Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-00990/USCOURTS-azd-2_05-cv-00990-0/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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Defendants Lewis and Roca referred to collectively, also include Defendants George

Paul, Karen Paul, Tom Morgan, Scott Dewald and Deborah Jamieson. Defendant Capitol

Detective Agency did not join in the instant motion to dismiss. 

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Pamela Thompson, individually and as

guardian of Gabriella Thompson, Matthew

Thompson, Marcus Thompson, Michael

Thompson; and the Thompson Group,

P.C., an Arizona professional corporation,

Plaintiff, 

vs.

George Paul and Karen Paul, husband and

wife; Tom Morgan; Scott Dewald and

Deborah Jamieson, husband and wife;

Lewis and Roca, LLP, An Arizona limited

liability partnership; and Capitol Detective

Agency, Inc., an Arizona corporation, 

Defendants. 

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No. CIV-05-0990-PHX-MHM

ORDER

Currently, before the Court is Defendants Lewis and Roca, LLP’s1

 Motion to Dismiss.

(Dkt. #11). After reviewing the motion and hearing oral argument on October 20, 2005, the

Court issues the following order.

I. Factual Background

Pamela Thompson, resigned as Chief Financial Officer, Secretary, and Treasurer of

YP.net in May, 2002. Compl. ¶17. Thompson’s resignation was motivated by ethical and

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professional concerns regarding accounting and disclosure practices of YP.net and Angelo

Tullo, Chief Executive Officer of YP.net. Id. Upon receiving Ms. Thompson’s resignation,

YP.net, represented by the Lewis & Roca Defendants, sued Ms. Thompson and Ms.

Thompson countersued. Compl. ¶26. Plaintiffs maintain the Lewis and Roca Defendants

instituted this baseless litigation to harass Ms. Thompson and to prevent her from disclosing

information to law enforcement regarding the criminal investigation of Mr. Tullo. Compl.

¶¶26-32. 

On April 22, 2004, the parties entered settlement negotiations. Compl. ¶37. Plaintiffs

contend Ms. Thompson relied on the Lewis and Roca Defendants false representations when

accepting YP.net’s settlement offer, comprising of YP.net’s Common Stock. Compl. ¶38.

Specifically, Plaintiffs assert the Lewis and Roca Defendants falsely represented that there

was no criminal investigation targeted at Mr Tullo. Compl. ¶37. “Moments before the final

settlement documents” were executed, Lewis & Roca withdrew as counsel. Compl. ¶41. 

As a result of the withdrawal of Lewis and Roca, settlement was finalized on May 24, 2004.

Compl. ¶42. Plaintiffs maintain due to Lewis and Roca’s withdrawal and false

misrepresentation, Ms. Thompson was unable to sell her YP.net stock before the government

indicted Mr. Tullo, and consequently, the value of Ms. Thompson’s settlement plummeted.

Compl. ¶¶44,45.

Plaintiffs filed their complaint on April 1, 2005 alleging claims for: 1) violation of

section 10(b) of the Securities and Exchange Act; 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; and 9) Negligent

Infliction of Emotional Distress. Compl. ¶¶46-131. Named as Defendants are Lewis and

Roca LLP, George Paul, Karen Paul, Tom Morgan, Scott Dewald and Deborah Jamieson

(“Lewis and Roca Defendants”). Compl. ¶¶6-10. Also named as a defendant is Capitol

Detective Agency, who did not join in the instant motion to dismiss. Id. at ¶11.

II. Legal Standard

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“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).

Accordingly, the court will not dismiss a complaint unless it appears beyond a doubt that the

plaintiff can prove no set of facts to support the claim that would entitle the plaintiff to relief.

Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). However, “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).

In determining whether a complaint states a claim, all allegations of material fact are

taken as true and construed in the light most favorable to the nonmoving party. Wyler

Summit Partnership v. Turner Broad. Sys. Inc., 135 F.3d 658, 661 (9th Cir. 1998). As such,

an inquiry into the adequacy of the evidence is improper when deciding whether to dismiss

for failure to state a claim. Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083, 1085 (9th Cir.

