Source: http://tx.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180328_0000870.NTX.htm/qx
Timestamp: 2019-04-20 14:59:55+00:00

Document:
JOHN DOES 1-44, et al., Defendants.
SAM A. LINDSAY UNITED STATES DISTRICT JUDGE.
Before the court are Plaintiff's Motion for Leave for Substitute Service and Extend Period for Service (Doc. 103), filed March 28, 2017; Defendant Lookout, Inc.'s Amended Motion to Dismiss Under 12(b) (Doc. 129), filed June 14, 2017; the Motion to Dismiss Complaint (Doc. 132), filed June 20, 2017, by Defendant Ye Yu with respect to internet domain fxf.com; and Consolidated Defendants' Rule 12(b) Motion to Dismiss Amended Complaint (Doc. 135), filed June 28, 2017, which was joined in and adopted by Defendant Steve Fortuna (Doc. 143). Also before the court is Buyers International Group, LLC's Motion to Dismiss (Doc. 89), which was filed August 16, 2016, in Civil Action 3:17-CV-651-L before the case was transferred to this court and consolidated with this action.
For the reasons herein explained, the court grants in part and denies in part Defendants' Motions to Dismiss under Rule 12(b)(6) (Docs. 129, 132, 135, 143); grants BIG's Motion to Dismiss (Doc. 89) filed in Civil Action 3:17-CV-651-L; dismisses with prejudice all of Plaintiff's claims and requests for relief, except Plaintiff's breach of contract claim, against the Movant Defendants under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Further, except Plaintiff's breach of contract claim, the court sua sponte dismisses with prejudice all claims by Plaintiff with respect to the remaining internet domain names and Defendants, many of which have not been served, as these claims are identical to those that the court has already dismissed and determined to be fundamentally flawed in ruling on moving the Movant Defendants' motions to dismiss. Plaintiff's request to amend its pleadings is granted with respect to its breach of contract claim and denied in all other respects. Plaintiff's Motion for Leave for Substitute Service and Extend Period for Service (Doc. 103) is denied without prejudice as to Defendants Floridians, LLC; Media Options, Inc.; News, Ltd.; and Sylvia O'Donohoe and denied as moot as to all other Defendants.
This consolidated action involves the court-approved sale and transfer of internet domain names (“Domain Names”) at issue in this lawsuit from Novo Point, LLC (“Novo Point”) to various individuals and entities or the predecessors-in-interest to those individuals and entities. The sales and transfers of the Domain Names were authorized by former Senior United States District Judge Royal Furgeson (“Judge Furgeson”) on February 4, 2011, January 31, 2012, and May 3, 2012, in Netsphere, Inc., et al. v. Jeffrey Baron, et al., Civil Action 3:09-CV-988-L (“Netsphere Action” or “Netsphere”),  to pay receivership fees incurred in conjunction with the receivership established on November 24, 2010, over Jeffrey Baron's (“Baron”) personal property and entities he owned or controlled, including Novo Point and Quantec, LLC (“Quantec”).
The Netsphere Action was originally brought by Netsphere Inc., Manila Industries, Inc., and Munish Krishan against Baron and Ondova Limited Company (“Ondova”) for breach of a settlement agreement or Memorandum of Understanding (“MOU”) that was intended to settle all disputes between the parties regarding the ownership and sale of various internet domains. The receivership was established in November 2010 in an effort to control Baron's vexatious litigation conduct in the Netsphere Action and the related bankruptcy proceeding initiated by Baron's company Ondova.
Baron and Novo Point filed numerous interlocutory appeals challenging the order establishing the receivership order and orders subsequently entered by the district court pertaining to the receivership, including the February 2011, January 2012, and May 2012 orders authorizing the receiver's sale and transfer of the Domain Names now at issue in this consolidated action. Baron and Novo Point contended that the receivership orders entered by the district court were void and unenforceable because the district court lacked jurisdiction to establish the receivership and seize Baron's and Novo Point's assets. They also contended that Baron's vexatious conduct did not justify the imposition of the receivership or the seizure and liquidation of the assets of Novo Point, which was not a party to the Netsphere Action.
