Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-05124/USCOURTS-cand-3_05-cv-05124-2/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ASIS INTERNET SERVICES,

Plaintiff,

v.

OPTIN GLOBAL, INC., et al.,

Defendants.

 /

No. C 05-5124 CW

ORDER GRANTING

DEFENDANT AEGIS'

MOTION TO DISMISS

AND DENYING

DEFENDANT

QUICKEN'S MOTION

FOR SECURITY

Defendant Aegis Lending Corporation (Aegis) moves pursuant to

Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dismiss

Plaintiff Asis Internet Services' complaint against it. Defendants

Michael Cuervo, John Terrence Dorland, Stateside Mortgage, Inc.,

Bruce Lerner, Quicken Loans, Inc., Chris Valley, National Fidelity

Funding, Michael Garcia and American Home Equity Corporation join

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1

Optin Global, Inc., Vision Media Ltd., Corp., Rick Yang and

Peonie Pui Tang Chen (collectively, the Spammer Defendants) do not

join in Aegis' motion to dismiss. 

2

in Aegis' motion to dismiss.1 Quicken separately moves pursuant to

the Controlling the Assault of Non-Solicited Pornography and

Marketing Act of 2003 (CAN-SPAM Act), 15 U.S.C. § 7706(g)(4), Local

Rule 65.1-1 and the Court's inherent power for an order requiring

Plaintiff to post security for the costs and attorneys' fees

Quicken expects to incur in this action. Plaintiff opposes the

motions. The motions were heard on April 21, 2006. 

Having considered all of the papers filed by the parties and

oral argument on the motions, the Court grants Aegis' motion to

dismiss, grants Plaintiff leave to file an amended complaint, and

denies Quicken's motion for posting of security.

BACKGROUND

The facts below are taken from Plaintiff's complaint and are

assumed to be true for the purposes of this motion only. 

Plaintiff is a California corporation that provides internet

access services. The Spammer Defendants directed, controlled and

participated in "spamming," causing more than 10,000 deceptive and

unsolicited commercial electronic messages to be sent to

Plaintiff's computer server between October 25, 2005 and November

14, 2005. The header information for these emails was falsified,

misrepresented or forged in a way that would mislead a reasonable

recipient as to the contents and subject matter of the message. 

Defendants Mr. Dorland, Mr. Cuervo, Mr. Valley, National

Fidelity Funding, Mr. Lerner, Stateside, Mr. Garcia, American Home

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Equity, Quicken, Emerald Home Loan, Inc., Francis Prasad and Aegis

(collectively, the Mortgage Defendants) are mortgage brokers doing

business in the United States. The Mortgage Defendants allegedly

"conspired with and at all times supported," and benefitted from,

the Spammer Defendants' actions. Complaint ¶ 10, 12. Plaintiff

alleges that the Mortgage Defendants knew that the Spammer

Defendants' actions were injuring Plaintiff. 

Plaintiff brings claims against all Defendants under the CANSPAM Act, 15 U.S.C. § 7701 et seq. and California's Business and

Professions Code § 17529 et seq., both of which restrict the use of

unsolicited commercial email. Plaintiff also brings a State law

claim for civil conspiracy against all Defendants. 

LEGAL STANDARD

I. Rule 12(b)(6)

A motion to dismiss for failure to state a claim will be

denied unless it is “clear that no relief could be granted under

any set of facts that could be proved consistent with the

allegations.” Falkowski v. Imation Corp., 309 F.3d 1123, 1132 (9th

Cir. 2002), citing Swierkiewicz v. Sorema N.A., 534 U.S. 506

(2002). All material allegations in the complaint will be taken as

true and construed in the light most favorable to the plaintiff. 

NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

Although the court is generally confined to consideration of the

allegations in the pleadings, when the complaint is accompanied by

attached documents, such documents are deemed part of the complaint

and may be considered in evaluating the merits of a Rule 12(b)(6)

motion. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th

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Cir. 1987).