1998). 

III. Discussion

A. Fraudulent Misrepresentation, Negligent Misrepresentation, and Third

Party Professional Negligence. (Counts 1, 4, 5, and 6)

A cause of action against opposing counsel for statements made during litigation is

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

of civil proceedings. Linder v. Brown & Herrick, 943 P.2d 758, 766 (Ariz. Ct. App. 1997)

(dismissing claims of fraud and intentional infliction of emotional distress against opposing

counsel for failure to state a claim). An 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). Imposition of a duty to an individual, other than an “intended

beneficiary” would offend public policy by “plac[ing] an attorney in a position where his

own interests would conflict directly with his client’s interests.” Id. Additionally, “as a

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

by the attorneys opposing [her].” Linder, 943 P.2d at 765. 

A section 10(b) action requires justifiable reliance on alleged misrepresentations.

Atari Corp. v. Ernst & Whinney, 981 F.2d 1025 (9th Cir. 1992). The securities laws create

liability for misrepresentations only in the event of a “substantial likelihood that the

misrepresentation significantly altered the total mix of information that the investor

possesse[d].” Id. at 1030. “If the investor already possesses information sufficient to call

the representations into question, he cannot claim later that he relied on or was deceived by

the lie.” Id. As noted above, Ms. Thompson had no right to rely on statements made by the

attorneys opposing [her].” Linder, 943 P.2d at 765. 

Plaintiff’s reliance on Paradigm Ins. Co. v. Langerman Law Offices, P.A., 24 P.3d 593

(Ariz. 2001), is unavailing under the facts presented here. While the Arizona Supreme Court

in Paradigm found a duty existed between an attorney and a nonclient, the nonclient, unlike

Plaintiff, was an intended beneficiary of the attorney’s services. Id. at 602. As an adverse

party Plaintiff was not an intended beneficiary of Defendant’s services, thus Defendants

owed no duty to Plaintiff. Accordingly, Plaintiff’s have failed to state a claim for fraudulent

misrepresentation, negligent misrepresentation, and third party professional negligence.

B. Abuse of Process (Count 2)

While Arizona courts recognize claims for abuse of process against opposing counsel,

Giles v. Hill Lewis Marce, 988 P.2d 142, 146 (Ariz. Ct. App. 1999), an actionable claim for

abuse of process requires both an ulterior purpose and a willful act in the use of judicial

process not proper in the regular conduct of the proceeding. Giles, 988 P.2d at 146; Joseph

v. Markovitz, 551 P.2d 571, 574-75 (Ariz. Ct. App. 1976). A “willful act” requires

something more than defendant’s “carry[ing] out the process to its authorized conclusion,

even though with bad intentions.” Joseph, 551 P.2d at 575 (internal quotation omitted). It

is “a form of extortion, and it is what is done in the course of negotiation, rather than the

issuance or any formal use of the process itself.” Crackel v. Allstate Insurance Co., 92 P.3d

882, 890 (Ariz. Ct. App. 2004) (internal citations omitted). In Joseph, the plaintiff alleged

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the complaint was filed to prevent his testimony against the defendants in a malpractice

action. Treating this allegation as true, the plaintiff would have had to allege an act beyond

the filing of the lawsuit, such as an offer to dismiss the complaint in exchange for plaintiff’s

refusal to testify, to maintain a claim for abuse of process. Id. at 575. 

Like Joseph, Plaintiff merely asserts that Defendant’s purpose was to exhaust her

financial resources in order to prevent her testimony against Mr. Tullo, YP.net’s CEO in a

pending criminal matter. (Compl. ¶ 56.) Other than describing the Defendant’s litigation

activities, Plaintiff does not allege a willful act in furtherance of this purpose. While not pled

in the complaint, Plaintiff has alleged that three unsuccessful contempt of court actions filed

in the YP.net litigation constitute an overt act. Contempt actions constitute “a use of the

process itself” as opposed to something “done in the course of negotiation.” See Green v.

Uccelli, 207 Cal. App.3d 1112, 11117, 1125 (1989) (filing orders to show cause regarding

contempt does not constitute a claim for abuse of process against opposing counsel). 

