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Jason G. Revzin – 008629LEWIS BRISBOIS BISGAARD & SMITH LLP6385 S. Rainbow Boulevard, Suite 600Las Vegas, NV 89118Telephone: (702) 693-4344Fax: (702) 893-3789E-mail: [email protected]
Charles D. Onofry – 012837 – Pro Hac ViceSCHNEIDER & ONOFRY, P.C.3101 N. Central Avenue, Suite 600Phoenix, AZ 85012-2658Telephone: (602) 200-1280Fax: (602) 230-8985E-mail: [email protected]
Attorneys for Defendants
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
Memphis Invest, GP, a Tennessee generalpartnership,
Plaintiff,
vs.
Andrew Waite, an individual, and NexzusPublishing Group, LLC, a revoked Nevadalimited liability company,
Defendants.
No. 2:13-cv-01282-JAD-NJK
DEFENDANTS’ MOTION TO STRIKEGRATUITOUS, SELF-SERVING, ANDIMPROPER LANGUAGE FROMPLAINTIFF’S NOTICE OFVOLUNTARY DISMISSAL WITHOUTPREJUDICE
Pursuant to Rules 12(f) and 41(a)(1), Fed.R.Civ.P., Defendants hereby object
to the gratuitous, self-serving, and improper language contained in Plaintiff’s Notice of
Voluntary Dismissal and ask the court to strike that language from Plaintiff’s Notice.
Specifically, Defendants ask this Court enter an order striking the language from Plaintiff’s
Notice from page 1, line 23, through page 2, line 2.
SUMMARY OF ARGUMENT
Plaintiff Memphis Invest is in the business of buying distressed single-family
properties primarily in the Memphis, Tennessee area and selling them to individuals
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looking for investment properties. Defendant Andrew Waite is the owner and publisher of
Nexzus Publishing Group, which publishes a trade magazine, Personal Real Estate
Investor, dedicated to individual real estate investors. Part of Waite’s job is to investigate,
collect, and disseminate information of interest – including perceived abuses – to those
within this industry.
In November 2012, Waite learned from several reliable sources (including a
federal mortgage fraud investigator, a formal published Study, and Guild Mortgage
employees) that Guild Mortgage, a favored lender financing a number of Plaintiff’s sales,
was being threatened by Fannie Mae with having to “buy back” a large number of these
mortgages because the sales violated a deed restriction that prohibits a purchaser from
“flipping” the homes by reselling within 90 days for more than 120% of the purchase price.
Waite relayed this information to several people within the industry who, from his
perspective, would have a “common interest” in this information.
Plaintiff did not like the “bad press” so it sued Waite and his company for
defamation claiming it was a false statement that Fannie Mae threatened Guild with buying
back “all” or “several” or “a number” or “many” of the mortgages issued on Plaintiff’s
properties. See Complaint at ¶¶ 32, 52-53, and 62. After litigating the case for eight (8)
months, and while Defendants’ Motion to Dismiss was still pending, Plaintiff filed a
Notice of Voluntary Dismissal. While entitled to file the voluntary dismissal, Plaintiff’s
Notice of Dismissal went beyond what is allowed by the Rules. Instead of merely giving
notice it was abandoning the lawsuit, Plaintiff added gratuitous and improper language to
the Notice declaring itself the winner and reciting its own self-serving version of the
alleged facts.
Plaintiff filed its Notice at this time because: (1) Plaintiff knew Guild
Mortgage’s response to a recently-served subpoena would have exposed that Plaintiff filed
its lawsuit in bad faith knowing Defendant Waite’s statements were true or substantially
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true; and (2) Plaintiff wanted to avoid at all costs any deposition being taken of its two
principals, Kent Clothier and Chris Clothier. In fact, Plaintiff’s Notice of dismissal was
filed only two days before the Clothiers’ scheduled depositions. But for the dismissal, the
Clothiers would have to either perjure themselves or admit they lacked a good faith factual
basis for the lawsuit.
Based on Rules 12(f) and 41(a)(1), this Court should strike all of the
improper, self-serving language in Plaintiff’s Notice wherein Plaintiff opined on the merits
of the case and declared itself the winner. If Plaintiff wanted to make such a proclamation,
it should have continued the suit through conclusion.