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). “Each averment of a pleading shall be simple,

concise, and direct. No technical forms of pleading or motions are

required.” Fed. R. Civ. P. 8(e). These rules “do not require a

claimant to set out in detail the facts upon which he bases his

claim. To the contrary, all the Rules require is ‘a short and

plain statement of the claim’ that will give the defendant fair

notice of what the plaintiff’s claim is and the grounds on which it

rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957).

When granting a motion to dismiss, a court is generally

required to grant a plaintiff leave to amend, even if no request to

amend the pleading was made, unless amendment would be futile. 

Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment

would be futile, a court examines whether the complaint could be

amended to cure the defect requiring dismissal “without

contradicting any of the allegations of [the] original complaint.” 

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). 

Leave to amend should be liberally granted, but an amended

complaint cannot allege facts inconsistent with the challenged

pleading. Id. at 296-97. 

II. Rule 9(b)

“In all averments of fraud or mistake, the circumstances

constituting fraud or mistake shall be stated with particularity.” 

Fed. R. Civ. P. 9(b). The allegations must be “specific enough to

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give defendants notice of the particular misconduct which is

alleged to constitute the fraud charged so that they can defend

against the charge and not just deny that they have done anything

wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). 

Statements of the time, place and nature of the alleged fraudulent

activities are sufficient, Wool v. Tandem Computers, Inc., 818 F.2d

1433, 1439 (9th Cir. 1987), provided the plaintiff sets forth “what

is false or misleading about a statement, and why it is false.” In

re GlenFed, Inc., Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). 

Scienter may be averred generally, simply by saying that it

existed. See id. at 1547; see Fed. R. Civ. P. 9(b) (“Malice,

intent, knowledge, and other condition of mind of a person may be

averred generally”). As to matters peculiarly within the opposing

party’s knowledge, pleadings based on information and belief may

satisfy Rule 9(b) if they also state the facts on which the belief

is founded. Wool, 818 F.2d at 1439.

DISCUSSION

I. Extrinsic Evidence

Plaintiff states that Aegis has referred to "facts regarding

the knowledge of Defendants, based on industry information not

contained in the Complaint," Pl.'s Opp. at 1, and thus its motion

should be "treated as one for summary judgment and disposed of as

provided in Rule 56." Fed. R. Civ. P. 12(b). Plaintiff then

offers its own extrinsic evidence to support its allegations. 

However, Plaintiff fails to identify the facts supposedly

introduced by Aegis in its motion to dismiss, and Aegis disclaims

any reliance on facts outside the four corners of the Complaint. 

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The Court finds that summary adjudication of issues would be

premature. Accordingly, in deciding Aegis' motion to dismiss, the

Court does not consider the extrinsic material provided by

Plaintiff and disregards the portions of Plaintiff's brief that

depend upon this material. See Schneider v. Cal. Dept. of Corr.,

151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (noting that the district

court may not look beyond the complaint to the plaintiff's brief in

determining the propriety of a Rule 12(b)(6) motion to dismiss). 

II. Applicability of Rule 9(b) to Anti-SPAM Claims

Aegis argues that Plaintiff's federal and State anti-spam

claims sound in fraud, and that Plaintiff has failed to plead these

claims with the requisite particularity. 

Whether Rule 9(b) applies to claims brought under the CAN-SPAM

Act or California Business & Professions Code § 17529.5 is a

question of first impression. Generally, Rule 9(b)'s particularity

requirement applies to both federal and State law causes of action. 

Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). 

Even where fraud is not a necessary element of a claim, Rule 9(b)

applies if the plaintiff alleges a "unified course of fraudulent

conduct" and relies entirely on that course of conduct as the basis

of a claim. Id. at 1103-04. If the plaintiff instead alleges some

fraudulent and some non-fraudulent conduct, then the heightened

pleading requirements apply "only to 'averments' of fraud

supporting a claim rather than to the claim as a whole." Id. at

1104. If particular averments of fraud are insufficiently plead

under Rule 9(b), then the district court should disregard those

averments. Id. at 1105. 

