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HONORABLE G. HELEN WHITENER

HEARING DATE: MAY 18, 2018, AT 9:00 A.M.

WITH ORAL ARGUMENT

SUPERIOR COURT OF THE STATE OF WASHINGTON

FOR PIERCE COUNTY

R.O. and K.M.,

Plaintiffs,

MEDALIST HOLDINGS, INC., et al.,

Defendants.

PLAINTIFFS' MOT FOR SANCTIONS

Page 1 of 16

NO. 17-2-04897-1

PLAINTIFFS' MOTION FOR SANCTIONS

AGAINST BACKPAGE DEFENDANTS

PFAU COCHRAN VERTGTIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 1 of 16
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I. RELIEF REQUESTED

After years of flouting liability, Backpage.com CEO, Carl Ferrer, has pled guilty to a range

of crimes and admiCs Plaintiffs' allegations (lave been true all along: the Backpage defendants (1)

knew that the "great majority" of the escort ads on Backpage.com were fot~ prostitution; (2)

conspired to "knowingly facilitate state-law prostitution crimes being committed by Backpage

customers" to profit from these illicit acts; (3) removed "banned terms" from advertisements posted

in the "wattle escorts" and "tacoma escorts" sections of Backpage.com to mask illegal activity on

the website, including prosCitution, and (4) designed and m1i~~t~ined "an overall, company-wide

culture and policy of concealing and refusing to officially acknowledge the true nature of the

services being offered in Backpage's `escort' and `adl~lt' ads."

While Ferrer awaits sentencing for criminal charges of sex trafficking, facilitating

prostitution, conspiracy, and money laundering, the United States government has taken complete

control of the Bacicpage.com website and permanently shut it down.

Ferrer's admissions show the Backpage defendants have intentionally and repeatedly made

misrepresentations in discovery, depositions, and pleadings to the Court in an attempt to obstruct

the civil justice system and unnecessarily increase the costs of litigation to minor trafficking

victims. Under the inherent equitable powers of the Court, CR 11, CR 26(g), and CR 37(c),

Plaintiffs respectfully aslc the Court to impose sanctions against the Backpage defendants to punish

them and discourage such bad faith litigation tactics, including 1) $100,000 to each Plaintiff as a

penalty and to rei~nbui•se them for reasonable attorneys' fees and costs to prove facts that should

have been admitted; 2) $100,000 to the Coul-t, as a penalty and to reimburse the Court for time alld

resources spent as a result of the Backp~ge defendants' misconduct; and 3) Plaintiffs' reasonable

attot-neys' fees and costs to bring this motion. Such sanctions are warranted to deter future

~ The "Backpage defendants" referenced herein include Defendants Medalist Holdings Inc., Leeward Holdings, L.L.C.,

Camarillo Holdings, L.L.C., Dartmoor Holdings, L.L.C., IC Holdings, L.L.C., Backpage.com, L.L.C., UGC Tech

Group C.V., Website Technologies, LLC, Atlantische Bedrijven C.V., Amstel River Holdings LLC, Lupine Holdings

LLC, Kickapoo River Investments LLC, CF Holdings GP LLC, CF Acquisitions LLC, Carl Ferrer, Michael Lacey, and

James Larkin.

PLAINTIFFS' MOT FOR SANCTIONS

Page 2 of 16

PFAU COCHRAN VGRTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206)462-4334/Fax: (206) 623-3624

http://www. pcvalaw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 2 of 16
3

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misconduct by the defendants, particularly where, according to Ferrer, Backpage has made

hundreds of millions of dollars in illegal commercial sex advertising revenue that resulted iii the

sexual exploitation of Plaintiffs and col~ntless other women and children that it used to fund its bad

faith litigation tactics.

II. STATEMENT OF FACTS

A. Backpage Co-Founder and CEO, Carl Ferrer, Pled Guilty on Behalf of Himself and

the Bacicpage.com Entity to State and Federal Crimes of Human Sex Trafficking,

Facilitating Prostitution, Conspiracy, and Money Laundering

On April 5, 2018, and April 9, 2018, Backpage co-founder and CEO, Cari Ferrer, pled

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guilty, individually and on behalf of Backpage.com corporate entities, ~ to federal and state crimes

of human sex tl-afficl<ing, facilitating prostitution, crimii~af conspiracy, and money la~uldering.3

Ferrer's admissions are spelled-out in his ~ederai guilty plea:

In 2004, I co-founded the website www.Backpage.com (`Backpage"), along with

M.L. [Michael Lacey] and J.L. [James Larkin]. Backpage eventually became the

second-largest classified advertising in the world, during its 14 years of existence,

has derived the great majority of its revenue from fees charged in retur» for

publishing advertisements for `adult' and `escort' services.

