 619 (1983) (“It is clear that res judicata and collateral estoppel

do not apply if a party moves the rendering court in the same proceeding to correct or

modify its judgment.”).

The Court’s decision to depart from its prior judgment is governed by the “law of

the case” doctrine.5

 See Mizuho Corp. Bank (USA) v. Cory & Associates, Inc., 341 F.3d

644, 653 (7th Cir. 2003) (“Within a particular suit, the correct doctrine to consider is law

of the case.”); Hull v. Freeman, 991 F.2d 86, 90 (3rd Cir. 1993) (“Relitigation of issues

previously determined in the same litigation is controlled by principles of the law of the

case doctrine rather than collateral estoppel.”); Pyramid Lake Paiute Tribe of Indians v.

Hodel, 882 F.2d 364, 369 n.5 (9th Cir. 1989) (“Under the [law of the case] doctrine, . . . a

trial court has discretion to reconsider its prior, non-final decisions.”). “[T]he doctrine

posits that when a court decides upon a rule of law, that decision should continue to

govern the same issues in subsequent stages in the same case.” Arizona, 460 U.S. at 618;

Williamsburg Wax Museum, Inc. v. Historic Figures, Inc., 810 F.2d 243, 250 (D.C. Cir.

1987) (“Under the law of the case doctrine, a legal decision made at one stage of

litigation, unchallenged in a subsequent appeal when the opportunity to do so existed,

becomes the law of the case for future stages of the same litigation, and the parties are

deemed to have waived the right to challenge that decision at a later time.”); Miller, 822

F.2d at 832 (“The rule is that the mandate of an appeals court precludes the district court

on remand from reconsidering matters which were either expressly or implicitly disposed

of upon appeal.”). “But a court may have discretion to depart from the law of the case if:

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The Court is aware of the apparent conflict between the standards for departing from

the law of the case doctrine and for granting relief under Fed.R.Civ.P. 60(b)(6). Compare

Cuddy, 147 F.3d 1114 (“[A] court may have discretion to depart from the law of the case if:

1) the first decision was clearly erroneous; 2) an intervening change in the law has occurred;

. . .”) with Agostini v. Felton, 521 U.S. 203, 239 (“Intervening developments in the law by

themselves rarely constitute the extraordinary circumstances required for relief under Rule

60(b)(6) . . .”); McKnight v. U.S. Steel Corp., 726 F.2d 333, 337 (7th Cir. 1984) (“Plaintiff

may not, however, use Rule 60(b) to correct alleged errors of law by the district court which

may have been raised by filing a timely appeal from the court's dismissal of plaintiff's

complaint.”). The later applies more forcefully to actions in which judgment has been fully

entered and the case closed, less on remand. Cf. 18B Wright, Miller, & Cooper, Federal

Practice and Procedure § 4478.6 (2009) (“The trial court should take account of the needs

of orderly progression through the trial and appeals processes in deciding whether to

reconsider its own pre-appeal ruling, but so long as further proceedings are otherwise

appropriate on remand there is no point in pretending that the trial court owes fealty to a

nonexistent appellate ruling.”).

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1) the first decision was clearly erroneous; 2) an intervening change in the

law has occurred; 3) the evidence on remand is substantially different; 4)

other changed circumstances exist; or 5) a manifest injustice would

otherwise result.”

[U.S. v.] Alexander, 106 F.3d [874,] 876 [(9th Cir. 1997)].” U.S. v. Cuddy, 147 F.3d

1111, 1114 (9th Cir. 1998); see Arizona, 460 U.S. at 619 (“Under the law of the case

doctrine, as now most commonly understood, it is not improper for a court to depart from

a prior holding if convinced that it is clearly erroneous and would work a manifest

injustice.”) (citing White v. Murtha, 377 F.2d 428, 431-32 (5th Cir. 1967) (a court must

follow the “law of the case” in all subsequent proceedings in the same case “unless . . .

controlling authority has since made a contrary decision of the law applicable to such

issues, or the decision was clearly erroneous and would work a manifest injustice”)).6

 

Plaintiffs request that the Court depart from the law of the case, i.e., vacate the

Court’s December 5, 2005 order dismissing with prejudice Plaintiffs’ claims of fraudulent

and negligent misrepresentation, because Chalpin represents “a significant change in the

law.” (Dkt. #135, p.12). Specifically, Plaintiffs challenge the Court’s citation to Linder

v. Brown & Herrick, 189 Ariz. 398, 406 (Ariz. Ct. App. 1997) for the proposition that

“[a] cause of action against opposing counsel for statements made during litigation is

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strictly limited to actions alleging malicious prosecution, also known as wrongful

institution of civil proceedings.” (Dkt. #33, p.3). Plaintiffs’ argue that that holding is no

longer valid in light of Chalpin, in which the Arizona Court of Appeals “expressly

adopted” the Restatement (Third) of the Law Governing Lawyers § 56. (Dkt. #135,

p.12).

In Chaplin, the Arizona Court of Appeals held that “aiding and abetting is a valid

cause of action against lawyers,” citing with approval the general rule expressed in

Section 56 of the Restatement that “a lawyer is subject to liability to a client or nonclient

when a nonlawyer would be in similar circumstances.” 2008 WL 4659438, at *11. The

Court of Appeals also noted that “[t]he Arizona Supreme Court has adopted the general

rule set forth in the Restatement . . . that ‘lawyers have no special privilege against civil

suit.’” Id. (Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 10 (Ariz. 2005)). The Court then

reaffirmed that its holding was not foreclosed by Linder and other prior cases, because the

“policy” referred to in Linder “concerning attorney immunity from liability ‘was

premised upon the absolute privilege from defamation afforded participants in judicial

proceedings.’” Id. (quoting Giles v. Hill Lewis Marce, 195 Ariz. 358, 361 (Ariz. Ct. App.

1999)).