While the appeals were pending, the Fifth Circuit denied all of Baron's and Novo Point's requests to stay the sales of the Domain Names that are now the subject of this consolidated action. In Netsphere I, the Fifth Circuit addressed the numerous appeals in a December 18, 2012 opinion. Netsphere, Inc., 703 F.3d at 315. Netsphere I considered whether a district court has authority to establish a receivership to control a vexatious litigant like Baron and grant a receiver control of the litigant's assets “that were not at issue in the underlying litigation over domain names.” Id. at 305. The Fifth Circuit agreed with Baron and Novo Point that the district court exceeded its authority in establishing a receivership for this purpose and ordered the district court to “dissolve the receivership expeditiously, but stopped short of immediately releasing all of the assets under receivership.” Netsphere, Inc., 657 F. App'x at 321 (citing Netsphere, Inc., 703 F.3d at 313-14). In reversing the order establishing the receivership, the Fifth Circuit in Netsphere I recognized that a district court has inherent authority to control its docket and vexatious litigants like Baron but determined that, in this case, the district court simply chose the wrong means to control Baron's disruptive conduct. Id. at 311. While Baron's and Novo Point's challenge on appeal to the order establishing the receivership was successful, the Fifth Circuit in Netsphere I recognized that Baron was not blameless for the chaotic situation that ultimately gave rise to the receivership. See id.
“Netsphere I also considered who should pay for the receivership” and the fees and expenses incurred as a result of the receivership. Netsphere, Inc., 657 F. App'x at 321. The court in Netsphere I explained that, when a receivership is proper, the receivership fees and expenses are generally “a charge upon the property administered.” Netsphere, Inc., 703 F.3d at 311. The court noted that, “[w]hen a receivership is improper or the court lacks equitable authority to appoint a receiver, the party that sought the receivership at times has been held accountable for the receivership fees and expenses.” Id. at 311-12 (citing W.F. Potts Son & Co. v. Cochrane, 59 F.2d 375, 377-78 (5th Cir. 1932)). Baron advocated this approach in Netsphere I, contending that the fees and expenses incurred as a result of the receivership should not be paid out of the assets and property seized, including the Domain Names already sold by the receiver, because the appointment of the receiver was done in bad faith or the result of collusion. Netsphere, Inc., 703 F.3d at 313. The Fifth Circuit disagreed and “ordered that the receivership assets be charged for ‘reasonable receivership expenses'” because “the receivership was imposed as a result of Baron's own vexatious conduct.” Netsphere, Inc., 703 F.3d at 321 (citing Netsphere, Inc., 703 F.3d at 313). The Netsphere I court also took “into account that, to a large extent, Baron's own actions resulted in more work and more fees for the receiver and his attorneys.” Netsphere, Inc., 703 F.3d at 313. As there was no indication that the receivership was the result of an improper motive or malice, but instead was merely an attempt to control Baron's “vexatious litigation tactics, ” the court in Netsphere I concluded that “charging the current receivership fund for reasonable receivership expenses, without allowing any additional assets to be sold, is an equitable solution, ” id., and remanded the case with instructions for the district court to wind up the receivership and pay the remaining receivership fees and expenses from the cash currently in the receivership. Id. at 315. Additionally, the Fifth Circuit directed the district court to reconsider, as appropriate, whether fees and expenses previously paid out of the receivership fund should be reduced but did not reverse or vacate the prior orders that authorized the sales and transfers of Domain Names or awarded fees and expenses paid from the cash in the receivership fund, which was generated from the prior sales of Domain Names at issue in this case. Id. at 314-15.