STATEMENT OF FACTS
A. Procedural History.
Plaintiff filed its Complaint on July 19, 2013. Defendants filed a Motion to
Dismiss or, in the alternative, to transfer venue from the District of Nevada to the District
of Arizona. The matter is briefed, but the court has not yet ruled. While that motion was
pending, Defendants sought to stay all discovery pending the court’s ruling on the motion
to dismiss or transfer venue. The court overruled Defendants’ request and ordered the
parties to proceed with a scheduling order, disclosure, and discovery. The court approved
an initial scheduling order that established March 24, 2014, as the discovery cutoff date.
The court later extended that deadline to June 24, 2014.
Some discovery and disclosure was completed. The parties exchanged
disclosure statements. Three depositions, including that of Defendant Waite, have been
taken. Some discovery remains outstanding. Defendants served interrogatories, a request
for production of documents, and a subpoena compelling the production of documents
from third-party Guild Mortgage. Responses are outstanding. Defendants also noticed the
depositions of Kent Clothier and Chris Clothier for March 20, 2014, and of Kaaren Hall for
April 18, 2014. Another deposition of a Guild Mortgage VP was being arranged, but had
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not yet been noticed. While no dispositive motions had been filed, Defendants’ Motion to
Dismiss/Transfer Venue was still pending. Plaintiff had also filed a Motion for Protective
Order seeking to prevent Defendant Waite from speaking with Plaintiff’s witnesses. That
motion was denied.
On March18, 2014, eight (8) months after filing the Complaint, and after
Defendants had expended more than $45,000 in defending the case, Plaintiff filed a notice
of voluntary dismissal. However, Plaintiff did not simply file a Notice that it was
dismissing the matter under Rule 41(a)(1). Instead, Plaintiff included improper language in
the Notice, essentially declaring itself the winner.
B. Background Facts.
Plaintiff is in the business of buying distressed single-family properties and
selling them to out-of-state investors. Many of these properties were “foreclosures”
previously financed by Fannie Mae, which placed deed restrictions on the properties that
prohibited a purchaser from “flipping” the homes by reselling within 90 days for more than
120% of the purchase price.1. Plaintiff’s Prior Attempts to Impose Prior Restraints on Waite and his
Magazine.
From time to time, Plaintiff placed ads in Waite’s trade magazine, Personal
Real Estate Investor. Through these experiences, Waite learned the Clothiers engage in
“sharp” business practices and “bullying.” For example, in March 2010, Waite spoke with
Kent Clothier in Phoenix. Kent said he did not want to pay for advertising on a monthly
basis, but rather on commissions based on resulting sales. Kent offered to pay Waite if he
would agree to not allow Plaintiff’s primary competitor to advertise in his magazine.
Waite could not do that. Kent did not like that response and told Waite he would “run him
out of town” if he sold advertising space to a competitor. Waite confirmed this
conversation on November 15, 2010 in an e-mail to Kent “formally declining [Clothier’s]
offer of payments to [Waite’s] magazine in return for refusing advertising from other
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vendors in [the Clothiers’] market. See 11/15/2010 email exchange attached hereto as
Exhibit “A.” Kent responded with the preposterous explanation that he had actually
offered to pay Waite $500 per month to not print Plaintiff’s ad if Waite would stop asking
him to renew his contract. Id. In response, Waite confirmed that Kent had said he “would
not advertise with [Waite] if one specific competitor was in the magazine.” Id.
In August 2010, Waite’s company prepared a “special supplement” to the
magazine that featured Plaintiff. The Clothiers shorted Waite on the bill by about $1,200.
After this article, Waite saw Memphis Invest post advertisements from time to time where
they would rewrite Waite’s praise of their company. For example, instead of saying
Plaintiff was “one of the best” investment companies, they would refer to Waite’s
comment as being “the best.” Waite saw this and called Chris Clothier and complained.
In February 2011, the Clothiers placed a full-page ad with Waite’s magazine.
This was the last time Plaintiff advertised with Waite’s company because in the following
month Waite put out another publication and this time he carried an ad for Plaintiff’s
primary competitor, “Memphis Investment Properties, LLC,” owned by Jim Reedy. Based
on the prior conversation with Kent Clothier, Waite is convinced this angered Kent.
Eventually, this new competitor company became very successful.