Chalpin does not constitute an intervening change in law. For starters, both

Chalpin and Linder are decisions by the Arizona Court of Appeals. In addition, the

Arizona Supreme Court recently cited Linder with approval for the proposition that “[a]

party to a lawsuit generally may not premise a fraud claim on alleged misrepresentations

by adverse counsel.” Guerrero, 210 Ariz. at 14 (citing Linder, 189 Ariz. at 405). Further,

in Linder, the Arizona Court of Appeals simply recognized that under Arizona law “an

attorney’s conduct during the course of judicial proceedings is absolutely privileged.” 

189 Ariz. at 406. Thus, the Court of Appeals affirmed the trial court’s dismissal of

the“claim of fraud against an opposing attorney for statements made during litigation.” 

Id. The Chalpin court did not attempt to overrule Linder; at most, it clarified that Linder

was limited to the litigation-defamation context.

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Nonetheless, in light of, among others, Guerrero, Chalpin, and Green Acres Trust

v. London, 141 Ariz. 609 (Ariz. 1984) (outlining the litigation-defamation privilege), the

Court’s decision that Linder completely bars claims for fraudulent misrepresentation was

clearly erroneous. There is no question that causes of action other than malicious

prosecution, such as abuse of process, aiding and abetting, and intentional interference,

may be brought against opposing counsel. See, e.g., Guerrero, 210 Ariz. at 10

(“[L]awyers have no special privilege against civil suit.”); Chalpin, 2008 WL 4659438, at

*11 (“Under the general rule, ‘a lawyer is subject to liability to a client or nonclient when

a nonlawyer would be in similar circumstances.’”) (quoting Restatement (Lawyers) § 56). 

In addition, it is clear, that causes of action based on alleged misrepresentations by

adverse counsel are generally prohibited by the litigation-defamation privilege. Guerrero,

210 Ariz. at 14. Thus, fraud claims premised on alleged defamation by opposing counsel

are barred; fraud claims arising outside of the defamation context are not necessarily

barred. To the extent that the Court’s December 5, 2005 order held otherwise, the Court’s

decision was erroneous.

This conclusion is bolstered by the fact that “comment f” to Section 56 of the

Restatement (Third) of Law Governing Lawyers, while implicitly recognizing the

litigation-defamation privilege (lawyers “are not liable for such conduct as using legally

innocuous hyperbole or proper argument in negotiations . . . or presenting an argument to

a tribunal in litigation”), states that “lawyers are civilly liable to clients and nonclients for

fraudulent misrepresentation.” And as discussed above, both the Arizona Supreme Court

and Court of Appeals have recently cited Restatement § 56 with approval. Guerrero, 210

Ariz. at 14; Chalpin, 2008 WL 4659438, at *11). “Misrepresentation is not part of proper

legal assistance,” Restatement (Lawyers) § 56, and the litigation-defamation privilege

does not constitute a complete bar to claims of fraudulent misrepresentation against

opposing counsel; the privilege extends only to defamatory statements made during the

course of judicial proceedings (and extra-judicial statements that bear “some relation to

the proceeding). See Green Acres, 141 Ariz. at 613 (“In various settings, Arizona courts

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7

The Court declines, on the other hand, to depart from the law of the case with respect

to its dismissal of Plaintiffs’ claim for negligent misrepresentation. The Court’s decision in

that regard was based on the fact that although a negligent misrepresentation claim may exist

“where the 3rd party suffers loss ‘through reliance upon [the misrepresentation],” (Dkt. #16,

p.8), “[a]n attorney’s duty to a nonclient arises only if the nonclient is an ‘intended

beneficiary’ of the attorney’s services. Wetherill v. Basham, 3 P.3d 1118, 1128 (Ariz. Ct.

App. 2000). ‘[A]n adverse party is not an intended beneficiary of the adverse counsel’s

client.’ Lewis v. Swenson, 617 P.2d 69, 72 (Ariz. Ct. App. 1980) (internal quotation

omitted).” (Dkt. #33, p.3); see Restatement (Lawyers) § 56, comment f (“A lawyer is liable

for negligent misrepresentation to a nonclient in the course of representing a client only when

the lawyer owes the nonclient a duty of care.”). Plaintiffs do not argue in their Motion for

Reconsideration that any intervening change in the law has occurred on this issue, and they

cite nothing to convince the Court that its previous decision or reliance on the above cases

was erroneous.

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have applied the absolute privilege to defame in connection with judicial proceedings.”)

(emphasis added). 

“As an immunity which focuses on the status of the actor, the [litigationdefamation] privilege immunizes an attorney for statements made while performing his

function as such.” Id. (internal quotation marks and citation omitted). Here, Plaintiffs

allege that the L&R attorneys induced Thompson to enter into a settlement agreement in

which she was to receive only shares of YP.Net stock by affirmatively misrepresenting

that there were no pending criminal investigations or proceedings against the CEO of

YP.Net. Such alleged misrepresentation can not be said to be made by the L&R

Defendants while performing their function as attorneys; affirmative misrepresentation is

not a part of proper representation. In addition, “by denying the absolute privilege in this

case, [the Court would] not curtail zealous representation.” Green Acres, 141 Ariz. at

615. Thus, as the Court is convinced that its previous decision to lump all fraud claims

against attorneys within the litigation-defamation privilege is incorrect, the Court will

exercise its discretion to depart from the law of the case at this time to hold otherwise7

;

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8

The Court notes that it also previously cited Linder for the proposition that “as a

matter of law and common sense, [Ms. Thompson] had no right to rely on statements made

by the attorneys opposing [her].” (Dkt. #33, pp. 3-4). In addition, the Court notes that

“[r]eliance is justified [only] when it is reasonable, but is not justified when knowledge to

the contrary exists.” Carondelet Health Servs. V. Ariz. Health Care Cost Containment Sys.