I have long been aware that the great majority of these advertisements are, in

fact, advertisements for prostitution services (which are not protected by the First

Amend►nent and which ace illegal in 49 states and in much of Nevada). Acting with

this knowledge, I conspired with other Backpage principals (including but not

limited to M.L., J.L., S.S., D.H., A.P., and J.V.)4 to end ways to knowingly

facilitate state-law prostitution crimes being committed by Backpage

customers. For example, I worked with my co-conspirators to create

`moderation' processes through which Back~~age would remove terms and

pictures that were particularly indicative of prostitution and then publish a

revised version of the ad. Such editing did not, of course, change the essential

nature of the illegal service being offered in the ad—it was merely intended to create

a veneer of deniability for Backpage. These editing practices were one

component of an overall, company-wide culture and policy of concealing and

refusinb to officially acknowledge the true nature of the services being offered

in Backpage's `escort' and `adult' ads.s

'Backpage.com LLC, Acl Tech BV, Ainstel River Holdings, LLC, WebsiCe Technologies, LLC, Posting Solutions,

LLC, and UGC Tech Group BV.

3 Guilty pleas, Pfal~ DecL at Ex. I .

4 "M.L." is defendant Michael Lacey and `~7.L." is defendant James Larkin.

~ Ferrer Guilty Flea in United States District Cow-t of Arizona Case No. 3:18-cr-000464-DJH, Pfau Decl. at Ex. 1.

PLAINTIFFS' MOT FOR SANCTIONS

Page 3 of 16

PFAU COCHRAN VCRTETIS AMALA PLLC

403 Colwnbia Street, Suite 500

Seattle, WashingCon 98104

Phone: (206) 462-4334 J Fax: (206) 623-3624

http://www. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 3 of 16
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As part of the plea agreement, Ferrer gave immediate ownership and control of

www.bacl<page.com and related assets to the United States government, which promptly and

permanently shut down the website.6

B. Plaintiffs R.O. and K.M. Filed Their Lawsuit in January 2017 Based on Allegations

that the Defendants Knowingly and Intentionally Facilitated Online Prostitution and

Human Sex Trafficking

In January 201.7, Plaintiffs filed suit against Backpage and several co-conspirator

traffickers, alleging claims under Washington's Criminal Profiteering Act, RCW 9A.82 et seq.;

Washington's Sexual Exploitatio~~ of Children Act, RCW 9.68A, et seq.; neglige~~ce; outrage;

assault and battery; and unjust enrichment. Id. R.O. and K.M. alleged the Backpage defendants

are liable for the sexual exploitation they endured because the defendants (1) intentionally created

an online marlcetpiace for illegal prostitution and sex trafficking, and (2) facilitated and promoted

these illicit transactions by helping traffickers create and develop commercial sex advertisements

on the website, primarily through the use of so called "posting rules," "content requirements," and

"moderation practices." Id. In October 2017, Plaintiffs sel-ved interrogatories, ►•equests for

production, and requests fot• admission that asked the defendants to provide information regarding

their knowledge of prostitution and sex trafficking on www.backpage.com, as well as their

supposed efforts to prevent such illegal activity through various business practices.

C. The Backpage Defendants Repeatedly Acted in Bad Faith and Made

Misrepresentations to Plaintiffs and the Court

As evidenced by Ferrer's guilty pleas, Plaintiffs and the Court have been subjected to a long

pattern of bad faith litigation by the Baci<page defendants, including intentionally and repeatedly

inaki~lg misrepresentaCions in discovery responses, depositio~ls, and pleadings, in an attempt to

obstruct the civil justice system and unnecessarily increase the costs of litigation to Plaintiffs.

~ Id.

'Plaintiffs' First Set of Interrogatories, Requests for Production, and Requests for Admissions to Backpage Defendants, Pfau Decl. at Ex. 2.

PLAINTIFFS' MOT FOR SANCTIONS

Page 4 of 16

PFAU COCHRAN VERTETIS AMALA PLLC

403 Colwnbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcvalaw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 4 of 16
First, in March 2017, shortly after R.O. and K.M. filed their lawsuit, Backpage attempted

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to obtain an order from Pierce County Superior Court Judge Kathryn Nelson in the case, J.S., et al.

v. Village Voice Media Holdings, LLC, et al., Case No. 12-2-11362-4, dismissing identical claims

brought by three minor trafficking victims represented by the same legal counsel as R.O. and K.M.