Novo Point appealed the decision in Netsphere I, contending that the Fifth Circuit erred in concluding that equity permits a federal court to retain seized “property to pay the costs of imposing an unauthorized receivership” when the district court lacks jurisdiction to impose a receivership over the property that is not the subject of the underlying claim or dispute. Pet. for Writ of Cert. at *2-6, Novo Point, LLC v. Vogel, 2014 WL 2875526 (2014) (No. 13-1530) (footnote omitted). Novo Point's Petition for Writ of Ceriorari was denied by the United States Supreme Court on November 3, 2014. Novo Point LLC v. Vogel, 135 S.Ct. 436 (2014).
On remand, Judge Furgeson entered an order in the Netsphere Action “in May 2013 awarding new fees and adjusting fees already paid in an attempt to comply with [the Fifth Circuit's] order. However, the process of winding up the receivership was dragged out almost two more years after Baron was pushed into an involuntary bankruptcy” by his former attorneys. Netsphere, Inc., 657 F. App'x at 321. In March 2015, the undersigned entered an order discharging the receiver and awarding additional fees to the receiver and the receiver's attorneys and employees for services performed from May 2013 until the receiver's discharge. Id. at 322. These payments depleted the remaining cash in the receivership accounts. Id. All other receivership assets and domain names that had not been sold prior to the Fifth Circuit's December 2012 opinion to fund the receivership were returned to Baron, Novo Point, and Quantec as directed by the Fifth Circuit.
Baron, Novo Point, and Quantec appealed the May 2103 and March 2015 district court orders, as well as other orders. The initial appeal of the May 2013 order was dismissed by the Fifth Circuit in Netsphere II for lack of appellate jurisdiction. Netsphere, Inc., 799 F.3d at 329. After the March 2015 order was entered, two separate appeals were filed by attorneys and entities acting on behalf of Baron, Novo Point, and Quantec on April 16, 2015, and April 25, 2015. The first appeal, which was brought was brought on behalf of Baron, Novo Point, and Quantec, was dismissed as of November 25, 2015, for want of prosecution. The second appeal filed by Novo Point and Quantec challenged the May 2013 and March 2015 fee orders and 26 other orders entered in Netsphere between April 2011 and January 2014 that granted fee applications by the receiver and the receiver's attorneys and employees.
In an opinion entered on July 8, 2016, in Netsphere III, the Fifth Circuit affirmed the orders of the district court. Netsphere, Inc., 657 F. App'x at 324. Novo Point and Quantec had asserted a number of challenges on appeal to the fee awards based on constitutional, reasonableness, and subject matter jurisdiction grounds, but the Fifth Circuit held that they had waived these arguments by not raising them in the district court. Id. at 333. While Novo Point and Quantec had objected to the March 2015 order, its objections primarily concerned the computation of the amount of cash on hand in the receivership, not the constitutional grounds raised on appeal, and they did not challenge any specific fee award. Id. The Netsphere III court further concluded that any argument by Novo Point and Quantec as to “whether fees could be charged against [their] assets in the receivership” was squarely foreclosed by the law of the case doctrine” because Novo Point's and Quantec's “assets were part of the receivership and Netsphere I ordered the district court to award fees using the receivership assets.” Id. at 333, n.3. The Fifth Circuit, therefore, declined to revisit its prior resolution of the receivership fees issue decided in Netsphere I. Id. (citing Af-Cap Inc. v. Republic of Congo, 383 F.3d 361, 367 (5th Cir. 2004)).
The Netsphere III court also rejected Novo Point's and Quantec's “jurisdictional arguments, ” concluding that the arguments “were not jurisdictional at all” but rather an attempt to repackage their “merits arguments as jurisdictional to avoid the consequences of waiver.” Netsphere, Inc., 657 F. App'x at 324. The Fifth Circuit explained that, contrary to Novo Point's and Quantec's contention, it had jurisdiction over the appeal, and the district court had diversity jurisdiction over the contract dispute in Netsphere. The Netsphere III court clarified that Novo Point and Quantec “may think the district court used that jurisdiction to decide parts of this case erroneously, but that does not implicate subject-matter jurisdiction.” Id.
