Re: 8/25/00 - [ZSUN] Notice of Motion and Motion for Contempt of Court Order
SUSAN D. RESLEY (Bar No. 161808)
GRAY CARY WARE & FRE1DENRICH LLP
400 Hamilton Avenue,
Palo Alto, CA 94301-1809
Tel: (650) 833-2000
Fax: (650) 327-3699
DANIEL T. PASCUCCI (Bar No. 166780)
GRAY CARY WARE & FREIDENRICH LLP
401 B Street, Suite 1700
San Diego, CA 92101-4297
Tel: (619) 699-2700
Fax: (619) 236-1048
CHRISTOPHER H. HOWARD (Pro Hac Vice)
PATRICK S. PEARCE (Pro Hac Vice)
WEISS, JENSEN, ELLIS & HOWARD
2600 Pike Tower
520 Pike Street
Seattle, WA 98101
Tel: (206) 340-1825
Attorneys for Plaintiffs
ZIASUN TECHNOLOGIES, INC.
and ANTHONY L. TOBIN
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
(San Francisco Division)
ZIASUN TECHNOLOGIES, INC., a
Nevada corporation and ANTHONY L. TOBIN,
Plaintiffs,
VS
FLOYD D. SCHNEIDER aka "FLODYIE," STEPHEN N. WORTHINGTON aka "AURIC GOLDFINGER," TOM LIVIA aka "REALMONEY,' PAUL HARARY aka "TRADERI 4U," MIKE MORELOCK aka "CM BURNS," DEFENDANT JOHN or JANE DOE 1 aka "JJS64," DEFENDANT JOHN or JANE DOE 2 aka "GUS SIDERIS," DEFENDANT JOHN or JANE DOE 3 aka "ALPINE SLEUTH,"
Defendants.
CASE NO. C 00-1612 PJH
NOTICE OF MOTION AND MOTION FOR CONTEMPT OF COURT ORDER
Date: October 4, 2000
Time: 9:00 a.m.
Dept: Courtroom D, 15th Floor
Judge: Hon. Phyllis J. Hamilton
NOTICE OF MOTION AND MOTION
TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:
PLEASE TAKE NOTICE that on October 4, 2000 at 9:00 a.m., or as soon thereafter as the matter may be heard in Courtroom D of the above-captioned court, in the courtroom of the Honorable Phyllis J. Hamilton, located at 450 Golden Gate Avenue, San Francisco, California, Plaintiffs ZiaSun Technologies, Inc. and Anthony L. Tobin, will and hereby do move the Court for an order holding defendant Floyd D. Schneider in contempt for violating the terms of the preliminary injunction order entered by the United States District Court in the Western District of Washington on January 21, 2000.
This motion is brought based on this Notice and Motion, Memorandum of Points and Authorities, and the Declaration of Patrick Pearce, filed concurrently herewith, and any records and files in this case as well as any oral argument on this matter.
MEMORANDUM OF POINTS AND AUTHORITIES
I. RELIEF REOUESTED
Plaintiffs respectfully seek an Order holding defendant Schneider in contempt for violating the terms of the preliminary injunction order entered by the United States District Court in the Western District of Washington on January 21, 2000. Plaintiffs ask the Court to impose an appropriate monetary sanction against defendant Schneider to be paid to the Court, and to further order that if defendant Schneider again violates the terms of the preliminary injunction he will be found in criminal contempt with appropriate criminal penalties imposed.
II. BACKGROUND FACTS
A. Introduction
The Plaintiffs claim in this lawsuit that defendants have been and are engaging in the practice of posting defamatory messages on internet message boards relating to ZiaSun for the purpose of manipulating ZiaSun s stock price. The defendants' messages have vehemently attacked ZiaSun and individuals associated with ZiaSun.
B. Defendants' Actions
The defendants began posting these messages in the fall of 1998, on the Silicon Investor and RagingBull message boards. By far the most prolific and virulent poster among the defendants was defendant Schneider. Defendant Schneider, in league with the other defendants, used the message boards to launch a defamatory "cybersmear" campaign against ZiaSun and ZiaSun officers and directors, including ZiaSun President, Anthony Tobin, hereafter referred to collectively as "ZiaSun.' The cybersmear campaign involved the defendants posting false and defamatory information about ZiaSun.