The motion relied heavily on a declaration signed by Backpage's general counsel, Elizabeth

McDougall, swearing under oath that Backpage's business practices were intended to prevent

prostitution and sex trafficking, not facilitate and encourage such illegal activity:

Bacicpage.com also operated atwo-tiered manual (human) review system (called

"moderation") of ads submitted for posting to the adult category. During the ~rstlevel manual review, Backpage.com personnel assessed proposed posts to the adult

category before they were allowed to appear on Bacl<page.com and endeavored to

prevent postings that concerned illegal conduct and other activity prohibited

by the Terms of Use or Posting Rules. During the second-level manual review,

Backpage.com personnel examined nearly every posting in the adult category

that appeared on the website as a double check for potential illegal or

prohibited activity.

Bacicpage.com's policies, rules, and restrictions for the website were not

designed or intended to induce sex trafficking ot• exploitation of any sort.

Bacl<page.com imposed and enforced rules, screened and blocked ads, and took

other actions (as described above [moderation practices] to prevent and preclude

such misuse of the website.8

Next, in April 2017, Bacicpage's general counsel, Elizabeth McDougall, testified as

Backpage's designated CR 30(b)(6) representative and furthered Bacicpage's fictitious defense that

the website was inte~zded only for fawfiil activity. She represented that the websi~e's editing

practices were intended to prevent prostitution and sex h~afficking, not promote it, testimony that

was at odds with the fact that Ferrer and some of the company's other executives had recently pled

the Fifth Anlendn1e11t and refused to answer questions oi~ those same topics. Her testimony is

directly at odds with Ferrel~'s recent guilty plea:

Q. During the time these girls were advertised on Bacl<page.com [2010], do you

agree t11at the majority of the individuals who were advertised as escorts in

the section of the website were individuals who were trying to sell sex for

money?

$ Declaration of Elizabeth McDougal(In Support ofBackpage Defendants' Motion for Summary Judgment, Pfau Decl.

at Ex. 3.

PLAINTIFFS' MOT FOR SANCTIONS

Page 5 of 16

PFAU COCHRAN VERTTTIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http ://w~vw. pcva I aw. c om

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 5 of 16
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A. No, I have no way to know that. ~

~~~

Q, We know that the company was both automatically and manually editing ads

to remove terms that may indicate an ad was for sex for money, correct?

A, No, we didn't agree on that.10

~:~*

A. We used the automated filter as an efficient method to try to remove content

that could potentially involve sex fot• money or sex trafficking or, in

particular, the sex trafficking of minors.

Q. Was that also true with regard to the manual moderating that was done on

these ads?

A. Yes.

Q. How does it help prevent sex trafficking if a website has an automatic filter

that removes terms that may reflect an ad is for sex trafficking?

Q. The way the filter operated, the ad would be posted. After about eve

minlrtes, the objectionable term would be removed. The presumption was

the user would think they had made some kind of mistake, they would go

back, add the term again. After five minutes, the term would be removed

again, and the intention was to — to frustrate the user so that they would stop

posting. Also, with the term removed from the text, the goal was to —one of

the goals was to render the ad meaningless, essentially, something that a user

reading it would not respond to because they 11ad no understanding of what

it was trying to advertise. ~ ~

~~~

A. As I said previously, if a tern, like "Lolita" is included in an advertisement

i n the adult category, it may attract someone who is looking to have sex with

a minor.

If the term "Lolita" is removed, then it's less likely that someone who is

looking to have sex with a minor will be ale to or, rather, will respond to that

~ CR 30(b)(6) Deposition of Backpage.com, p 64, Pfau Decl. at Ex. 4.

'o Icl. at 98.

"Id. at 50-51.

PLAINTIFFS' MOT FOR SANCTIONS

Page 6 of 16

PFAU COCHRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcvalaw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 6 of 16
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ad and be able to achieve that end, so it helps to prevent the instance of the

sexual exploitation of a minor.

In addition to that, when certain terms are removed, it can render an ad

meaningless.

For example, "A Loiita experience for $100," if the term "Lolita" is

removed, then the ad simply says, "Experience for $100."

Q. An adult might still respond to such an ad with the hope of having sex with

the person for $100, correct?