As explained below, Plaintiff Associated Recovery, LLC (“Plaintiff” or “Associated Recovery”) brought the various civil actions that make up this current consolidated action in late 2015 and early 2016 while Novo Point's appeal in Netsphere III was pending.
In this consolidated action, Associated Recovery alleges that it is suing as the assignee of Novo Point, pursuant to a written assignment in which Novo Point assigned its ownership of and all rights to the Domain Names to Associated Recovery, including any right to trademark protection and causes of action. The Third Amended Complaint (“Third Amended Complaint” or “Complaint”) filed by Plaintiff in this consolidated action includes legal claims and equitable requests for relief against all of the individuals and entities named as defendants in this consolidated action (collectively, “Defendants”) that Plaintiff alleges are the current registrants or registrars for the Domain Names that were unlawfully seized in Netsphere as receivership assets and sold or transferred to Defendants or Defendants' predecessors-in-interest without Novo Point's permission or knowledge. In a nutshell, Plaintiff contends that, because the Fifth Circuit's ruling in Netsphere I invalidated the receivership order and orders approving the sales of the Domain Names, it is entitled recover all rights and title to the Domain Names, as if the sales of the Domain Names never took place, without compensating the parties that purchased the Domain Names. See Pl.'s Resp. to BIG's Mot. to Dismiss 1-3 (Doc. 98). Alternatively, or in addition to the return of the Domain Names, Plaintiff contends that it is entitle to recover damages and all profits made by Defendants on the Domain Names.
Specifically, Associated Recovery asserts claims and requests for relief based on the Federal Declaratory Judgment Act, 28 U.S.C. § 2202; the Anticybersquatting Consumer Protection Act (“ACPA”), 15 U.S.C. §1125(d); unfair competition and common law trademark infringement; conversion; and unjust enrichment. With respect to these claims and its equitable requests for relief, Associated Recovery seeks the transfer of all Domain Names from Defendants to Associated Recovery in addition to an award consisting of Defendants' profits and actual damages sustained by Associated Recovery and Baron, Novo Point's predecessor-in-interest, or, alternatively, an award of statutory damages of not less than $10, 000 and not more than $100, 000 per Domain Name; imposition of a constructive trust on Defendants' profits; and unspecified injunctive relief. In addition, Associated Recovery seeks declaratory relief in the form of an order: (1) declaring that the district orders in the Netsphere litigation authorizing the sale of the Domain Names are void ab initio such that none of the sales or transfers of ownership of the Domain Names ever divested Novo Point of any right, title, or ownership interest to the Domain Names; (2) declaring that Novo Point's transfer of ownership of the Domain Names to Associated Recovery is valid; (3) requiring Defendants to transfer the Domain Names to Associated Recovery; and (4) quieting Associated Recovery's title to the Domain Names. In the alternative, Associated Recovery asserts claims against Defendants SocialBon, Inc.; Floridians, LLC; Media Options, Inc.; Strong, Inc.; Telepathy, Inc.; News, Ltd.; JRS Holdings, LLC; Sylvia O'Donohoe; Virtual Investments, LLC; and Quinn Vesey for: (1) breach of contract to recover attorney's fees under Chapter 38 of the Texas Civil Practices and Remedies Code and actual damages for “any and all Losses arising out of, based upon or relating to any of the Domain Names, ” pursuant to an indemnification clause included in the agreement assigning and transferring the Domain Names, Pl.'s Compl. ¶¶ 6, 49; and (2) intentional interference with an existing contract to recover actual damages allegedly incurred by Novo Point as a result of these Defendants' intentional interference “with Novo Point's contractual relationship with the domain name registrar through which it had registered those Domain Names with a domain name registry.” Id. ¶ 50.
29. On December 18, 2012, the U.S. Court of Appeals for the Fifth Circuit issued a single opinion concerning numerous appeals of each of the above-referenced orders of the District Court . . . .