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Although Plaintiff suggests that the Court look to wire fraud

cases to determine whether to apply Rule 9(b), a more directly

relevant statute was considered in Gordon v. Impulse Marketing

Group, Inc., 375 F. Supp. 2d 1040 (E.D. Wash. 2005), where the

district court addressed the applicability of Rule 9(b) to claims

under Washington State's Commercial Electronic Mail Act. The

Washington statute, like the federal CAN-SPAM Act and California's

own anti-spam law, prohibits the use of commercial email that

misrepresents information in identifying the message's origin or

that contains false or misleading information in the subject line. 

375 F. Supp. at 1047-48. After comparing the elements of the

Washington statute to the elements of fraud, the court concluded

that the Washington anti-spam law did not sound in fraud:

There is no requirement under RCW § 19.190.020 that the sender

'know' that the information in the subject line or

transmission path of the mail is 'false and misleading.' 

Also, RCW § 19.190.020 does not require the false or

misleading information in the subject line or transmission

path to be 'material.' Further, RCW § 19.190.020 does not

require the recipient of an email that violates the statute

[to] take any action 'in reliance upon the representation' in

the email. Neither intent on the part of the sender, nor

detrimental reliance on the part of the recipient, is required

to prove a violation of RCW § 19.190.020, like it is required

to prove fraud. Therefore, the Court concludes that

Plaintiff's claims under Washington's Commercial Electronic

Mail Act do not trigger the heightened pleading requirements

of Rule 9(b). 

375 F. Supp. 2d at 1048. 

Under California law, the "indispensable elements of a fraud

claim include a false representation, knowledge of its falsity,

intent to defraud, justifiable reliance, and damages." Vess, 317

F.3d at 1105 (quoting Moore v. Brewster, 96 F.3d 1240, 1245 (9th

Cir. 1996)). As both parties acknowledge, the required elements of

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a claim by an internet access provider under the CAN-SPAM Act or

California Business & Professions Code § 17529 do not include all

of the elements of common law fraud. Therefore, in accordance with

Gordon, the Court finds that Rule 9(b) does not necessarily apply

to Plaintiff's claims. 

Instead, the Court looks to whether Plaintiff has alleged

either some fraudulent conduct or a unified course of fraudulent

conduct. Plaintiff alleges that it was injured by "fraudulent

email attacks." Complaint ¶ 11. It alleges that Defendants sent

or caused to be sent "deceptive" electronic mail messages

containing "falsified, misrepresented, or forged header

information" and subject lines "likely to mislead a recipient"

about material facts regarding its contents. Id. ¶¶ 17-20, 35-36. 

It alleges that Defendants used "stolen or hijacked email

identities" to send the spam and that the emails contained domain

names registered to "unknown and false entities." Id. ¶¶ 25-26,

35. 

These allegations do not describe a unified course of

fraudulent conduct. Plaintiff does not allege, for instance, that

Defendants use the allegedly fraudulent email to induce readers to

enter into fraudulent mortgage deals. Therefore, the Court finds

that the circumstances to be plead with particularity do not

include the Mortgage Defendants' scienter or their relationship

with the Spammer Defendants. 

Nevertheless, Plaintiff does specifically allege that the

contents of the emails themselves, including their headers and

subject line information, were fraudulent, and the Court therefore

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concludes that Rule 9(b) applies to those averments of fraud. 

Plaintiff has specifically identified the time period during which

the allegedly fraudulent emails were sent. With respect to the

content of the electronic messages, however, Plaintiff relies in

part on the Declaration of Nella White, who attaches examples of

the allegedly fraudulent emails, in order to show that Plaintiff

has meet the heightened pleading standard. As noted in Section I

above, the Court will not consider Plaintiff's supplemental

evidence in evaluating the sufficiency of the complaint. However,

even disregarding Ms. White's declaration, the Complaint itself

states with particularity how the allegedly fraudulent header

information purporting to identify the sender of the email was

false, Complaint ¶ 25, explaining that the emails included domain

names "such as wwmort.com, b3mort.com, vcmort.com, great-3.com and

others" that were registered to unknown and false entities. Id.