Therefore, Plaintiff has failed to state a claim for abuse of process. 

C. Wrongful Institution of Civil Proceedings (Count 3)

An actionable claim for wrongful institution of civil proceedings, or malicious

prosecution, requires showings “that a civil or criminal proceeding was instituted by the

defendant against the plaintiff; that the suit terminated in favor of the plaintiff; that it was

commenced without probable cause; and that it was motivated by malice.” Joseph, 551 P.2d

at 573. “The existence of probable cause to institute the action is a complete defense to

malicious prosecution without regard to the existence of malice.” Id. “Conclusory

allegations with nothing more are insufficient to defeat [a] motion to dismiss. McCarthy v.

Mayo, 827 F.2d 1310, 1316 (9th Cir. 1987). 

Beyond re-stating allegations in support of the claim for abuse of process (Compl. ¶

60-61), Plaintiff only alleges that, based upon available evidence, no reasonable person

would have believed Defendant’s claim was meritorious. (Compl. ¶ 63). In addition, Plaintiff

offers no facts in support of the alleged absence of probable cause. This allegation is

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conclusory, and therefore, Plaintiff has failed to state a claim for wrongful institution of civil

proceedings.

D. Tortious Interference with Contractual Relations and Business

Expectancy (Count 7)

An actionable claim for tortious interference with contractual relations and business

expectancy requires a valid contractual relationship or business expectancy, the interferer’s

knowledge of the contractual relationship or expectancy, intentional interference inducing

a breach or termination of the relationship, and resultant damage. American Family Mutual

Ins. Co. v. Zavala, 302 F. Supp. 2d 1108, 1117 (D. Ariz. 2003). Additionally, the

interference must be “improper” in some manner. Id. The Restatement addresses the

impropriety of truthful statements:

There is of course no liability for interference with a contract .

. . on the part of one who merely gives truthful information to

another. The interference in this instance is clearly not improper.

This is true even though the facts are marshaled in such a way

that they speak for themselves and the person to whom the

information is given immediately recognizes them as a reason

for breaking his contract or refusing to deal with another. It is

also true whether or not the information is requested.

Restatement (Second) of Torts §772 cmt. b (1979) 

The complaint alleges that Defendants informed Plaintiff’s clients that Plaintiff was

being sued by YP.net. This was a true statement, and therefore, “[t]here is of course no

liability for interference with a contract . . . on the part of one who merely gives truthful

information to another.”Id. Accordingly, it is unnecessary to analyze the remaining

elements of the claim. Plaintiff has thus failed to state a claim for tortious interference. 

E. Intentional Infliction of Emotional Distress (Count 8)

A cause of action for intentional infliction of emotional distress requires that “the

conduct by the defendant . . . be ‘extreme’ and ‘outrageous;” “the defendant must either

intend to cause emotional distress or recklessly disregard the near certainty that such distress

will result from his conduct;” and severe emotional distress must result from defendant's

conduct.” Johnson v. McDonald, 197 Ariz. 155, 160 (App. 1995). The trial court determines

whether the acts at issue are sufficiently outrageous to state a claim for relief. However, if

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reasonable minds could differ about whether the conduct is sufficiently outrageous, the issue

should be decided by a jury. Id.. 

Plaintiff alleges the Lewis and Roca Defendants stalked, harassed and assaulted Ms.

Thompson. Compl. ¶¶95-122. Specifically, Plaintiffs assert in April 2002 Defendant Paul

admitted to having Ms. Thompson and her children followed. Compl. ¶96. Plaintiffs also

allege a Lewis and Roca attorney called Ms. Thompson’s children “tar babies.” Compl.

¶112. Additionally, Plaintiffs assert the Lewis and Roca Defendants hired individuals who

attacked Ms. Thompson at a restaurant named the Phoenix City Grill. Compl. ¶101.

In Linder, supra, the Arizona Court of Appeals upheld the dismissal of the plaintiff's

claims of fraud and intentional infliction of emotional distress against opposing counsel in

a previous action, finding the claims not only insufficiently pleaded, but precluded by an

earlier judgment. The court nevertheless went on to state that, in Arizona, case law limits

claims against opposing counsel to malicious prosecution. Linder, 943 P.2d at 765. 