30. In the opinion, the Fifth Circuit reversed each of the orders, instructed the District Court to vacate each of the orders, and explained that the District Court never had subject-matter jurisdiction over any of the domain names or any power to issue any of the orders because no issue concerning any such domain name had ever been raised in the civil action independently from those pertaining to the receivership-related orders, and Novo Point had never even been a party in the action.
31. On April 19, 2013, the Fifth Circuit reversed each of the District Court's above referenced orders [orders establishing the receivership and approving the sales of Domain Names] through a separate judgment with respect to each appeal of each such order and the mandate on each such judgment.
Pl.'s Compl. ¶¶ 29-31 (internal citations omitted). Plaintiff further alleges that this court's February 28, 2014 order in Netsphere vacating the April 22, 2011 order appointing Damon Nelson as the manager of Novo Point's Domain Names, and this court's opinion in Baron v. Schurig, No. 3:13-CV-3461-L, 2014 WL 25519 (N.D. Tex. Jan. 2, 2014), lend further support to the conclusion that the Netsphere receiver's sales and transfers of Domain Names to Defendants or Defendants' predecessors-in-interest and the district court orders authorizing the sales and transfers are void, of no legal effect, and never divested Novo Point of any right, title, or ownership interest in the Domain Names.
This consolidated action includes Defendants from two separate federal actions that Associated Recovery originally filed in the Eastern District of Virginia, Alexandria Division (“Virginia Action”), and the Eastern District of Texas, Marshall Division (“Marshall Action”). As herein explained, other Defendants were added after these cases were transferred to this court and consolidated into one action. Plaintiff filed the Virginia Action, Associated Recovery, LLC v. John Does 1-44, et al., Civil Action No. 1:15-CV-1723, on December 31, 2015, against John Does 1-44 and 44 associated internet domain names. On March 4, 2016, Associated Recovery moved for default judgment in the Virginia Action against domain names 744.com; 3dcamera.com; fxf.com; jtz.com; kou.com; ocu.com; ruten.com; sdu.com; uhw.com; vgi.com; yey.com; yjx.com; ylz.com; and yte.com with respect to the ACPA claim asserted in that action, and a default judgment was entered with respect to these domain names on May 18, 2016.
The Virginia Action was transferred in stages to the Northern District of Texas, Dallas Division between April 15, 2016, and February 14, 2017, after various motions to transfer venue to the Northern District of Texas were granted. The transfer of the Virginia Action resulted in two actions being opened in this district: 3:16-CV-1025-L and 3:17-CV-424-L. Initially, all defendants in the Virginia Action, except those against whom Plaintiff had moved for default judgment, were transferred to this district. After the default judgment against 744.com; fxf.com; jtz.com; ocu.com; vgi.com; yjx.com; and yte.com was set aside, Plaintiff's claims as to these in rem domain name defendants were also transferred to this district by orders dated April 15, 2016; July 1, 2016; and February 14, 2017. The claims against the defaulting defendant domain names 3dcamera.com; kou.com; ruten.com; sdu.com; uhw.com; yey.com; and ylz.com were not transferred to the Northern District of Texas, as the final judgment that was entered against these defendants in the Virginia Action was not set aside and obviated the need to transfer Plaintiff's claims against these defendants.