A. I can't answer that in the vague hypothetical.

Q. So is it your testimony that if someone posted an ad in the escort section,

"An experience for $100" that might not be an indication that the person who

is the subject of the ad is willing to have sex for $1.00?

A. Escorting is Clot sex. Escorting is a legally recognized profession, career

option, and an ad saying, "An experience for $100" in an escort category, on

its face, is by no means an advertisement for sex for money.

Q. You understand though that often the term "escorC" is synonymous with

"prostitute," correct?

A. No, I wouldn't agree with that statement.12

~~~

Q. Do you agree that looking at this advertisement of Plaintiff S.L., the subject

line is, '`Cum enjoy a night with a new girl :) on the block. Nicl~ole" do you

see that?

A. I do.

Q. Do you agree with me that this is an indication—using the term "clam" in

this col~text, in an ad in the escort section, is an indicatiol~ that this may be

an advertisement foc sex?

A. No.

Q. Why not?

' ' Id. at 60-62.

PLAINTIFFS' MOT FOR SANCTIONS

Page 7 of l6

PFAU COCHRAN VGRTETIS AMALA PLLC

403 Columbia Street, Suite X00

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcval aw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 7 of 16
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A. For many reaso~ls. There's very little context here to understand what

service is being advertised. Furthermore, there's a large number of our users

who are not particularly good spellers, and the spelling of "cum" could

simply be a typo.13

Next, in November 2017, individual defendants Carl Ferrer, James Larkin, and Michael

Lacey asserted the Fifth Amendment and refiised to respond to Plaintiffs' Requests for Admission.

However, the corporate defendants did not hesitate to flatly deny that Bacicpage used editing

practices to conceal illegal activity, including prostitutio~l, answers that plainly contradict Perrer's

guilty plea:

REQUEST FOR ADMISSION NO. 53: Admit that you removed "banned terms"

from advei~tiselnents posted its the "wattle escorts" and "tacoma escorts" sections of

Bacicpage.com in 2010 to mask illegal activity on the website, such as prostitution.

RESPONSE: Subject to their objections, Corporate Defendants deny Request for

Admission No. 53.

REQUEST FOR ADMISSION NO. 54: Admit that you ~~emoved "banned terms"

from advertisements posted in the "seattie escorts" and "tacoina escorts" sections of

Backpage.com in 201 1 to mask illegal activity on the website, such as prostitution.

RESPONSE: Subject to their objections, Corporate Defendants deny Request for

Admission No. 54.

REQUEST FOR ADMISSION NO. 55: Admit that you removed "banned ter~~~s"

from advertisements posted in the "wattle escorts" and "tacoina escorts" sections of

Bacl<page.com in 2012 to mask illegal activity on the website, such as p►-ostitutioi~.

RESPONSE: S~~bject to their objections, Corporate DefendanCs deny Request for

Admission No. 55.

I2~QUEST FOR ADMISSION NO. 56: Admit that you removed "banned terms"

from advertise~»ents posted in the "wattle escorts" and "tacoi~~a escorts" sections of

Bacicpage.com in 2013 to mas(< illegal activity on the website, such as prostitution.

RESPONSE: Subject to their objections, Corporate Defendants deny Request for

Admission No. 56.

R~QU~ST FOR ADMISSION NO. 57: Admit that you removed "banned terms"

from advertisements posted in the "wattle escorts" and "tacoma escorts" sections of

Bael<page.com in 2014 to mask illegal activity on the website, such as prostitution,

RESPONSE: Subject to their• objections, Corporate Defendants. deny Request for

Admission No. 57.

1 3 Id. at 83.

PLAINTIFFS' MOT FOR SANCTIONS

Page 8 of 16

PFAU COCHRAN VERTETiS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://ww~v. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 8 of 16
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REQUEST FOR ADMISSION NO. 58: Admit that you removed "banned teens"

from advertisements posted in the "wattle escorts" and "tacoma escorts" sections of

Bacl<page.com in 2015 to mask illegal activity on the website, such as prostitution.

RESPONSE: Subject to their objections, Corporate Defendants deny Request for

Admission No. 58. 4

Sii~nilarly, the corporate defendants denied that the "escort" advertisements in the Seattle

"escorts" section of Bacicpage.com were mostly advertisements for prostitution:

REQUEST FOR ADMISSION NO. 11: Admit that by January 1, 2014, you knew

that the majority of the escort advertisements in the "wattle escorts" section of

Backpage.com we►-e advertisements for prostitution.