After this ad showed up, Waite spoke with Chris Clothier who made a
number of unflattering comments about Jim Reedy, telling Waite he was doing business
with a “bad guy” and that Reedy had a criminal record. Around the same time, Waite
received a plain paper package providing some of these criminal records. The timing of
the receipt of the package and his conversation with Chris led Waite to strongly suspect
Chris sent this information to smear their primary competitor.
In response, Reedy provided Waite with some background information on
Kent Clothier to the effect he left a former business venture and there may have been
charges of embezzlement. At this same time, Waite saw information posted on Plaintiff’s
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website that he believed misrepresented the true cost to their investor clients. Waite
wanted to talk with Chris Clothier about those accounting issues, the information Chris
provided about Reedy, the anonymous package, and also continuing an advertising
relationship, which he memorialized in an April 1, 2011, e-mail. See Exhibit “B” hereto.
Waite then called Chris Clothier stating he wanted to discuss these issues again, stating he
could not make sense of Plaintiff’s spreadsheet that had been posted on its website, which
Waite thought misrepresented the hidden costs to the investor.
Clearly, Waite struck a nerve. Exactly 93 minutes after he sent the e-mail to
Chris Clothier, Waite received a letter from Plaintiff’s attorney threatening a defamation
claim. See Exhibit “C” hereto.
2. Waite is Contacted by a Mortgage Fraud Investigator.
It was against this background when, in the fall of 2012, Waite was contacted
and interviewed by Glenn Pierce, a Fannie Mae Mortgage Fraud Investigator. As was his
obligation, Pierce could not expressly state who or what exactly he was investigating. But
Pierce directed Waite to a recent publication by the University of Memphis entitled
“Lending Study of Shelby County 2010.”1 A portion of the Study attached hereto as
1The Study identified Plaintiff as one of the three highest volume syndicates marketing foreclosed properties toout-of-state investors and one of the leading violators of the FHA rule, which prohibited selling a residence for morethan 120% of the purchase price within 90 days of closing. It reports Memphis Invest acquired 112 properties out offoreclosure in 2010. Exhibit “D” at 65. Fourteen of these properties “were sold in violation of Fannie Mae sales pricelimitation restrictions.” Id. The implication from the study was there were questionable appraisal practices at work.
The study was critical of the “chain selling pattern” stating it begins with a cash purchase and often results in amortgage based on escalated value. Id. at 41. It says buyers, sellers, and lenders are often linked in ongoingpartnerships. Id. Their preliminary research indicates building permits were not obtained to conduct renovations as issuggested in the loans. Id. As it relates to Memphis Invest, it concludes they purchased properties through a numberof intermediaries. Id. at 65. Typically, Memphis Invest finances the purchase with a 90 day hard money loan typicallyaveraging close to 1 ½ times the original purchase price. Id. On its face, it would appear the hard money loan isintended to cover both acquisition and rehabilitation expenses. Id. It points out “no building permits (other thaninstallation of electrical panels) were found for the Memphis Invest’s acquisitions … and in many cases, the propertyis sold to a new investor … within days of the original acquisition….” Id. at 65-66. It concludes many of theMemphis Invest Investors use hard money loans because these are the only ones available because the properties donot meet the 90-day title-seasoning rule. Id. at 66. Once the title has seasoned for 90 days, the investors can usuallyrefinance with a conventional mortgage. Id. at 67. Although not expressly stated, the study implies Plaintiffartificially inflates the “value” of the property by taking out a loan for more than the purchase price with the
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Exhibit “D.” The Study was a critical analysis of mortgage lending practices in the
Memphis area. It identified Plaintiff as one of the three leading violators of the FHA
90/120 deed restriction and strongly implied there were questionable appraisal practices at
work. Guild Mortgage was identified as one of Plaintiff’s primary lending resources for its
investing clients. Id. at 67.
Based on their conversations and the information revealed in the Study,
Waite reasonably concluded Plaintiff was being investigated for improper lending practices
relating in one fashion or another to possible violation of Fannie Mae deed restrictions.