However, subsequent cases have limited Linder’s holding to precluding claims against

opposing counsel alleging fraud and negligence. Cf. Giles v. Hill Lewis Marce, 988 P.2d

143, 146-47 (Ariz. Ct. App. 1999) (concluding public policy invoked in Linder does not

exist for abuse of process claims).

Reckless disregard has been found when an employer knew an employee had been

physically assaulted, subjected to “vulgar remarks,” and was emotionally distraught. Ford

v. Revlon, Inc., 734 P.2d 580, 585 (Ariz. 1987). Although Plaintiff’s claims against Lewis

& Roca do not arise in an employment context, her allegations are otherwise similar to Ford.

Defendants argue the allegations in the complaint, which rely only on “information

and belief,” are insufficient to support Plaintiffs’ allegations and, even if sufficient, fail to

state a claim for IIED. However, the Complaint specifies Defendant Paul told Ms.

Thompson she was being followed and a Lewis & Roca lawyer used a racial slur in reference

to Ms. Thompson’s children. Further, Plaintiffs allege Ms. Thompson was assaulted, which

was witnessed by four individuals, whom Plaintiffs believe Defendants hired. Accordingly,

the allegations appear to be based on Ms. Thompson’s personal knowledge and the Court is

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unaware of authority to dismiss claims on a 12(b)(6) motion which are based on Plaintiffs’

personal knowledge.

Alternatively, Defendants argue, taking as true the allegations, they are insufficient

to support a claim for intentional infliction of emotional distress. Courts have concluded a

private investigator surreptitious videotaping an individual during church services “as a

matter of law . . . did not rise to the level of outrage necessary to support a claim for

intentional infliction of emotional distress.” Creel v. I.C.E. & Associates, Inc., 771 N.E.2d

1276, 1282-83 (Ind. Ct. App. 2002). Furthermore, another jurisdiction has found use of a

racial epithet in conjunction with other offensive behavior did not state a claim for intentional

infliction of emotional distress under a standard requiring a plaintiff to plead she was

subjected to “relentless physical and verbal harassment. . . to state a claim for intentional

infliction of emotional distress.” Vamper v. United Parcel Service, Inc., 14 F. Supp.2d 1301,

1306-07 (S.D. Fla. 1998) (dismissing Plaintiff’s IIED claim where the plaintiff alleged that

UPS fabricated a reckless driving charge in an attempt to terminate him; told a false story

about him to another employee; and referred to plaintiff as a “nigger.”)

However, 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

alleges Defendants repeatedly followed and “stalked” Ms. Thompson and Ms. Thompson’s

children, used a racial slur in reference to Ms. Thompson’s children, trespassed on Ms.

Thompson’s 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.

F. Negligent Infliction of Emotional Distress (Count 9)

A cause of action for negligent infliction of emotional distress requires that the “shock

or mental anguish is accompanied by or manifested as a physical injury.” Gau v. Smitty’s

Super Valu, Inc., 901 P.2d 455, 457 (Ariz. Ct. App. 1995). Teeth grinding and bed wetting

have been held sufficient physical injuries to state a cause of action, Quinn v. Turner, 745

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P.2d 972, 973 (Ariz. Ct. App. 1987), whereas transitory weeping and insomnia, standing

alone, cannot sustain a cause of action for negligence. Gau, 901 P.2d at 457. 

The complaint does not allege physical injury resulting from the emotional distress

Defendant’s caused Plaintiff. Rather, this emotional distress was accompanied by

phenomena such as anxiety, fear concerning and overwhelming feelings, insomnia, and

weight loss. Compl. ¶¶129-30. While Plaintiffs allege Matthew Thompson was rushed to the

emergency room due to his anxiety, Plaintiff fails to allege what manifested physical injury

precipitated the hospital visit, the result or duration of the hospital visit. Compl. ¶103.

Feelings, emotions, and insomnia are insufficient to state a cause of action for negligence.