RESPONSE: Subject to their objections, Corporate Defendants deny Request for

Admission No. 11.

Finally, in Marcll 201.8, after months of delay and forcing Plaintiffs to file a motion to

compel with the Court, Bacl<page finally answered interrogatories. The answers touted Backpage's

"moderation" system and supposed effol-ts to pt~event prostitution and sex trafficking on the website

despite knowin that (1) these efforts were "merely intended to create a veneer of deniability for

Bacl<page;" (2) Backpage was "conspiring to knowingly facilitate the state-law prostitution

offenses being committed by Backpage's customers;" and (3) the "editing practices were [just] one

component of an overall, company-wide culture and policy of concealing and refusing to officially

acknowledge the true nature of the services being offered in Backpage's `escort' and `adult' ads."~s

III. EVIDENCE RELIED UPON

This motion relies upon the Declaration of Michael T. Pfau in Support of Plaintiffs'

MoCion for Sanctions ("Pfau Decl."), the documents and evidence attached thereto,

and the existing pleadings.

14 Backpage Corporate Defendants' Responses to Plaintiffs' Requests for Admission; Carl Ferrer's Responses to

Plaintiffs' Requests for Admission; James Larkin's Responses to Plaintiffs' Requests for Admission; and Michael

Lacey's Responses to Plaintiffs' Requests for Admission, Pfau Decl. at Ex. ~.

's Pfau Decl. at ~( 6.

PLAINTIFFS' MOT FOR SANCTIONS

Page 9 of l6

PFAU COCHRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washingron 98104

Phone: (206) 462-4334 /Fay. (206) 623-3624

http:!/www. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 9 of 16
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IV. LEGAL AUTHORITY

A. The Court Should Impose Sanctions Under CR 11 and its Inherent Equitable Power

to Discourage Bad Faith Litigation

``Every court of justice has power ... [t]o enforce order in the proceedings before it... [and]

[t]o provide for the orderly conduct of proceedings before it[.]" RCW 2.28,010(2)-(3). Where

sanctions are not expressly authorized, "the trial court is not powerless ~o fashion and impose

appropriate sanctions under its inherent authority to control litigation." In re Firestorm 1991, 129

Wn.2d 130, l 39 P.2d 411 (1996) (applying the principles ei~~bodied in CR 1 1, CR 26(g), and CR

37 to CR 26(b) violations). "[D]ecisions either denying or gl•anting sanctions... are generally

reviewed for abuse of discretion." Physicians Ins. Exch. & Ass'rr v. Frsons Corp.,122 Wn.2d 299,

338, 858 P.2d 1054 (1993).

Washington courts have frequently endorsed a trial court's authority to sanction bad faith

conduct in litigation. For exa►~nple, in State >>. S.H., 102, Wn. App. 468 (2000), the Court relied on

a range of cases to explain a trial court's authority to issue sanctions if it believes a party has acted

in bad faith:

In Wilson v. Henkle, 45 Wash.App. 162, 174, 724 P.2d 1069 (1986), this court

explained that Federal Rule 1 1 permits a court to award expenses to a litigant whose

opponent acts in bad faith. It then noted that Washington's CR i 1 incorporates

essentially the same language as its federal counterpart. Id.; see CR 11; JuCR 1.4(a)

(incorporating Superior Court Civil Rules in juvenile proceedings). The court stated

thaC such a sanction is within the scope of a court's authority: "A Washington court

has the inllerei~t power to assess the litigation expenses, including attorney fees,

against an attot•~zey for bad faith litigation conduct." Wzlson, 45 Wash.App. at 174-

75, 724 P.2d 1069 (citing Roadway Express, Inc. v. Pipes°, 447 U.S. 752, 100 S.Ct.

2455, 65 L.Ed.2d 488 (1980)).

The Wilson court acknowledged that the trial court I~as "the inlleren~ power to

impose sanctions against an attorney for inappropl-iate aid improper conduct."

Wilson, 45 Wash.App. at 173, 724 P.2d 1069. It then discussed federal Rule 11 and

CR 11, noting Chat both rules were amended to permit a court to award attor~ley fees

for bad faith litigation. lc~. at 173-74, 724 P.2d 1069. Without specifying a pleading,

motion, or legal memorandum that was in violation of CR l 1, the court concluded—

apparentiy under the cotu~t's inherent authority —that the sa»ctions imposed by the

trial court were appropriate. Id.; see CR 11 (authorizing sanctioizs for- a pleading,

motion, or legal memorandu►n that is not well grounded in fact and warranted by

PLAINTIFFS' MOT FOR SANCTIONS

Page 10 of 16

PFAU COCHRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, WasUington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcvalaw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 10 of 16