¶ 26. 

However, other aspects of Plaintiff's allegations of fraud are

not plead with particularity. Plaintiff alleges that Defendants

sent email with subject lines that "were false and misleading and

would be likely to mislead a recipient," ¶ 36, but does not provide

an example or otherwise specify the manner in which the subject

lines were false and misleading. In addition, Plaintiff charges

"Defendants," collectively, with responsibility for sending the

allegedly fraudulent emails. Ascribing to all Defendants the act

of sending the allegedly fraudulent email also runs afoul of Rule

9(b). 

Defendants also claim that Plaintiff has failed to plead with

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the requisite particularity the basis for liability for those who

did not literally send the alleged spam, i.e. the Mortgage

Defendants. However, as explained in Section III below, multiple

Defendants may be held liable under the CAN-SPAM Act if they

"initiated" illegal emails, including either actually sending the

message or paying or inducing another to send the message while

consciously avoiding knowledge that the messages violated the law. 

Plaintiff's averments of fraud do not extend to the initiation of

the allegedly fraudulent commercial emails, but only to their

content. Therefore, the Court finds that Plaintiff need not plead

with particularity the circumstances surrounding the initiation of

the alleged email; for instance, Plaintiff need not plead

particular facts showing a business relationship between the

Mortgage Defendants and the Spammer Defendants. 

Therefore, the Court grants Defendants' motion to dismiss the

Complaint on the grounds that Plaintiff's allegations of fraud,

which form the basis of both Plaintiff's federal and State claims,

have not been plead with particularity as required by Rule 9(b). 

Plaintiff is granted leave to file an amended complaint stating

with particularity the identity of the sender or senders of the

alleged spam. If Plaintiff chooses to base its CAN-SPAM Act claim

on the nature of the allegedly fraudulent subject lines, this must

also be plead with particularity. 

III. The CAN-SPAM Act Claim

Aegis also moves under Rule 12(b)(6) to dismiss Plaintiff's

claim under the CAN-SPAM Act. 

The CAN-SPAM Act makes it "unlawful for any person to initiate

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the transmission, to a protected computer, of a commercial

electronic mail message . . . that contains, or is accompanied by,

header information that is materially false or materially

misleading." 15 U.S.C. § 7704(a)(1). It also prohibits a person

from initiating the transmission of commercial email messages 

if such person has actual knowledge, or knowledge fairly

implied on the basis of objective circumstances, that a

subject heading of the message would be likely to mislead a

recipient, acting reasonably under the circumstances, about a

material fact regarding the contents or subject of the

message. 

15 U.S.C. § 7704(a)(2). "[M]ore than one person may be considered

to have initiated a message." 15 U.S.C. § 7702(9). The statute

defines "initiate" as "to originate or transmit such message or to

procure the origination or transmission of such message." Id. In

actions brought by internet access service providers, a special

definition of "procure" applies. 15 U.S.C. § 7706(g)(2). 

Combining the basic definition with the special definition,

"procure" means,

intentionally to pay or provide other consideration to, or

induce, another person to initiate such a message on one's

behalf with actual knowledge, or by consciously avoiding

knowing, whether such person is engaging, or will engage, in a

pattern or practice that violates this chapter. 

15 U.S.C. §§ 7702(12) and 7706(g)(2). 

In order to hold the Mortgage Defendants liable under the CANSPAM Act, Plaintiff must therefore prove that they paid or induced

the Spammer Defendants to initiate commercial email messages and

that the Mortgage Defendants acted either with actual knowledge, or

by consciously avoiding knowing, that the Spammer Defendants' acts

were illegal. This set of facts could be proved consistent with

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the existing allegations in the Complaint. Indeed, the Complaint

directly alleges that Aegis and the other Mortgage Defendants

"approved or ratified" the conduct of the other Defendants. 

Complaint ¶ 14. Even if the heightened pleading standards of Rule

9(b) did apply to Plaintiff's entire CAN-SPAM Act claim, the

allegations regarding the Mortgage Defendants' scienter could be

averred generally. 