3. Waite’s Conversation with Guild Mortgage and Threatened Buybacks.
Guild Mortgage was also an occasional advertising client of Waite’s
magazine. On October 23, 2012, shortly after being contacted by the fraud investigator
and reviewing the Memphis study, Waite called Guild employees Randy Locke and Steve
Bighaus to discuss possible advertising. They compared notes about Kent Clothier and
their incidents where Clothier threatened to run them out of town. In the process, Waite
told the Guild employees about the Memphis study and that a mortgage fraud investigator
questioned him about Plaintiff. After he imparted that information, Guild employee Randy
Locke became quite animated and volunteered that Guild had 63 loans in process involving
Plaintiff’s properties and that Guild had received “buyback” requests on loans Guild had
sold to Fannie Mae. This call lasted 23 minutes. Waite’s records show at least two more
calls to Locke that following week where the topic was discussed.
“Buybacks” relate to a lending institution’s ability to resell its mortgages to
other lenders on the “secondary loan market.” Fannie Mae is part of the secondary market.
Guild had a contract with Fannie Mae, which agreed to buy Guild’s mortgages if the
suggestion it is going to rehabilitate the property, which is the basis for the hard money loan. Hard money loans areasset based. Id. at 65. This helps Plaintiff avoid the violation of the 120% rule.
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mortgages met certain requirements. One of those requirements was the property not
violate the 90/120 deed restriction. Fannie Mae is entitled to audit the various loans it
purchases. If a mortgage fails to meet Fannie Mae’s regulations, then it has the ability to
require Guild to “buy back” the mortgage.
Based on the combined information learned from the Memphis Study, the
conversation with Locke, and the contact from the fraud investigator, Waite suspected a
large number of Plaintiff’s properties financed through Guild may have been the subject of
“buybacks” requested from Fannie Mae because of the perceived violation of the 90/120
deed restriction. Waite had no final confirmation of exactly how many buyback requests
had been made or how many requests resulted in actual buybacks.
4. Subsequent Events Reinforce Waite’s Suspicions.
On November 4, 2012, Waite was in Las Vegas at the American Association
of Private Lenders Conference. He was talking with several people at a cocktail party
about turn-key vendors. He mentioned some unnamed turn-key lender had some bad
practices, which had just caught up with them because of flawed loans from Fannie Mae.
A woman in the group guessed it was Plaintiff, which Waite confirmed.
On December 3, 2012, Waite received additional information consistent with
Plaintiff’s concern about buybacks. On that date, Waite spoke with Matte Innes of
“Building and Land Technology Fund” who said Chris Clothier tried to sell him property
urgently and in bulk. Innes said he turned him down because of potential title flaws.
5. The Clothiers’ Feign Concern Over the Investigation.
On February 26, 2013, Chris Clothier wrote a detailed e-mail to Waite
denying Memphis Invest was under any investigation. See Exhibit “E” hereto. In the
letter, Chris states they are aware of every time Waite mentions they are under
investigation and they forward it on to their lawyers. Chris confirms they no longer use
Guild Mortgage but claims Guild closed 63 outstanding loans for his clients over the past
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90 days. He claims that Guild simply said they wanted to move in a different direction.
He proclaims, “[a] company who is fearful of buybacks or investigations does not close all
63 outstanding loans.” Id.
C. Plaintiff’s Lawsuit and the Alleged Defamatory Statements.
Plaintiff sued Waite and his publishing company for making five alleged
defamatory statements. Three of the statements are contained in e-mail communications
and the other two are alleged oral statements. Notably, despite demand and in disregard of
its disclosure obligations, Plaintiff never identified any witnesses to the alleged oral
defamation. Nonetheless, the alleged defamation all involves the same general statement:
Waite is alleged to have stated Fannie Mae threatened Guild with buying back “all” or
“several” or “a number” or “many” of the mortgages issued on Plaintiff’s properties. See
Complaint at ¶¶ 32, 52-53, and 62.
Plaintiff claims these statements were defamatory because they falsely imply:
(a) Fannie Mae forced Guild to “buy back” mortgages; (b) it involved more than a small
number of loans, which happens in the ordinary course of business; (c) the buybacks were
the result of “wrongful” conduct by Memphis Invest; and (d) Memphis Invest marketed
and sold these properties as being eligible for Fannie Mae loans when they, in fact, were
not eligible, which in turn implies that Memphis Invest engages in unethical conduct. See
Complaint at ¶¶ 30-33 (Count 1).
D. Depositions of Steve Bighaus and Randy Locke.
Plaintiff took the depositions of Guild employees Steve Bighaus and Randy
Locke, the two individuals Waite contends told him Fannie Mae was threatening buybacks.