The false and defamatory information being posted on the message boards by defendant Schneider included, but was not limited to, accusations or criminal behavior, of being criminals and/or "crims," improper financial interests, improper promotion techniques, dissemination of false and misleading information to the public, and fraud.
C. The Preliminary Injunction Order
In January of this year, ZiaSun successfully moved the United States District Court for the Western District of Washington for an Order granting a preliminary injunction against defendant Schneider. See Declaration of Patrick Pearce Supporting Motion For Contempt, Exs. A, B, C, D, E, F. In support of that motion, the Washington Federal Court was presented with numerous sworn statements by investors and ZiaSun personnel detailing the intensely inflammatory nature of the defendants' postings as well as the deliberate false statements made by the defendants regarding ZiaSun. The Court was also presented with numerous copies of the various defendants' actual internet postings containing the false and defamatory statements.
On January 21, 2000, the Court granted ZiaSun's motion for a preliminary injunction against defendant Schneider. Declaration of Pearce, Ex. G. Specifically, the Court noted as follows:
This court finds that ZiaSun has demonstrated that, at a minimum, there are serious questions going to the merits of their defamation claims against Schneider. This court is convinced that Schneider has posted false messages about ZiaSun on the Silicon Investor message boards; that such communications may be unprivileged; and that Schneider was negligent in making the postings. Schneider's electronic postings are also causing damage to ZiaSun.
Court's Order Granting Preliminary Injunction, Pg. 5 (emphasis added). The Court enjoined defendant Schneider from:
1) Publishing or electronically posting false statements regarding criminal activities by ZiaSun and its officer [sic] and employees. Specifically, Schneider shall not refer to Ziasun or its officers or employees as criminals or "CRIMS."
2) Publishing or electronically posting false statements regarding fraudulent and/or dishonest conduct by ZiaSun and its officers and employees.
3) Publishing or electronically posting false statements regarding government investigations into the activities of ZiaSun and its officers and employees.
4) Publishing or electronically posting statements of opinion that imply undisclosed facts about criminal or fraudulent actions by, or government investigations into, the activities of ZiaSun and its officers and employees.
Court's Order Granting Preliminary Injunction, pg. 6.
D. Defendant Schneider Violates The Order
At first, the Order had the effect the Court intended. Defendant Schneider, after discussing in some postings his awareness of the Order and its terms, see Declaration of Patrick Pearce Supporting Motion For Contempt, Exhibit H, dramatically reduced the frequency of his posts regarding ZiaSun. The content of his posts became markedly less inflammatory, and his posts became limited to strictly factual information.
Gradually, however, defendant Schneider began increasing the frequency of his postings. With the increased frequency came a slow but certain tendency to test then eventually overstep the boundaries set by the Court's Order. Schneider began to post under a variety of new aliases on the RagingBull message board. In the turmoil following the litigation's transfer to this Court, Schneider grew bolder and bolder, ultimately returning both in frequency and form to the virulent posting style he employed prior to the January 21 Order.
In the last month, defendant Schneider - posting under various names - has accused ZiaSun of fraud, lying to and deceiving investors, publishing fraudulent information to promote the company, engaging in aggressive and unethical "boiler room" stock sales, retaining "fraudulent promoter[s]" to sell the company to investors, acting as "pirates" making off with investors' "booty," and manipulating information relating to the company in order to sell stock [1]. See Declaration of Pearce, Exhibit I. Believing Schneider to be in knowing contempt of the terms of the Court's preliminary injunction Order, ZiaSun now brings this motion.
III. ISSUE PRESENTED
Should defendant Schneider be held in contempt for publishing statements in knowing violation of a federal court Order despite knowing the terms of the Order?