Therefore, the Court denies Aegis' motion to dismiss

Plaintiff's CAN-SPAM claim on this ground. However, Plaintiff must

replead its CAN-SPAM claim in order to comply with Rule 9(b), as

described above. 

III. California Anti-Spam Law

Aegis moves to dismiss Plaintiff's claim under California's

Business and Professions Code § 17529.5, for failure to state a

claim and for failure to state the underlying factual allegations

with reasonable particularity. 

 Section 17529.5(a) provides,

It is unlawful for any person or entity to advertise in a

commercial email advertisement either sent from California or

sent to a California electronic mail address under any of the

following circumstances:

. . . 

(2) The e-mail advertisement contains or is accompanied by

falsified, misrepresented, or forged header information. 

. . .

(3) The e-mail advertisement has a subject line that a person

knows would be likely to mislead a recipient, acting

reasonably under the circumstances, about a material fact

regarding the contents or subject matter of the message.

A "commercial email advertisement" is defined as "any electronic

mail message initiated for the purpose of advertising or promoting

the lease, sale, rental, gift offer, or other disposition of any

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2Plaintiff argues that this requirement for pleading unfair

business practices with "reasonable particularity" should not be

applied here because it is not required by the Federal Rules. See

Empress LLC v. City and County of San Francisco, 419 F.3d 1052,

1056 (9th Cir. 2005) (stating in dicta that the logical conclusion

of the holding in Swierkiewicz and similar cases is that "a

heightened pleading standard should only be applied when the

Federal Rules of Civil Procedure so require"). Aegis notes that

other federal courts have applied the heightened pleading standard

required by Khoury, but the case it cites, Silicon Knights, Inc.,

v. Crystal Dynamics, Inc., 983 F. Supp. 1303, 1316 (N.D. Cal.

1997), was decided prior to Swierkiewicz and Empress. Although it

is not clear whether the Ninth Circuit intended by the language in

Empress to dispense with the requirement of a heightened pleading

standard with respect to State law claims, the Court need not

decide that question because it finds that Plaintiff has failed

state a claim even under normal notice pleading standards. 

13

property, goods, services, or extension of credit." Cal. Bus. &

Prof. Code § 17529.1(c). The statute creates a cause of action

based on violations of § 17529.5 for "electronic mail service

provider[s]," among others. Cal. Bus. & Prof. Code

§ 17529.5(b)(1)(A)(ii). 

Aegis argues that Plaintiff's claim must be dismissed because

it does not adequately allege or meet the pleading requirements for

California claims of unfair business practices. See Khoury v.

Maly's of Cal., Inc., 14 Cal. App. 4th 612, 619 (1993) (holding

that plaintiffs alleging unfair business practices must state with

reasonable particularity facts supporting the statutory elements of

the violation)2; Emery v. Visa Int'l Serv. Ass'n, 95 Cal. App. 4th

952, 960 (2002) (holding that actions brought under California's

unfair business practices act cannot be predicated on vicarious

liability). Aegis states that the California statute requires that

a defendant "actually send the alleged spam or cause it to be

sent." Aegis' Mot. Dismiss at 5. Yet Aegis' argument is

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contradicted by the language of the statute, which appears to

extend liability to anyone who "advertises" in a commercial email

containing a misleading header or subject line, regardless of

whether the advertiser was also the one who actually sent the spam

or caused it to be sent. Cf. Cal. Bus. & Profs. Code § 19529.2

(prohibiting the initiation or advertisement in unsolicited

commercial emails sent from or to California). 

Nevertheless, the Court concludes that the Complaint does not

state a claim under § 17529.5, not for the reasons identified by

Aegis, but because Plaintiff nowhere alleges that the Mortgage

Defendants "advertised" in the alleged commercial e-mail messages. 

Therefore, the Court dismisses Plaintiff's California anti-spam

claim. Plaintiff may include a § 17529.5 claim in an amended

complaint if it can state, truthfully and without contradicting the

original complaint, that Defendants advertised their services in

the allegedly fraudulent emails. 