Bighaus recalls the conversation with Waite differently. His recollection was that Waite
said he had been contacted by an FHA/Fannie Mae investigator. Waite wanted
confirmation that 60-63 loans Guild was financing involving Plaintiff’s properties were
being threatened with “buybacks.” Bighaus claims he told Waite he could not confirm this
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one way or the other. In the end, Bighaus denied having any firsthand knowledge about
any alleged “buybacks,” although he admitted Randy Locke told him there was a buyback
issue involving the 90/120 deed restriction.
Locke had more first-hand information, but still lacked full personal
knowledge of the whole “buyback” issue involving Plaintiff’s properties. He recalled
receiving – either directly or indirectly from the corporate office – anywhere between
20-25 inquiries requesting buybacks. He distinctly remembered these buyback letters were
different because they were initiated by the Fannie Mae fraud investigation unit. This
caused particular concern. He was aware of the buyback requests because he was usually
requested to track down information by the corporate office. However, he really did not
know the outcome because the negotiations and direct communications with Fannie Mae
were handled through the corporate office. He thought there were four to five loans where
there was some form of a buyback.
Nonetheless, Locke acknowledged the threat of buybacks presented a
significant financial concern for Guild. Guild’s corporate office would not allow them to
do business with an entity that consistently exposed them to buybacks because of the
adverse financial consequences. He thought Guild’s lawyers tried to resolve the questions
that consistently came up about the alleged violation of the deed restrictions. Apparently,
they could not come to an adequate satisfactory resolution. They did not want that risk.
This uncertainty led to Guild’s decision to stop doing business altogether with Memphis
Invest. Locke received instructions from his supervisor Charles May and Barry Horn that
“corporate” decided to no longer do business with Memphis Invest.
Locke’s recollection of the conversation in late October/early November
2012 was similar to that of Bighaus. He too recalled Waite was looking to confirm there
were buybacks on Plaintiff’s properties. Locke also claimed some confusion himself as to
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whether a buyback letter would constitute an actual buyback as opposed to the ultimate act
of transferring money to buy back the loan.
E. The Subpoena Issued to Guild and Notice of Clothiers’ Depositions.
Defendants served a subpoena on Guild Mortgage essentially seeking any
documents pertaining to buyback requests involving Plaintiff’s properties. No formal
response has been received although the return date has come and gone. Nonetheless, in
one of the various communications between counsel and the attorney representing Guild
Mortgage, Guild’s attorney stated the following as what the Guild documents would
confirm about the buybacks involving Plaintiff’s property.
Chuck, I checked with my client and there were more Fannie Maerepurchase requests for Memphis Invest deals than I originallybelieved. I am now informed there were actually 44 repurchaserequests. Out of that number 15 loans were actually repurchased byGuild from Fannie Mae and in one other case, Guild made FannieMae whole on its foreclosure loss on the loan. Because of thenumber of loans involved, it will take Guild some time to copy allthe documents pertaining to the repurchase demands. I proposeproviding copies of each repurchase demand from Fannie Mae,Guild’s response to each demand, and any written confirmations thatthe 15 loans mentioned above were repurchased. I also would like toenter into a stipulated protective order limiting the use of thedocuments solely for purposes of the lawsuit and not allowing themto be distributed publicly. It will take 7-10 days to compile and copythe requested documents. Does that work for you?
See 3/14/2014 e-mail from J. Incorvaia to C. Onofry, attached hereto as Exhibit “F.”
F. Plaintiff Dismisses the Action Before The Clothiers Can Be Deposed.
The depositions of the two principals of Plaintiff Memphis Invest, Kent
Clothier and Chris Clothier, were noticed for Thursday, March 20, 2014 in Las Vegas. In
the days and weeks leading up to the depositions, Plaintiff’s counsel made various
settlement offers and was pushing to resolve the matter. See Affidavit of undersigned
counsel, attached hereto as Exhibit “G.”
On March 17, 2014, Defendants responded stating there was no common
ground for settlement and the Clothier depositions would be going forward.
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The very next day, Plaintiff dismissed the lawsuit.