IV. EVIDENCE RELIED UPON
ZiaSun relies upon the Declaration of Patrick Pearce supporting this motion with the following attached exhibits:
A) Motion For Temporary Restraining Order dated December 2, 1999;
B) Memorandum In Support Of Motion For Preliminary Injunction dated December 2, 1999;
C) Affidavit Of Anthony Tobin In Support Of Motion For Preliminary Injunction with attached exhibits dated November 30, 1999;
D) Affidavit Of Mark Harris In Support Of Motion For Temporary Restraining Order
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[1] Some of the more noteworthy quotes are as follows: a) August 12, 2000, 1:07 p.m. - "Yet another attempt by Ziasun to mislead and deceive the investment community!!!"; b) August 13, 2000, l:l0 p.m. - "Another Amber/Capital Grp. lie with regard to Swifttrade..."; c) August 13, 2000, 1:14 p.m. - "Yet another fraudulent promoter tied to Ziasun and Castpro"; d) August 15, 2000, 2:36 p.m. (regarding Lynn Briggs, who defendant Schneider has stated inaccurately is a former president of ZiaSun) - "You are nothing but a two bit crook and will rot in #### because of your lies. The wheels of justice work slow but they will get you some day. Great reg s scam you pull off from your offshore safe haven."; e) August 15, 2000, 5:15 p.m. - "Yet another fraudulent promoter ties the ZSUN/castpro knot tighter and fighter"; f) August 15, 2000, 9:44 p.m. - "...I have showed you that Lynn Briggs was a past President of Ziasun and Bestway USA. Don't you find it strange that he is selling you reg S shares offshore in a boiler room?...How could Lynn Briggs not have known that this was a scam...The reason is because they are conmen. The worst type of scum on the earth. It is known as a REG S Seam where insiders sell themselves shares cheap to offshore entities they comtrol [sic] and push them on hapless investors offshore...They take advantage of these poor people by lying through their teeth and will tell you anything because they have no morals."; and g) August 16, 2000, at 6:06 p.m. - "Gray Cary Ware & Freidenrich LLP tried to say I was in violation of my restraining order for sending information to the Wall Street Journal .... Why did they try to tell the judge that I should be held in contempt of court for sending information to the Wall Street Journal when these offshore boiler rooms were commiting CRIMES against society?"
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with attached exhibits dated December 1, 1999;
E) Declaration Of Kenneth Wolok In Support Of Plaintiff' s Motion For Temporary Restraining Order dated December 2, 1999;
F) Declaration Of Patrick Pearce In Support Of Motion For Temporary Restraining Order with attached exhibits dated December 2, 1999;
G) Order Granting Preliminary Injunction issued by the Honorable Marsha Pechman, United States District Court Judge, Western District Of Washington, dated January 21, 2OOO;
H) Postings dated January 25, 2000 from one of the Silicon Investor interact message boards for ZiaSun by Defendant Schneider showing knowledge of the terms of the January 21, 2000 Preliminary Injunction Order; and
I) Postings by defendant Schneider on both the Silicon Investor and Raging Bull message boards regarding ZiaSun dated from August 12, 2000 to August 16, 2000
V. ARGUMENT AND AUTHORITY
Defendant Schneider's continued postings explicitly violate both the letter and spirit of the preliminary injunction Order entered on January 21, 2000. This despite defendant Schneider's full knowledge of the terms and provisions of that Order. Declaration of Pearee, Ex. H. Under Ninth Circuit standards, defendant Schneider's postings constitute both civil and criminal contempt of the Order.
The Order itself continued to have full effect notwithstanding the transfer of the case from the Western District of Washington to the Northern District of California. When an action is transferred, it remains what it was; all further proceedings in it are merely referred to another tribunal, leaving untouched what has already been done. Danner v. Himmelfarb, 858 F.2d 515, 521 (9th Cir. 1988).
A. Defendant Schneider Should Be Held In Civil Contempt
A district court's decision to impose sanctions or punishment for contempt is reviewed for abuse of discretion. S.E.C. v. International Swiss Investments Corp., 895 F.2d 1272, 1277 (9th Cir. 1990) (holding trial court had not abused discretion in holding party in contempt for violation of preliminary injunction in case involving securities transactions). In a civil contempt proceeding, the contempt must be established by clear and convincing evidence. Diamontiney v. Borg, 918 F.2d 793,797 (9th Cir. 1990).