IV. Civil Conspiracy

Aegis moves to dismiss Plaintiff's claim for civil conspiracy

on the grounds that Plaintiff has failed to allege that the

Mortgage Defendants intended to aid in the commission of the

conspiracy. 

 The required elements of a claim for civil conspiracy under

California law are (1) the formation and operation of the

conspiracy, (2) wrongful conduct in furtherance of the conspiracy,

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3

Plaintiff relies on Saunders v. Superior Court, 27 Cal. App.

4th 832, 846 (1994), for the proposition that civil conspiracy

involves the breach of a duty. Plaintiff confuses the elements of

civil conspiracy with the elements of liability for aiding and

abetting the commission of an intentional tort. The portion of

Saunders cited by Plaintiff refers only to the latter. If

Plaintiff wishes to claim that the Mortgage Defendants aided and

abetted others in the commission of an intentional tort, it must

amend its complaint accordingly. 

15

and (3) damages arising from the wrongful conduct.3 Kidron v.

Movie Acquisition Corp., 40 Cal. App. 4th 1571, 1581 (1995). 

"Actual knowledge, without more, is insufficient to serve as a

basis for a conspiracy claim; "knowledge of the planned tort must

be combined with intent to aid in its commission." Id. at 1582. 

Under California law, civil conspiracy is not a separate cause of

action. Applied Equipment v. Litton Saudi Arabia, 7 Cal. 4th 503,

510 (1994). Conspiracy is simply a way to impose liability upon a

defendant who did not commit a tort himself or herself but who

shared with the immediate tortfeasor a common plan to harm the

plaintiff. See id. at 510-11. 

Aegis asserts that in order sufficiently to allege civil

conspiracy, a complaint must state "with sufficient factual

particularity" the existence of a mutual understanding or agreement

among the alleged tortfeasors. Masco Contractors Serv. W. v. New

Hampshire Ins. Co., 2005 WL 405361, *6 (N.D. Cal. Feb. 17, 2005)

(quoting Alfus v. Pyramid Tech. Corp., 745 F. Supp. 1511, 1521

(N.D. Cal. 1990)). However, the cases in which courts have applied

this heightened pleading standard involve claims of civil

conspiracy to commit fraud, specifically. See Wasco Prods., Inc.,

v. Southwall Tech., Inc., 435 F.3d 989, 990-91 (9th Cir. 2006)

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(holding that plaintiffs must plead California civil conspiracy

claim with particularity where object of agreement is fraudulent). 

Here, however, as described in Section II, Plaintiff has alleged

some fraudulent conduct, but not a unified course of fraudulent

conduct or an overriding fraudulent objective. Therefore, the

Court will not apply a heightened pleading standard to Plaintiff's

civil conspiracy claim. 

The Court has granted Plaintiff leave to amend its complaint

in order to allege the particularities of fraud related to the CANSPAM Act and to allege a violation of California Business &

Professions Code § 17529.5. If Plaintiff successfully pleads these

claims, it would fulfill the civil conspiracy requirement of

pleading an underlying violation. Although Plaintiff does not

specifically allege that the Mortgage Defendants intentionally

entered into an agreement to violate the law, it does state that

the Mortgage Defendants "conspired" with the Spammer Defendants. 

Complaint ¶ 10. Plaintiff alleges that the Mortgage Defendants

"were informed and knew prior to conspiring with SPAMMERS that

SPAMMERS had been named in a federal prosecution for violations of

the CAN-SPAM Act and California Business and Professions Code

§ 17529.5." Complaint ¶ 45. However, Plaintiff may prove,

consistent with this allegation, that the Mortgage Defendants

entered into an agreement with the Spammer Defendants with the

intent to commit violations of the anti-spam laws. 

Therefore, the Court denies Aegis' motion to dismiss

Plaintiff's claim for civil conspiracy against the Mortgage

Defendants, subject to Plaintiff's successful statement of at least

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one underlying claim. 