Admin., 187 Ariz. 467, 470 (Ariz. Ct. App. 1996). However, on reconsideration, and

because the Court must accept Plaintiffs’ allegations as true on a motion to dismiss, the

question of whether Thompson did in fact have a “justifiable right to rely” on the L&R

Defendants’ alleged misrepresentations or whether she must be estopped from asserting

reliance based on knowledge to the contrary, is a question of fact better left for consideration

on a motion for summary judgment. See, e.g., De La Cruz v. Tormey, 582 F.2d 45, 48 (9th

Cir. 1978) (“The issue is not whether a plaintiff’s success on the merits is likely but rather

whether the claimant is entitled to proceed beyond the threshold in attempting to establish

[her] claims.”).

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Plaintiffs are not foreclosed from asserting their claim for fraudulent misrepresentation

against the L&R Defendants.8

IV. LEGAL STANDARD – RULE 12(b)(6) MOTION

“The motion to dismiss for failure to state a claim is viewed with disfavor and is

rarely granted.” Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir.

1997). To survive a motion to dismiss for failure to state a claim, the plaintiff must allege

facts sufficient “to raise a right to relief above the speculative level.” Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007); see also Morley v. Walker, 175 F.3d 756, 759 (9th

Cir. 1999) (“A dismissal for failure to state a claim is appropriate only where it appears,

beyond doubt, that the plaintiff can prove no set of facts that would entitle it to relief.”).

In addition, “all well-pleaded allegations of material fact are taken as true and

construed in a light most favorable to the nonmoving party.” Wyler Summit Partnership

v. Turner Broad. Sys. Inc., 135 F.3d 658, 661 (9th Cir. 1998). But “the court [is not]

required to accept as true allegations that are merely conclusory, unwarranted deductions

of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979,

988 (9th Cir. 2001). Likewise, “a formulaic recitation of the elements of a cause of action

will not do.” Twombly, 550 U.S. at 555.

/ / / 

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9

A.R.S. § 12-502, “the minority tolling statute,” provides that limitations periods for

all actions and claims of minors are tolled until the minor reaches the age of majority. See,

Porter v. Triad of Arizona (L.P.), 203 Ariz. 230 (Ariz. Ct. App. 2002). As such, Defendant

CDA’s statute of limitations argument applies only to Plaintiff Thompson’s IIED claim, not

her minor children’s claims. The Court declines at this time to address the issue raised by

the L&R Defendants in a footnote regarding whether Plaintiff Thompson’s assertion of her

minor children’s claims during their period of minority terminates the tolling period under

A.R.S. § 12-502. (Dkt. #106, pp 5-6, n. 2).

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V. DISCUSSION

A. Defendant Capitol Detective Agency

Plaintiffs’ FAC asserts only one claim against Defendant Capitol Detective

Agency (“CDA”), intentional infliction of emotional distress (“IIED”). On February 13,

2009, CDA filed a Motion to Dismiss the IIED claim for failure to state a claim pursuant

to Fed.R.Civ.P. 12(b)(6). (Dkt. #104). CDA contends that the IIED claim is barred by

the statute of limitations,9

 and in the alternative Plaintiffs fail to state a claim for IIED

because they do not allege “an ongoing series of events” or “extreme and outrageous

conduct” on the part of CDA. (Dkt. #s 104, 131). Plaintiffs respond that their IIED claim

is not time barred because it relates back to the original complaint under Fed.R.Civ.P.

15(c), and it is sufficiently pled because the FAC establishes that “Defendant Capital [sic]

Detective Agency engaged in an ongoing pattern of harassment and stalking,”). (Dkt. #s

116, p.3; 117).

First, CDA does not argue until its Reply that Plaintiffs fail to plead a prima facie

case of IIED. That is inappropriate. See, e.g., Coos County v. Kempthorne, 531 F.3d

792, 812 n.16 (9th Cir. 2008) (declining to consider an argument raised for the first time

in a reply brief). Furtherore, the Court’s December 5, 2005 order already addressed this

issue:

Plaintiff[s’] claims are distinguishable from an isolated incident of

videotaping. Furthermore, Arizona does not require proof of relentless

physical and verbal harassment to state a claim for intentional infliction of

emotional distress. Here, Plaintiff[s] allege[ ] Defendants repeatedly

followed and “stalked” Ms. Thompson and [her] children, used a racial slur

in reference to Ms. Thompson’s children, trespassed on Ms. Thompson’s

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10In any event, Plaintiffs allege that employees of Defendant CDA assaulted, stalked,

and harassed Plaintiff and her children. (FAC ¶¶ 90-106). However, CDA contends that

“[n]one of th[e] conduct [alleged] should be considered to be extreme or outrageous in

nature.” (Dkt. #131, p.5). But as the Court concluded in its December 5, 2005 order,

“reasonable minds could differ about whether the alleged conduct is sufficiently outrageous.”

(Dkt. #33, p.8).

11Despite Defendant CDA’s contention to the contrary, the May 28, 2002 alleged

assault on Plaintiff Thompson is not “the only allegation of any conduct by any Defendant

directed at Pamela Thompson.” (Dkt. #104, p.3). A number of the allegations of stalking

and harassment by CDA employees between 2002 and 2004 apply to both Thompson and her

children. (FAC ¶¶ 98-100, 104). Those allegations in fact do constitute an “ongoing series

of events.” Dkt. #33, p.8 (“Plaintiff’s claims are distinguishable from an isolated incident

. . .”).

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property, terrorized Ms. Thompson’s children, and hired individuals to

assault Ms. Thompson. The Court finds that reasonable minds could differ

about whether the alleged conduct is sufficiently outrageous, and therefore,

dismissal is not appropriate.

(Dkt. #33, p.8); Dkt. #45, p.3 (“Because[ ] Capitol joined in the Lewis & Roca’s Motion

to Dismiss, Plaintiff[s’] claim of intentional infliction of emotional distress adequately

states a claim against both Lewis & Roca and Capitol.”). And as CDS notes in its motion

to dismiss, the FAC and original complaint are substantively identical with respect to the

IIED claim (Dkt. #104); the Court thus need not revisit the issue of whether IIED is

adequately pled.10 As such, the Court will now turn to whether the claim is barred by the

statute of limitations.