existing law); see also Jemison v. National Baptzst Convention USA, Ir~c., 720 A.2d

275, 287 (D.C.1998) ("[A] court may nevertheless impose sanctions (albeit not

under Rule 11) when it finds that the attorney or the party has engaged in bad faith

litigation.").

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Although no Washington case has expressly held that a finding of bad faith is

required before a court may invoke its inherent authority to sanction litigation

co»duct, the Wilson col~rt cued a U.S. Sti~preme Court case that set forth such a

requirei~lent: "[A] specific finding as to whether counsel's condLict ... constituted ot•

was tantamount to bad faith ... [has] to precede any sanction under the court's

inherent powers." Roadway Express, 447 U.S. at 767, 100 S.Ct. 2455, cited in

Wilson, 45 Wash.App. at 1.75, 724 P.2d 1069; see also Goldin v. Bartholow, 166

F.3d 710, 722 (5th Cir. 1999) ("The imposition of sanctions using inherent powers

must be accompanied by a specific finding of bad faith."); DLC Management Corp.

v. Hyde Park, 163 F.3d 124, 136 (2d Cir.1998) (same); In re Keegan Management

Co., 78 F.3d 431, 436 (9th Cir.1996) (same). The Ninth Circuit "insist[s] on the

finding of bad faith because it ensures that restraint is properly exercised... and it

preserves a balance betweeiz pt~otecting the court's integrity and encouraging

meritorious arguments." Primus Automotive Fin. Sep^vs., Inc. v. Batarse, 115 F.3d

644, 649 (9th Cir.1997) (internal quoCation marks and citation omitted).

Following Wilson and case law from other jurisdictions, we hold that a trial court's

inherent au~hol•ity to sanction litigation conduct is properly involved upon a finding

of bad faith. A party may demonstrate bad faith by, inter alia, delaying o~~ disrupting

l itigation. Chambe~~s v. NASCO, Inc., 501 U.S. 32, 46, 111 S.Ct. 2123, 115 L.Ed.2d

27 (1991). The court's inherent power to sanction is "governed not by rule or statute

but by the control necessarily vested in courts to manage their own affairs so as to

achieve the orderly a~~d expeditious disposition of cases." Id. at 43, 111 S.Ct. 2123

(citation omitted). Sanctions nay be appropriate if an act affects "the integrity of the

court and, [ifJ left u~~checl<ed, would encourage future abuses." Gonurles v.

Sup°gidev, 120 N.M. 151, 899 P.2d 594, 600 (7 995); see also Cl~an~bers, 501 U.S. at

46, 1 1 1 S.Ct. 21.23 (explaining that sanctions are appropriate if the "very temple of

justice has been defiled" by the sanctioned party's conduct); Goldin, 166 F.3d at 723

(same).

This Court has tl~e inherent equitable authority to award fees and costs where justice requires

doing so, Hsu v. YingLi v. Tang, 87 Wn.2d 796, 799, 557 P2d 342 (1976); Bassett v. Bassett, 110

N.M. 559, 798 P.2d 160, 165 (1990) (following Hsu to award attorney fees in costs as '`bad faith"

exception to t11e American rule on attorney fee awards), and this case presents a prime example of

why such awards are sometimes necessary.

The Court should sanction tl~e Bac(cpage defendants because they acted in bad faith by

providing false and misleading interrogatory responses and defying requests fol• admissions on key

factual inquiries that should have been admitted. They then amplified their discovery misconduct

PLAINTIFFS' MOT FOR SANCTIONS

Page 11 of I6

PFAU COCHRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 11 of 16
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by intentionally and repeatedly misleading Plaintiffs' counsel and the Court tht-ough deposition

testimony, declarations, and pleadings where they falsely claimed the website was intended only

for lawful use and sought to prevent illegal activity. The defendants made these false and

misleading representations when it is now beyond dispute that they knew the opposite was true.

For roughly five years, the defendaizts knew that the central allegations of those seeking to

hold them Liable, including Plaintiffs, were that the defendants (1) intentionally created an online

marketplace for illegal prostitution and sex trafficking, and (2) intentionally facilitated and

promoted these illicit transactions by helping traffickers create and develop commercial sex

advertisements on the website through the use of so called "posting rules," "content requirements,"

and "moderation practices." Despite Irnowing these were the fundamental allegations in this case

and other cases, the defendants repeatedly denied these allegations in depositions, discovery

responses, sworn declarations, and pleadings that denied liability and/or sought to dismiss the

claims. Even wo►•se, they affirmatively represented that the website was intended only for lawful