Associated Recovery filed the Marshall Action, Associated Recovery, LLC v. Linda Butcher, et al., Civil Action No. 2:16-CV-126, on February 8, 2016, against 64 named defendants identified as registrants of the Domain Names. Like the Virginia Action, several defendants in the Marshall Action moved to transfer venue to this district. The Marshall Action was transferred to the Northern District of Texas, Dallas Division, on March 6, 2017, and assigned the Civil Action No. 3:17-CV-651-L. Before the Marshall Action was transferred to this district, 22 of the defendants were terminated as parties, leaving the following 44 defendants (“Marshall Defendants”): Linda Butcher; CBRE Group, Inc.; Vivian Rosenthal; William Wolfson; PriveCo, Inc.; Steve Parma; Sol Perlstein; Radical Investments Management, LLC; Tumult, Inc.; DGB Partner, Inc.; TobyClements.com, LLC; True Magic, LLC; Janno, LLC; Power Home Technologies, LLC; Lookout. Inc.; Slice Technology, Inc. f/k/a Project Slice, Inc.; Steve Fortuna; SocialBon, Inc.; Floridian, LLC; MOINC-US; Adam Strong; Strong, Inc.; Telepathy, Inc.; News, Ltd.; Worldwide Retailing, LLC; State Farm Mutual Automobile Insurance Company; Electronic Arts, Inc.; Virtual Investments, LLC; Sylvia O'Donohoe; JRS Holdings, LLC; All-Pro Fasteners, Inc.; Buyers International Group, LLC; Creation Media, LLC; Dharshinee Naidu; Kate Spade; Quinn Veysey; Alansis Corporation; Media Options, Inc.; Fantasy Spin Game, LLC; GoldRun, Inc.; Alansis.com Incorporated.
On March 10, 2017, the court entered an order in Civil Action 3:17-CV-651-L, requiring Plaintiff to show cause why its claims against Vivian Rosenthal; William Wolfson; Steve Parma; Sol Perlstein; TobyClements.com, LLC; Janno, LLC; Steve Fortuna; SocialBon, Inc.; Floridian, LLC; MOINC-US; News, Ltd.; Worldwide Retailing, LLC; Sylvia O'Donohoe; JRS Holdings, LLC; Dharshinee Naidu; Kate Spade; and GoldRun, Inc. should not be dismissed under Federal Rule of Civil Procedure 4(m) for failure to effect service within 90 days. On March 30, 2017, Plaintiff filed documents indicating that two summons were previously returned as executed with respect to SocialBon, Inc. and JRS Holdings, LLC. As to these and other Defendants included in the Third Amended Complaint that remain unserved, Plaintiff moved for leave on March 28, 2017, for an extension to May 15, 2017, to serve “a few” of these Defendants by personal service or mail using newly obtained addresses and requested that it be allowed to serve the remaining of these Defendants by substitute service in the form of an e-mail or publication on a domain name trade message board (Doc. 103). Plaintiff did not identify which of the unserved Defendants it seeks to serve by means of substitute service. Plaintiff justified its delay and request for relief in part on the court's consolidation of Civil Action No. 3:17-CV-651-L with Civil Action No. 3:16-CV-1025-L, which Plaintiff asserts will necessitate the filing of an amended complaint in the consolidated action.
The consolidation of cases referenced by Plaintiff occurred on March 23, 2017. The consolidation order entered by the court in consolidated Civil Action Nos. 3:17-CV-424-L and 3:17-CV-651-L with Civil Action No. 3:16-CV-1025-L and directed Plaintiff to notify the court in writing by March 31, 2017, whether there were any other pending cases or cases that Plaintiff anticipated filing in the coming year that involved or would involve claims pertaining to receiver's sale of domain names in the Netsphere litigation. In a March 30, 2017 Notice, Plaintiff indicates its intent to bring one or more additional in rem actions in federal or state court in the next year, but, to date, it does not appear that any such cases have been filed. Plaintiff also indicates that it intends to refile actions if the court denies its Motion for Leave for Substitute Service and Extend Period for Service and dismisses without prejudice any Defendants. Regarding the defendants in the Virginia Action against whom default judgment was entered, Plaintiff states that “there are no additional claims against [these] defendants remaining in the Virginia Action, ” but the claims against these defendants could be transferred to this court if the defendants were to make an appearance in the Virginia Action. Notice 3. Plaintiff further states that there were additional defendants in the Virginia Action who had not made an appearance but were transferred to this court because motions for default judgment against these defendants had not been filed in the Virginia Action. Plaintiff reasons that any motions for default judgment against these defendants would be brought in this court, not the Virginia Action.

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