A.R.S. § 12-542 prescribes a two-year limitations period for personal injury

claims. “Arizona courts have concluded that the two-year limitations period found in

A.R.S. § 12-542 applies to IIED claims.” St. George v. Home Depot U.S.A., Inc., 2007

WL 604925, at *6 (D. Ariz. 2007) (citing Hansen v. Stoll, 130 Ariz. 454, 460 (Ariz. Ct.

App. 1981); Orr v. Bank of America, 285 F.3d 764, 780-81 (9th Cir. 2002)). Plaintiffs’

IIED claim is based on alleged conduct ranging from April or May of 2002 to February

2004. (FAC ¶¶ 91, 95-96, 98-100, 103-04).11 As such, the statute of limitations began to

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12Defendant CDA does not specifically contend that an IIED claim is not a continuing

tort. Compare Floyd v. Donahue, 186 Ariz. 409, 414 (Ariz. Ct. App. 1996) (“[U]nder certain

conditions a tort is continuous, and in such cases the limitations period does not commence

until the date of the last tortious act.”) with St. George, 2007 WL 604925, at *6 n.8 (“No

Arizona appellate court to date has directly addressed whether an IIED claim is a continuing

tort and, if so, what effect such tort would have on conduct occurring outside the two-year

limitations period.”). 

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run in February 2004.12 And Plaintiffs filed their original complaint on April 1, 2005. 

(Dkt. #1). Therefore, Plaintiffs’ IIED claim was timely filed as of the original complaint.

The Court, however, after granting in part Defendants’ Motion to Dismiss,

declined to exercise supplemental jurisdiction over Plaintiffs’ state law IIED claim

pursuant to 28 U.S.C. § 1367(c), and dismissed the claim without prejudice. (Dkt. #33,

p.10; Dkt. #45, p.3). Final judgment in this case was entered on March 14, 2006. (Dkt.

#54).

Pursuant to 28 U.S.C. § 1367(d), the statute of limitations for a claim asserted

under the Court’s supplemental jurisdiction is tolled only “while the claim is pending and

for a period of 30 days after it is dismissed unless State law provides for a longer tolling

period.” Arizona law provides for such a period: under certain circumstances,“the

plaintiff . . . may commence a new action for the same cause after the expiration of the

time so limited and within six months after such termination.” A.R.S. § 12-504 (emphasis

added). 

Although Plaintiffs timely appealed the Court’s orders, Plaintiffs raised only the

Court’s dismissal of the Section 10(b) claim and denial of the request to certify a question

of state law to the Arizona Supreme Court. Thompson, 547 F.3d at 1058 (“Thompson

raises two questions on appeal. These questions are relevant only to possible liability of

the L&R defendants. No question relevant to the liability of defendant Capitol Detective

Agency is before us on appeal.”). And issues not raised on appeal are waived. See, e.g.,

Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994) (“We review only issues which are

argued specifically and distinctly in a party’s opening brief. We will not manufacture

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13The Court’s February 1, 2006 order dismissing Plaintiffs’ state law IIED claim

without prejudice was final and appealable. See California Dept. of Water Resources v.

Powerex Corp., 533 F.3d 1087, 1096 (9th Cir. 2008) (holding that a district court’s

discretionary decision to decline supplemental jurisdiction and remand must be challenged

pursuant to appeal); Amazon, Inc. v. Dirt Camp, Inc., 273 F.3d 1271, 1275 (10th Cir. 2001).

(“[T]he district court declined to exercise supplemental jurisdiction over the state law claims

. . . so that Amazon might re-file them in state court. The district court dismissed the entire

action, effectively excluding Amazon’s suit from federal court. Therefore, the dismissal,

although without prejudice, was final and appealable under controlling precedent.”) (citation

omitted); but see Aviall Services, Inc. v. Cooper Industries, LLC, 572 F.Supp.2d 676, 702

(N.D. Tex. 2008) (“Although Aviall could have appealed the dismissal of the state-law

claims, it could also have sought-as it did-to overturn the dismissal of the federal-law claims

and then sought reinstatement of the state-law claims, which had been dismissed without

prejudice.”).

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arguments for an appellant, and a bare assertion does not preserve a claim.”) (internal

citation omitted); McMillan v. United States, 112 F.3d 1040, 1047 (9th Cir. 1997). The

appeal, therefore, did not toll the limitations period for Plaintiffs’ state law IIED claim.13

Therefore, under A.R.S. § 12-504 Plaintiffs had until October 14, 2006, six months after

the date of the final judgment, within which to file their IIED claim in state court. 

Plaintiffs did not do so, and the limitations period has thus expired on Thompson’s IIED

claim.

Nevertheless, Plaintiffs argue that Rule 15(c) “permits the [ IIED claim] . . . to

relate back to the April 1, 2005 [complaint] for purposes of any A.R.S. § 12-542

calculation relating to the applicable statute of limitations.” (Dkt. #117, p.4). But Rule

15(c) merely provides that “[a]n amended to a pleading relates back to the date of the

original pleading when: . . . (B) the amended pleading asserts a claim or defense that

arose out of the conduct, transaction, or occurrence set out – or attempted to be set out –

in the original pleading[.]” That rule is inapposite here. A plaintiff cannot amend a

complaint to add a claim that has already been raised in the original complaint. Plaintiffs

are seeking to reurge their state law IIED claim, not amend an existing complaint to state

a new claim arising out of the conduct, transaction, or occurrence set out in the original

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14Despite Plaintiffs’ contention, Juras v. Aman Collection Service, Inc. 829 F.2d 739

(9th Cir. 1987), does not stand for the proposition that “state law claims dismissed without

prejudice can, and should, be revived upon a remand from the Court of Appeals.” (Dkt.