purposes and tl~eit• business practices were designed to prevent prostitution and sex trafficking.

But Backpage's CEO, Carl Ferrer, now admits that all of these representations were false

and misleading, and more importantly, admits that Plaintiffs' allegations have been true all along.

According to Ferrer, the Bacl<page defendants (1) knew the "great majority" of the escort

advertisements on Backpage.com were advertisements for prostitution; (2) conspired to "knowingly

facilitate state-law prostitution climes being committed by Backpage customers" to profit from

these illicit acts; (3) removed "banned tel-ms" from advertisements posted in the "seatCle escorts"

and "tacoma escorts" sections of Backpage.com to mask illegal activity on the website, including

prostitution, and (4) designed and maintained "an overall, company-wide culture and policy of

concealing aid refusing to officially acknowledge the true nature of t11e services being offered in

Backpage's `escort' and `adult' ads."

PLAINTIFFS' MOT FOR SANCTIONS

Page 12 of l 6

PFAU COCI-IRAN VERTGTIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 !Fan: (206) 623-3624

http://www. pcvalaw.coin

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In light of Ferrer's admissions, it is beyond dispute that the false and misleading

~~epresentations of the Bacl<page defendants were intended to obstruct and delay justice. Given this

blatal~t disregard for candor, honesty, and the truth, the Court has ample authority under CR 11 and

its inherent authority to award sanctions to punish the defendants and to discourage them from such

bad faith litigation tactics in the future.

B. The Court Should Impose Sanctions Under CR 26(g) and CR 37(c) For Unjustly

Withholding Highly Probative Evidence

While sanctions are appt•opriate ender CR 11 and t11e i»herent equitable power of the Court,

the Court also leas al~thority to award sanctions under CR 26(g) and CR 37(c).

The purposes of sanctions orders are to deter, to punish, to compensate, and to

educate. Where compensation to litigants is appropriate, then sanctions should

i nclude a compensation award.... [S]anctions need to be severe enough to deter

these attor~leys and othel-s fcoin participating in this kind of conduct in the future.

Washington State Physicians Ins. Exchange & Ass'n v. Fisons Cori., 122 Wn.2d 299, 341-

42 (1993).

In line with Fisons, CR 26(g) is specifically designed to reduce "delaying tactics, procedural

harassment and mounting legal costs." Fisons, 122 Wn.2d at 341. CR 26(g) explains the

significance of an attorney or party signing discovery responses:

The signature of the attorney or party constitutes a certification that he has read the

request, response, or objection, and that to the best of his knowledge, information,

and belief formed after a reasonable inquiry it is:

(1) consistent with these [discovery] rules and warranted by existing law or a good faith

argument for the extension, modification, or reversal or existing law;

(2) not interposed for any improper purpose, such as to harass or to cause unnecessary

delay or needless increase in the cost of litigation; and

(3) not unreasonable or unduly burdensome or expensive, given the needs of the case,

the discovery already had in the case, the amount in controversy, and the importance

of the issues at stake in the litigation. ...

If a certification is made in violation of the rule, the court, upon moCion or upon its

own initiative, shall impose a pon the pei~son who made the certification the ~art~

PLAINTIFFS' MOT FOR SANCTIONS

Page 13 of 16

PPAU COCI-IRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Pax: (206) 623-3624

http://www. pcvalaw.com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 13 of 16
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on whose behalf the request, response, or objection is made, or both an appropriate

sanction, which may include an order to pay the amount of the reasonable expenses

incurred because of the violation, including a reasonable attorney fee.

CR 37(c) provides the Court with authority to issue sanctions in the event of a false,

misleading, or bad faith answer or denial of a request for admission: "[i]f a party fails to admit .. .

the truth of any matter as requested under rule 36, and if the party requesting the admissions

thereafter proves ...the truth of the matter, the party may apply to the court for an order eequiring

the other party to pay the requesting party the reasonable expenses incurred in making Chat proof,

i ncluding reasonable attorney tees." See Clausing v. Kassnei•, 60 Wn.2d 12 (1962) (holding