ZiaSun readily concedes that if a defendant's action appears to be based on a good faith and reasonable interpretation of the court's order, he should not be held in contempt. Borg, 918 F.2d at 797. Courts have sometimes concluded that for a defendant to avoid contempt for violation of an order, the defendant must have made every reasonable attempt to comply with the court's order. See Vertex Distributing. Inc. v. Falcon Foam Plastics. Inc., 689 F.2d 885,892 (9th Cir. 1982).
This has not been the case with defendant Schneider. Defendant Schneider has gone out of his way to resume posting intensely derogatory and defamatory messages regarding ZiaSun. In complete disregard of the Order, Schneider has accused ZiaSun and those associated with ZiaSun of fraud and dishonest conduct.
When a defendant is determined to have failed to comply with a court's prospective order after ample opportunity to comply, imposing a contempt sanction is appropriate. See Aradia Women's Health Center v. Operation Rescue, 929 F.2d 530, 532-33 (9th Cir. 1991) (affirming trial court's holding defendant in contempt for failing to comply with trial court's prior order).
The evidence available could not be more clear and convincing, coming as it does directly from defendant Schneider himself. Despite full knowledge of the terms of the Order and equally full knowledge of what is and is not appropriate for him to publish, Schneider has accused ZiaSun of fraud, fraudulent and dishonest conduct, lying, and "pirating" investors' money. Declaration of Pearce, Ex. I. It appears the only way to make Schneider stop and hopefully obey and respect the Court's Orders is for the Court to find him in contempt and impose an appropriate sanction.
B. Defendant Schneider Should Be Held In Criminal Contempt Should Further Violations Occur
Given the extent of Schneider's violation of the terms of the Order, finding him in criminal contempt would be appropriate. Persons bound by a court order may be found in criminal contempt for violating it if the order is clear and definite, and the contemnor has knowledge of it. U. S. v. Baker, 641 F.2d l311, 1315 (9th Cir. 1981) (affirming trial court' s imposition of criminal contempt against certain defendants found to have sufficient knowledge of violated order). In the Ninth Circuit, imposing criminal contempt requires the contemnor to know of the trial court's order and willfully disobey it. Baker, 641 F.2d at 1317. Willfulness and awareness of the order violated must be shown beyond a reasonable doubt. Id. Willfulness may be inferred from admitted evidence. Id. While a good faith effort to comply with a court order may serve as a defense, delaying tactics or indifference to the court order do not. Id.
Defendant Schneider had full knowledge that the Order restricting his actions existed, and also had full knowledge of the terms of that Order. The Order was clear and delineated what Schneider could and could not post regarding ZiaSun. There can be no doubt from the exhibits submitted with this motion that instead of attempting in good faith to comply with the Order, Schneider - believing sufficient time had passed .and growing bold and sure that he would not be held accountable - directly and deliberately violated it in complete indifference to the Order's terms.
Schneider has shown a complete disregard and true contempt for the Court, the Court's authority, and the properly issued Order. At this time, ZiaSun is asking only that Schneider be held in civil contempt. However, given the extent and blatant nature of his violations of the Order, further violations should result in the Court holding Schneider in criminal contempt. The Court should issue an appropriate Order.
C. Conclusion
The United States District Court for the Western District of Washington provided defendant Schneider with explicit guidelines on what was appropriate and inappropriate for him to post on internet message boards regarding ZiaSun. Defendant Schneider admittedly received a copy of that Order and was very familiar with its contents. Nevertheless, Schneider deliberately chose to disregard the terms of the Order and continue in his defamation campaign. Defendant Schneider should be held in civil contempt and required to pay an appropriate monetary sanction to the Court. Given the great likelihood that Schneider will violate the terms of the Order again in the future, and given his obvious disregard for the Court's authority, the Court should issue an Order that any further violations of the Order will result in Schneider's being held in criminal contempt with an appropriate criminal sanction imposed.
Dated: August _24_, 2000
WEISS JENSEN ELLIS & HOWARD
By [signature]
Christopher H. Howard (Pro Hac Vice)
Patrick S. Pearce (Pro Hac Vice)
GRAY CARY WARE & FREIDENRICH LLP
By [signature]
SUSAN D. RESLEY
Attorneys for Plaintiffs
ZIASUN TECHNOLOGIES, INC. and
ANTHONY L. TOBIN
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