#135, pp. 2-3). Plaintiff is correct that in Juras, the Ninth Circuit held that “[o]n remand, the

district court should reconsider exercising pendent jurisdiction over the state law claims.”

829 F.2d at 745. In Juras, however, the plaintiff appealed the district court’s refusal to

exercise pendent jurisdiction over his state law claims. Id. at 740. Here, Plaintiffs did not

appeal the Court’s dismissal of Plaintiffs’ state law claims; the Ninth Circuit confirmed as

much on appeal. See Thompson, 547 F.3d at 1058 (“Thompson raises two questions on

appeal. . . . No question relevant to the liability of defendant Capitol Detective Agency is

before us on appeal.”).

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complaint. See Raspberry v. Garcia, 448 F.3d 1150, 1154-55 (9th Cir. 2006) (amended

habeas petitions cannot relate back to prior habeas petitions where the initial petition was

dismissed).

Furthermore, Fed.R.Civ.P. 15(c) may not be used to circumvent 28 U.S.C. §

1367(d). Nor may it be used to excuse Plaintiffs’ failure to raise on appeal the Court’s

decision to decline supplemental jurisdiction over the state law IIED claim. See generally

O’Donnell v. Vencor, Inc., 465 F.3d 1063, 1066 (9th Cir. 2006) (“[D]ismissal of the

original suit, even though labeled as without prejudice, nevertheless may sound the death

knell for the plaintiff’s underlying cause of action if the sheer passage of time precludes

the prosecution of a new action.”); see also American States Ins. Co. v. Dastar Corp., 318

F.3d 881, 887 (9th Cir. 2003) (“[W]hen the parties do not toll the limitations period, a

‘plaintiff assumes the risk [that] by the time the case returns to district court, the claim

will be barred by the statute of limitations or laches.’”) (quoting James v. Price Stern

Sloan, Inc., 283 F.3d 1064, 1066 (9th Cir. 2002)).14 Had the Ninth Circuit intended that

the Court on remand reconsider whether to exercise supplemental jurisdiction over

Plaintiffs’ state law IIED claim, the Ninth Circuit could have stated as much and

reinstated the claim. See, e.g., Chappell v. McCargar, 152 Fed.Appx. 571, 572 (9th Cir.

2005) (“The district court dismissed the federal causes of action for failure to state a

claim and declined to exercise supplemental jurisdiction over the state claims. We

reverse and reinstate Chappell’s federal claims. In addition, we order the district court to

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15This reasoning applies equally to Plaintiff Thompson’s IIED claim against the L&R

Defendants. It also applies to Plaintiffs’ claims for abuse of process (count two) and

wrongful institution of civil proceedings (count three); they are similarly barred by the statute

of limitations. The Court previously dismissed without prejudice Plaintiffs’ claims for abuse

of process and malicious prosecution for failure to state a claim. (Dkt. #33, pp. 4-6, 11).

Final judgment was entered on March 20, 2006. (Dkt. #54). Plaintiffs did not appeal the

dismissal of these claims; only the Section 10(b) claim and the Court’s refusal to certify a

question to the Arizona Supreme Court. See Thompson, 547 F.3d at 1058. The statute of

limitations for these claims (two years for abuse of process per A.R.S. § 12-542; one year for

malicious prosecution per A.R.S. § 12-541) were tolled only while the claims were pending

and for six months after they were dismissed. 28 U.S.C. § 1367(d); A.R.S. § 12-504.

Plaintiffs did not refile their claims in state court or reassert them in this Court until they filed

their First Amended Complaint on January 5, 2009. (Dkt. #92). Thus, Plaintiffs claims for

abuse of process and malicious prosecution are barred by their respective statutes of

limitations. See, e.g., Castillo v. McFadden, 370 F.3d 882, 886 n. 2 (9th Cir. 2004) (noting

that issues not raised on appeal are deemed waived); Barnett v. U.S. Air., Inc., 228 F.3d

1105, 1110 n. 1 (9th Cir. 2000) (en banc) (noting that issues not raised in a party’s opening

brief are waived); Gardner v. Stager, 103 F.3d 886, 887 n. 2 (9th Cir. 1996) (“Issues not

raised on appeal are considered abandoned.”); but see Availl, 572 F.Supp.2d at 702

(permitting the plaintiff to reinstate his unappealed state law claims after the court of appeals

reversed and remanded the district court’s dismissal of the plaintiff’s federal law claims, as

the state law claims were “inextricably intertwined” with the dismissal of the federal claims).

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reconsider the question of supplemental jurisdiction over the state law claims in light of

the reinstatement of the federal claims.”); Fredenburg v. Contra Costa County Dept. of

Health Services, 172 F.3d 1176, 1183 (9th Cir. 1999). The Ninth Circuit expressly noted

that Plaintiffs appealed only the Section 10(b) claim and denial of certification, and that

“[n]o issue affecting defendant Capitol Agency was appealed.” Accordingly, the Court

grants Defendant CDA’s Motion to Dismiss Plaintiff Thompson’s state law IIED claim as

barred by the statute of limitations.15

B. The Lewis and Roca LLP Defendants’ Motion to Dismiss

On February 13, 2009, the L&R Defendants’ filed a motion to dismiss in part

Plaintiffs’ First Amended Complaint. (Dkt. #105). Specifically, the L&R Defendants ask

the Court to (1) dismiss counts four through seven (fraudulent misrepresentation,

negligent misrepresentation, third party professional negligence, and tortious interference

with contractual relations and business expectancy); (2) dismiss with prejudice count

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eight (IIED) as asserted by Plaintiff Thompson and decline to exercise supplemental

jurisdiction over count eight as asserted by Plaintiff Thompson’s minor children; (3)

dismiss with prejudice counts two (abuse of process) and three (wrongful institution of

civil proceedings); (4) dismiss with prejudice Plaintiffs’ new Section 10(b) allegations;

(5) dismiss count one (Section 10(b) claim) against the individual L&R Defendants and

their respective spouses. (Id., p.2).