sanctions appropriate where defendant de~lied violation of restrai»ing order and later admitted

violation); Sitnpsorr v. Thorslzrnd, 151 Wn. App. 276 (2009) (holding attorney fees were warranted

as a discovery sanction under CR 37(c) because defendant refused to make certain admissions when

requested, which led to substantial additional and unnecessary litigation costs).

The Court should award sanctions under both CR 26(g) and CR 37(c) because the Backpage

defendants submitted false and misleading interrogatory responses and denied requests for

admission that narrowly targeted I<ey factual issues that should have been admitted, including (1)

their knowledge of prostitution and sex trafficking on the website, and (2) their efforts to facilitate

such illegal activity through various business practices, such as editing ads. Moreover, like in

Fisons, the defendants not only made false and misleading discovery responses, but they

compounded that misconduct by denying such evidence existed and going so far as to manufacture

evidence to the contrary through deposition testimony and declarations by claiming the website was

i ntended only for lawful use and sought only to prevent illegal activity.

As a result of Backpage's false and misleading efforts, Plaintiffs and their counsel have

been forced to devote substantial time and effort to prove facts that should have been admitted. The

Court has ample authority to sanction the Backpage defendants for their violations of CR 26(g) and

CR 37(c) and to compensate Plaintiffs and their counsel for reasonable attorneys' fees and costs

incurred.

PLAINTIFFS' MOT FOR SANCTIONS

Page 14 of 16

PFAU COCHRAN VERTETIS AMALA PLLC

403 Colwnbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fix: (206) 623-3624

http://www. pcval aw. com

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V. CONCLUSION

After years of flouting liability, Bacicpage's CEO Cac( Ferrer now admits Plaintiffs'

allegations have been true all along: the Bacicpage defendants (1) knew that the "great majority"

of the escort advertisements on Backpage.com were advertisements for prostitution; (2) conspired

to "knowingly facilitate state-law prostitution crimes being committed by Backpage customers" to

profit from these illicit acts; (3) removed "banned terms" from advertisements posted in the "wattle

escorts" and "tacoma escorts" sections of Backpage.coin to mask illegal activity on the website,

i ncluding prostitution, and (4) designed and maintained "an overall, co~~npany-wide culture a»d

policy of concealing and refusing to officially acknowledge the true nature of the services being

offered in Backpage's `escort' and `adult' ads."

Plaintiffs respectfully ask the Court impose sa~ictions against tl~e Backpage defendants for

thei►• misconduct in this litigation as follows: 1) $100,000 to each Plaintiff as a penalty and to

reimburse them for so~r~e of tl~e reasonable attorneys' fees and costs to prove facts that should have

been admitted; 2) $100,000 to the Court, as a penalty and to reimburse the Court for time and

resources spent as a result of the Backpage defendants' misconduct; and 3) Plaintiffs' reasonable

attorneys' fees and costs to file the underlying motion.

DATED this 26th day of April, 2018.

PFAU COCHRAN VERTETIS AMALA PLLC

Sy

Michael T. Pfau, W .24649

michael@pcvalaw.com

Jason P. Anlala, WSBA No. 37054

Jason@pcvalaw.com

Vincent Nappo, WSBA No. 44191

vincent@pcvalaw.co~m

Attorneys for Plaintiffs

PLAINTIFFS' MOT FOR SANCTIONS

Page I S of 16

PFAll COCHRAN VERTGTIS AMALA PLLC

403 Columbia Street, Suite X00

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www.pcvalaw.com

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CERTIFICATE OF SERVICE

I, Bernadette Hacker, hereby declare under penalty of pei jury under the laws of the State of

WashingCon that I am employed at Pfau Cochran Vertetis Amala PLLC and that on this date I

served the foregoing, and the supporting Declaration of Michael T. Pfau, on all parties or their

counsel of record via email, legal messenger, and/or• facsimile by directing delivery to:

Eric Stahl

Davis Wright Tremaine LLP

1 201 Third Ave., Ste. 2200

Seattle, WA 98101

Email: ericstahl@dwt.com

DATED this 26th day of Apcil, 2018.

_/!/iCGL~ ~ pit.-1

Bernadette Hacker

Legal Assistant to Michael T. Pfau

4849-0250-8643, v. 1

PLAINTIFFS' MOT FOR SANCTIONS

Page 16 of 16

PFAU COCHRAN VERTETIS AMALA PLLC

403 Columbia Street, Suite 500

Seattle, Washington 98104

Phone: (206) 462-4334 /Fax: (206) 623-3624

http://www. pcv a I aw. com

Case 2:18-cr-00422-DJH Document 522-1 Filed 04/16/19 Page 16 of 16