V. Quicken's Motion for Security

Defendant Quicken moves for an order requiring Plaintiff to

post security for the costs and attorneys' fees Quicken expects to

incur in this action. Plaintiff opposes the motion. 

Section 7706(g)(4) of the CAN-SPAM Act allows the district

court, in its discretion, to "require an undertaking for the

payment of the costs of such an action [brought by an internet

access provider], and assess reasonable costs, including reasonable

attorneys' fees, against any party." In addition, Civil Local Rule

65.1-1 provides, "Upon demand of any party, where authorized by law

and for good cause shown, the Court may require any party to

furnish security for costs which can be awarded against such party

in an amount and on such terms as the Court deems appropriate."

Federal courts also have inherent authority to require plaintiffs

to post security for costs. In re Merrill Lynch Relocation Mgmt.,

Inc., 812 F.2d 1116, 1121 (9th Cir. 1987). 

Quicken argues that it is entitled to security for its

attorneys' fees and costs because (1) it is likely to succeed on

the merits; and (2) Plaintiff is violating an agreement to release

Quicken from liability in exchange for information. 

The Court finds that Quicken is not likely to succeed on the

merits. Plaintiff has shown at least some evidence in support of

its allegations. Moreover, this is a new area of law in which the

scope of liability is not clear; requiring Plaintiff to post a

security bond at this juncture could chill private enforcement of

anti-spam laws. 

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With respect to the alleged release of liability, the Court is

troubled by counsel's contradictory assertions and accusations. 

The existence of an oral contract releasing Quicken from liability

appears to be a disputed issue of fact which the Court cannot

resolve based on the evidence before it. Amy Bishop, counsel for

Quicken, declares under oath,

I told Mr. [Jason] Singleton[, counsel for Plaintiff,] words

to the effect that 'it is understood that the release of this

information to you is conditioned upon you releasing Quicken

Loans.' Mr. Singleton agreed to release Quicken Loans in

exchange for the information. Mr. Singleton did not tell me

that he had filed a lawsuit against Quicken Loans two days

earlier, but instead asked me to cooperate by providing the

information I had. 

Relying on the release, I then explained to Mr. Singleton

that Quicken Loans received the lead from its affiliate,

Azoogle . . . . Mr. Singleton thanked me and promised to send

me a written release to memorialize the oral agreement.

Bishop Decl. ¶¶ 9-10.

Mr. Singleton, however, denies under oath that he agreed to

release Quicken from liability, stating generally, "Ms. Bishop's

statement that she and I had a telephone conversation, wherein I

agreed to release Defendant, is untrue." Singleton Decl. ¶ 3. 

The Court will not require Plaintiff to post security for

Quicken's attorneys' fees and costs. However, the Court will

entertain a motion for attorneys' fees from the party who prevails

on the issue of the alleged liability release. 

CONCLUSION

For the foregoing reasons, the Court GRANTS Aegis' motion to

dismiss Plaintiff's complaint (Docket No. 20), with respect to

Plaintiff's averments of fraud and its claim under California

Business and Professions Code § 17529.5. Plaintiff may file an

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amended complaint within two weeks of the date of this order. The

Court DENIES Quicken's motion for an order requiring Plaintiff to

post security (Docket No. 54). 

In its amended complaint, Plaintiff must state with

particularity the nature of the allegedly fraudulent subject lines

and the identity of the sender or senders of the alleged spam. 

Plaintiff may include in the amended complaint its civil conspiracy

claim, provided it is able successfully to state an underlying

claim under either the federal or State anti-spam laws. Plaintiff

may only bring a § 17529.5 claim in its amended complaint if it can

state, truthfully and without contradicting the original complaint,

that Defendants advertised their services in the allegedly

fraudulent emails. 

IT IS SO ORDERED.

Dated: 6/30/06

 

CLAUDIA WILKEN

United States District Judge

Case 3:05-cv-05124-JCS Document 72 Filed 06/30/06 Page 19 of 19