In Response, Plaintiffs state that they “have elected to withdraw” counts six (third

party professional negligence) and seven (tortious interference with contractual relations

and business expectancy) (Dkt. #116, p.2); “Plaintiffs are no longer asserting these

claims.” (Id., p.3). In addition, as discussed above, the Court grants in part Plaintiffs’

Motion for Reconsideration and Plaintiffs may proceed on count four (fraudulent

misrepresentation), but not count five (negligent misrepresentation) against the L&R

Defendants. Further, for the reasons discussed above in connection with Defendant

Capitol Detective Agency’s Motion to Dismiss, the Court will dismiss count eight (IIED)

as asserted by Plaintiff Thompson against the L&R Defendants, as well as counts two

(abuse of process) and three (malicious prosecution) against the L&R Defendants; those

claims are barred by their respective statutes of limitations. The Court must now turn to

the L&R Defendants’ Motion to Dismiss counts one through three, count eight as asserted

by Plaintiff Thompson’s minor children, and the request for expenses in connection with

the instant motion.

i. IIED & Supplemental Jurisdiction

The L&R Defendants, joined by Defendant CDA (Dkt. # 131, p.2), ask the Court

to decline supplemental jurisdiction over Plaintiff Thompson’s minor children’s state law

IIED claim. (Dkt. #106, p.5). The L&R Defendants argue that “there can be no

supplemental jurisdiction” because “[n]ot only is there no overlap of facts between the

two claims, there is also no overlap of parties”; “the minor children’s emotional distress

claim (Count 8) is based on completely unrelated facts” from “Thompson’s federal

securities claim . . . based on alleged misrepresentations made to [Thompson] about

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whether a criminal investigation was pending against Tullo.” (Id.) (emphasis in original). 

The Court disagrees.

 28 U.S.C. § 1367(a) provides, in pertinent part, that “district courts shall have

supplemental jurisdiction over [state law] claims that are so related to [federal claims] that

they form part of the same case or controversy under Article III of the United States

Constitution.” See In re Pegasus Gold Corp., 394 F.3d 1189, 1195 (9th Cir. 2005). In

other words, “[n]onfederal claims are part of the same ‘case’ as federal claims when they

derive from a common nucleus of operative fact and are such that a plaintiff would

ordinarily be expected to try them in one judicial proceeding.” Trs. of the Constr. Indus.

& Laborers Health & Welfare v. Desert Valley Landscape & Maint., Inc., 333 F.3d 923,

925 (9th Cir. 2003) (internal quotation marks omitted). In addition, “[s]upplemental

jurisdiction extends over state claims brought against a party even when that party was

not subject to the federal claim primarily at issue.” In re Davis, 177 B.R. 907, 912 (BAP

9th Cir. 1995).

Two claims remain aside from Plaintiff Thompson’s minor children’s state law

IIED claim – Plaintiff Thompson’s Section 10(b) claim (count one) and fraudulent

misrepresentation claim (count four). Those claims are based on allegations that the L&R

Defendants intentionally misrepresented to Plaintiff Thompson, during the YP.Net

settlement negotiations and throughout the YP.Net litigation, that a criminal investigation

was not pending against Angelo Tullo, the CEO of YP.Net. (FAC ¶¶ 40-46, 60-65). The

misrepresentations were allegedly made by the L&R Defendants to entice Thompson to

“act upon these false representations by entering into a signed settlement memorandum

with YP.” (FAC ¶ 63). Plaintiff Thompson’s abuse of process, malicious prosecution,

and IIED state law claims, which are now barred by their respective statutes of

limitations, also relate to Defendants’ alleged conduct during the YP.Net litigation. The

minor children’s state law IIED claim likewise arises out of Defendants’ alleged conduct

during the YP.Net litigation. That alleged conduct provides a common nucleus of

operative fact encompassing both the state and federal claims. Further, Plaintiffs would

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16To the extent the claims survive summary judgment, the Court will consider at that

time a motion to try the IIED claim separately from the Section 10(b) and fraudulent

misrepresentation claims.

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most likely ordinarily be expected to try their claims, including the minor children’s IIED

claim, in one judicial proceeding. 

In addition, it does not appear that the L&R Defendants argued in the previous

motion to dismiss that the Court should decline to exercise supplemental jurisdiction over

Plaintiff Thompson and her minor children’s IIED claim; that motion was based on

failure to state a claim. (Dkt. #s 11, 20). In its order granting in part the motion, the

Court only declined to exercise supplemental jurisdiction because the Court had

dismissed all of Plaintiffs’ claims over which it had original jurisdiction. (Dkt. #33,

p.10). In any event, this case was filed on April 1, 2005. The Court is now quite familiar

with the parties, their counsel, and the causes of action asserted in the original and

amended complaint. A return to state court at this time on the remaining IIED claim

would appear to be a waste of judicial resources. See Brady v. Brown, 51 F.3d 810 816

(9th Cir. 1995) (“The district court thus could consider whether a return to state court

would have been a waste of judicial resources when the case had been in federal court for

some time. The district court decided to retain the state claims based in part on the efforts

already expended by counsel.”). Accordingly, the Court denies Defendants’ request and

will exercise supplemental jurisdiction over Plaintiff Thompson’s minor children’s state

law IIED claim.16

ii. Section 10(b) claims

The L&R Defendants move to dismiss two new allegations raised by Plaintiffs in

their First Amended Complaint. These allegations allege that on January 5, 2004, the

L&R Defendants prepared a fraudulent press release entitled “New Horizon Capital

Drops all Claims Against YP.Net’s CEO; Angelo Tullo Exonerated” (FAC ¶¶ 11, 14),

and prepared fraudulent SEC filings that “fail[ed] to disclose that Tullo was the target of a

criminal investigation” (FAC ¶¶ 19, 20). The L&R Defendants argue, among other

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17The L&R Defendants also argue that the new allegations are time-barred. (Dkt.