While weight loss is arguably a physical injury, it is likely transitory and cannot sustain this

cause of action. Id.

G. Conclusion

Plaintiffs cannot state a cause of action against opposing counsel for violation of

section 10(b) of the of the Securities and Exchange Act, fraudulent misrepresentation,

negligent misrepresentation, and third party professional negligence because attorneys do not

owe a duty to opposing parties, Plaintiffs were not the intended beneficiaries of Defendants’

services, and as a matter of law Ms. Thompson had no right to rely on statements made by

opposing counsel. Secondly, Plaintiffs claim for tortious interference fails because there is

no liability for interference with a contract where a party gives truthful information to

another. These claims all fail as a matter of law and will be dismissed with prejudice as any

amendment would be futile. See FED. R. CIV. PRO. 15.

Additionally, other than asserting Defendants prosecuted a baseless lawsuit, Plaintiffs

do not allege a willful act in furtherance of this purpose, and consequently, Plaintiffs have

failed to state a claim for abuse of process. Plaintiffs claim for wrongful institution of civil

proceedings is predicated solely on conclusory allegations regarding the alleged absence of

probable cause, and therefore, will be dismissed. Furthermore, Plaintiffs fail to adequately

plead a physical injury in connection with their claim for negligent infliction of emotional

distress. However, because the pleading deficiencies in Plaintiffs’ abuse of process,

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wrongful institution of civil proceedings, and negligent infliction of emotional distress could

possibly be cured on amendment, these claims will be dismissed without prejudice. See FED.

R. CIV. PRO. 15.

IV. The Court will decline to exercise supplemental jurisdiction over Plaintiff’s

remaining state-law claims in the interests of judicial economy, fairness, and

comity.

The one claim remaining in this case, after this Order, is Plaintiff’s state-law claim for

intentional infliction of emotional distress. The Court exercised jurisdiction over Plaintiff's

state-law claims as supplemental to its original jurisdiction over the federal causes of action

pursuant to 28 U.S.C. §1367(a). However pursuant to 28 U.S.C. §1367(c), the Court "may

decline to exercise supplemental jurisdiction over a claim under subsection (a) if – . . . (3)

the district court has dismissed with prejudice all claims over which it has original

jurisdiction . . .. 28 U.S.C. §1367(c). By this Order, the Court has dismissed all claims over

which it has original jurisdiction. 

The Supreme Court has stated, and the Ninth Circuit has often repeated, that "in the

usual case in which all federal-law claims are eliminated before trial, the balance of factors

. . . will point toward declining to exercise jurisdiction over the remaining state-law claims."

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988). While discretion to decline

to exercise supplemental jurisdiction over state-law claims is triggered by the presence of one

of the conditions in section 1367(c), it is, however, "informed by the values of economy,

convenience, fairness, and comity." See Acri v. Varian Associates, Inc., 114 F.3d 999, 1001

(9th Cir. 1997). 

After reviewing the entire record in this matter, this Court has determined that the

interests of judicial economy, convenience, fairness, and comity, on balance, favor declining

to exercise supplemental jurisdiction over the remaining state-law claims pursuant to this

Court's discretion under 28 U.S.C. §1367(c).

Accordingly,

IT IS HEREBY ORDERED Defendants’ Motion to Dismiss is GRANTED IN

PART and DENIED IN PART. (Dkt. #11). The Motion to Dismiss is granted as to Count

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1, violation of section 10(b) of the Securities and Exchange Act; Count 4, Fraudulent

Misrepresentation; Count 5, Negligent Misrepresentation; Count 6 Third Party Professional

Negligence, and Count 7, Tortious Interference with Contractual Relations, which are

dismissed WITH PREJUDICE. The Motion to Dismiss is granted as to Count 2, Abuse of

Process; Count 3, Wrongful Institution of Civil Proceedings; and Count 9, Negligent

Infliction of Emotional Distress, which are dismissed WITHOUT PREJUDICE. The

Motion to Dismiss is denied as to Count 8, Intentional Infliction of Emotional Distress.

DATED this 5th day of December, 2005.

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