#106, pp. 11-12). The new allegations, however, relate back to the original complaint under

Fed.R.Civ.P. 15(c).

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things, that the new allegations do not satisfy the heightened pleading requirements under

the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4 et

seq., and that the Section 10(b) claims do not state a claim against any of the individual

defendants (“the L&R attorneys”).17 (Dkt. #106, pp. 6-15). In response, Plaintiffs simply

point out that the Ninth Circuit already “upheld the viability of Plaintiffs’ 10(b) [claim].” 

(Dkt. #116, p.5).

The Ninth Circuit held on appeal that Plaintiffs’ original complaint satisfied the

PSLRA and stated a claim under Section 10(b). Thompson, 547 F.3d at 1063

(“Thompson’s complaint, pleading a violation of Section 10(b), satisfied the heightened

standard of the PSLRA.”). The L&R Defendants now challenge two additional

allegations included by Plaintiffs in their First Amended Complaint in support of their

Section 10(b) claim and request that they be stricken from Plaintiffs’ Complaint. The

Court is unaware, however, of any situation in which a Rule 12(b)(6) motion may be used

to strike certain allegations in support of a claim, where the underlying claim itself is not

challenged. Rather, in such situations, the challenge must be brought pursuant to Rule

12(f). Therefore, the Court will construe the L&R Defendants’ Motion to Dismiss the

new allegations as a Motion to Strike pursuant to Rule 12(f) of the Federal Rules of Civil

Procedure.

Rule 12(f) provides that a party may request that the Court “order stricken from

any pleading . . . any redundant, immaterial, impertinent, or scandalous matter.” 

Fed.R.Civ.P. 12(f). “[T]he function of a 12(f) motion to strike is to avoid the expenditure

of time and money that must arise from litigating spurious issues by dispensing with those

issues prior to trial . . .” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir.

1983). “Immaterial matter is that which has no essential or important relationship to the

claim for relief or the defenses being pleaded.” Fantasy, Inc., v. Fogerty, 984 F.2d 1524,

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18Plaintiffs do not assert a new cause of action under Section 10(b) with respect to the

newly-raised allegations. If, however, the allegations were asserted as independent Section

10(b) claims, then most likely they would not state a claim under Section 10(b) or satisfy the

PSLRA’s heightened pleading standards. See, e.g., 15 U.S.C. 78u-4(b)(1)(B) (complaint

must “specify each statement alleged to have been misleading, [and] the reason or reasons

why the statement is misleading”); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.

308, 127 S.Ct. 2499, 2504 (2007) (“The [PSLRA] requires plaintiffs to state with

particularity both the facts constituting the alleged violation, and the facts evidencing

scienter, i.e., the defendant's intention “to deceive, manipulate, or defraud.”); RodriguezOrtiz v. Margo Caribe, Inc., 490 F.3d 92, 99 (1st Cir. 2007) (“Nowhere does the complaint

specify what statements [were false], nor when and in what context such statements were

made.”); In re Fin. Corp. of Am. S’holder Litig. v. Arthur Andersen & Co., 796 F.2d 1126,

1130 (9th Cir. 1986) (no liability where plaintiffs had not pled “a fraud that touches, or is in

connection with, the purchase or sale of a security”); Weiss v. Amkor Tech., Inc., 527

F.Supp.2d 938, 949 (D. Ariz. 2007) (“To infer scienter by virtue of a position in a company

would eliminate the necessity for specially pleading scienter.”) (internal quotation marks

omitted).

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1527 (9th Cir. 1993), reversed on other grounds, 510 U.S. 517 (1994) (quoting 5 Charles

A. Wright & Miller, Federal Practice and Procedure § 1382 at 706-07 (1990)). 

“‘'Impertinent’ matter consists of statements that do not pertain, and are not necessary to

the issues in question.” Id.

The L&R Defendants challenge two allegations set forth in the First Amended

Complaint’s general allegation section and plead in connection with the allegations

already held by the Ninth Circuit to state a claim and satisfy the PSLRA. See Thompson,

547 F.3d at 1063.18 Those allegations concern alleged fraudulent conduct by the L&R

Defendants in connection with their representation of YP.Net and Angelo Tullo, the CEO

of YP.Net, and specifically in the form of SEC filings and a January 5, 2004 press release. 

Although specifically connected to the L&R Defendants’ alleged misrepresentations

during settlement negotiations in the YP.Net litigation, Plaintiffs’ Section 10(b) claim

also generally concerns the L&R Defendants’ alleged fraudulent conduct in connection

with their representation of YP.Net and Angelo Tullo. Thus, the new allegations are

potentially relevant to the instant lawsuit – either the Section 10(b) claim or the fraudulent

misrepresentation claim – and the Court cannot conclude that the new allegations are

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19There is no indication that Plaintiffs seek to assert independent Section 10(b) claims

against any of the Individual Defendants themselves. Although the caption under Plaintiffs’

“First Cause of Action” refers to “Violations” of Section 10(b),” Plaintiffs state only that

they “have alleged a specific campaign as a single claim under Rule 10b-5.” (Dkt. #135, p.7)

(emphasis added). 

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“immaterial” and “impertinent” such that they should be stricken from the First Amended

Complaint.

The L&R Defendants also move to dismiss Plaintiffs’ Section 10(b) claim against

Individual Defendants Paul, Morgan, and Dewald, the L&R attorneys named in the

Complaint. (Dkt. #106, p.12). The L&R Defendants contend that “[t]he adequacy of the

[allegations in complaint] as to the individuals was never at issue” on appeal. (Dkt. #126,

p.9). However, while the Ninth Circuit did not specifically state that Plaintiffs’

Complaint stated a Section 10(b) claim against the L&R attorneys, the Ninth Circuit

collectively referred to both the firm and the named attorneys in holding that “Thompson

has alleged sufficient facts in her complaint to survive a Rule 12(b)(6) motion to dismiss

her Section 10(b) claim against the L&R defendants.” Thompson, 547 F.3d at 1058, 1063

(emphasis added). As such, the Court will not construe the Ninth Circuit’s order

narrowly and will allow Plaintiffs to proceed on their single Section 10(b) claim against

the “L&R Defendants,” whom the Ninth Circuit and this Court have consistently held to

include Lewis & Roca LLP and Individual Defendants Paul, Morgan, and Dewald

(despite the fact that “[t]he FAC specifically defines the ‘Lewis and Roca Defendants’ to

be the law firm only, and not the law firm and the individuals defendants” (Dkt. #106,

p.12), an apparent mistake which Plaintiffs seek to correct by filing a Second Amended

Complaint (Dkt. #120, pp. 3-4)).19 

VI. MOTION FOR LEAVE TO AMEND

Plaintiffs move to file a Second Amended Complaint in order “to provide greater

specificity in [the] complaint as to [the] Rule 10b-5 claims.” (Dkt. #119). Rule 15(a)

allows a party to amend his complaint by leave of the court at any time, and such leave

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20At oral argument, Plaintiffs moved to dismiss Defendant Scott Dewald, which the

Court granted. The Court will assume, unless notified otherwise, that Plaintiffs’ motion to

dismiss applies to both Defendants Scott Dewald and Deborah Jamieson, husband and wife.

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“shall be freely given when justice so requires.” Fed.R.Civ.P. 15(a). In deciding whether

to grant leave to amend, courts “often consider: bad faith, undue delay, prejudice to the

opposing party, futility of the amendment, and whether the party has previously amended

his pleadings.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (citation omitted);

Moore v. Kayport Package Express, Inc., 885 F.2d 551, 538 (9th Cir. 1989) (“Leave to

amend need not be given if a complaint, as amended, is subject to dismissal.”) (citation

omitted). “Prejudice to the opposing party is the most important factor.” Jackson v. Bank

of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990).

Here, the proposed amendments, among other things, eliminate two causes of

action and clarify that the “L&R Defendants” refers to Defendant Lewis & Roca LLP and

Individual Defendants Paul, Morgan, and Dewald.20 (Dkt. #120). The amendments also

attempt to describe in more detail the alleged involvement of Individual Defendants Paul

and Morgan. 

The L&R Defendants do not argue that they will suffer prejudice as a result of

allowing Plaintiffs to file a Second Amended Complaint, but that the amendment is futile. 

The Court agrees, but only to the extent, as discussed above, that Plaintiffs seek to

reassert their claims for abuse of process, wrongful institution of civil proceedings,

negligent misrepresentation, and IIED (with respect to Plaintiff Thompson). However,

because the Court holds that Plaintiffs may proceed on their Section 10(b), fraudulent

misrepresentation, and the minor children’s IIED claim, to the extent the proposed

amendments seek only to clarify the allegations concerning those claims, futility is not an

issue. Plaintiffs may thus file a Second Amended Complaint to the extent the Complaint

is revised consistent with this Order.

/ / / 

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Accordingly,

IT IS HEREBY ORDERED granting in part and denying in part Defendant

Capitol Detective Agency’s Motion to Dismiss. (Dkt. #104). Plaintiff Thompson’s state

law IIED claim is barred by the statute of limitations. As stated above, however, the

Court will exercise supplemental jurisdiction over Plaintiff Thompson’s minor children’s

IIED claims pursuant to 28 U.S.C. § 1367(a). Capitol Detective Agency thus remains a

party to this action.

IT IS FURTHER ORDERED granting in part and denying in part Plaintiffs’

Motion for Reconsideration. (Dkt. #118). Plaintiffs may proceed on their claim against

the L&R Defendants for fraudulent misrepresentation.

IT IS FURTHER ORDERED granting in part and denying in part L&R

Defendant’s Motion to Dismiss Plaintiffs’ First Amended Complaint. (Dkt. #105). 

Plaintiffs’ claims for abuse of process, wrongful institution of civil proceedings, and

negligent misrepresentation, as well as Plaintiff Thompson’s IIED claim, are dismissed

for the reasons stated in the above order. The remaining claims are Plaintiff Thompson’s

claims for violation of Section 10(b) (count one) and fraudulent misrepresentation (count

four) against the L&R Defendants, and Plaintiff Thompson’s minor children’s claim for

IIED (count eight) against the L&R Defendants and Defendant Capitol Detective Agency. 

IT IS FURTHER ORDERED granting in part and denying in part Plaintiffs’

Motion for Leave to File a Second Amended Complaint. (Dkt. #119). The Court grants

Plaintiffs leave to file a Second Amended Complaint. However, that Complaint must be

revised consistent with this Order. In addition, the Complaint may contain no new

allegations or causes of action; nothing beyond that already asserted in the lodged Second

Amended Complaint. Thus, the Court does not envision the need for Defendants’ to file a

new Motion to Dismiss with respect to the Second Amended Complaint. Plaintiffs’

counsel are directed to meet and confer in person with defense counsel prior to filing the

revised Second Amended Complaint. The Second Amended Complaint must be filed no

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later than July 17, 2009; the parties must also file a joint statement that the Complaint has

been revised consistent with this Order.

IT IS FURTHER ORDERED reaffirming the deadlines for completion of fact

discovery and filing dispositive motions as imposed in the Court’s February 12, 2009

Scheduling Order. (Dkt. #102 §§ 4, 7). The parties are directed to meet and confer to

determine whether new deadlines for the parties’ disclosure of experts and completion of

expert discovery need to be imposed in light of the instant order, after which the parties

may submit a joint motion for extension; and if the parties cannot come to an agreement,

they may state their respective requests in the joint motion. No further extensions will be

granted absent extraordinary good cause (and full compliance with the Court’s Rules of

Practice).

DATED this 27th day of June, 2009.

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