G. The Gratuitous, Self-Serving, and Improper Proclamation Contained in Plaintiff’sNotice of Dismissal.
Rather than file a simple Notice of Voluntary Dismissal as contemplated by
Rule 41(a)(1), Plaintiff went on to recite its version of the facts and proclaim itself the
winner. In this regard, the Notice states:
Defendants Andrew Waite and Nexzus Publishing Group, LLC havenot filed an answer or a responsive pleading to Plaintiff’s Complaint.This dismissal is not a reflection on the merits of the instant action.Indeed, Plaintiff has conducted depositions, including that ofDefendant Waite, and acquired substantial evidence that Defendantspublished the defamatory statements at issue in this case knowingthey were false or with reckless disregard for truth. However, forreasons that include Defendants appear to have inadequate or noinsurance to cover any ultimate damages award in this case, Plaintiffis now concerned that the costs of proceeding to verdict will faroutweigh any amounts that Defendants will be able to pay towards ajudgment.
Therefore, Plaintiff dismisses the above-captioned matter withoutprejudice.
See Notice of Voluntary Dismissal without Prejudice at 1-2.
ARGUMENT
A. This Court Should Strike Plaintiff’s Gratuitous, Self-Serving, and ImproperLanguage found at Page 1, line 23 through page 2, line 2 of Plaintiff’s Notice ofVoluntary Dismissal.
Defendants acknowledge that Rule 41 appears to entitle Plaintiff to file a
Notice of Voluntary Dismissal before an answer or motion for summary judgment has been
filed. Defendants further acknowledge they have filed neither an answer nor a motion for
summary judgment. Instead, they filed a Motion to Dismiss or, in the alternative, Motion
to Transfer Venue, and given the Ninth Circuit’s decision in Swedberg v. Marotkze, 339
F.3d 1139 (9th Cir. 2003), it would appear Plaintiff has the technical right to dismiss this
action with no consequence.
However, the purpose and policy behind Rule 41(a)(1) permitting a plaintiff
to unilaterally dismiss its complaint is “to permit a disengagement of the parties at the
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behest of the plaintiff only in the early stages of a suit, before the defendant has expended
time and effort in the preparation of his case.” Armstrong v. Frostie Co., 453 F.2d 914,
916 (4th Cir. 1971)(emphasis added). Armstrong cites to Harvey Aluminum, Inc. v. Amer.
Cyanamid Co., 203 F.2d 105 (2nd Cir. 1953), which remanded a Rule 41(a)(1) voluntary
dismissal to the district court with directions to vacate that notice of dismissal, with leave
for plaintiff to move for dismissal under Rule 41(a)(2). The time the plaintiff filed its Rule
41(a)(1) Notice, the defendants had only filed notices of appearance, but had not answered
or moved for summary judgment. Id. at 107. The court of appeals vacated the plaintiff’s
Rule 41(a)(1) dismissal even though the defendants had not filed “any paper labeled
‘answer’ or ‘motion for summary judgment’” because the parties had engaged in a
significant amount of litigation at the time the voluntary dismissal was filed (with regard to
a preliminary injunction). Id. at 107-08. The court of appeals took this action because “a
literal application of Rule 41(a)(1) … would not be in accord with its essential purpose of
preventing arbitrary dismissals after an advanced stage of a suit has been reached.” Id.
While Defendants do not necessarily want this Court to vacate Plaintiff’s
dismissal of its lawsuit against them, Plaintiff has certainly manipulated the litigation and
misused its process by continuing the litigation for eight months. Further, Plaintiff did so
knowing it had no legitimate case, but has now attempted to insulate itself by filing a
Notice of voluntary dismissal and, in the process, is attempting to further manipulate the
court process by filing a Notice containing gratuitous, self-serving, and improper
statements, which have no place in this litigation and should be stricken.
The facts of this case stand out and highlight the impropriety of Plaintiff
involuntarily dismissing the action at this stage – with its self-serving and improper
statements in its Notice of dismissal – which is particularly important given the type of
lawsuit at issue. Specifically, Plaintiff claims Defendants made defamatory statements.
By filing the Notice of Voluntary Dismissal, along with the self-serving and improper
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statements, Plaintiff has declared itself the winner in this case. By doing so, it believes it
can prevent Defendants from making similar statements in the future because it can always
refile the lawsuit inasmuch as the Notice of Dismissal was without prejudice.
Allowing Plaintiff’s Notice to stand without correction runs contrary to the
spirit of the rules. See Armstrong and Harvey, supra. This is not a case where the
dismissal was filed early on and before any significant time and money was expended. The
case has been pending for almost a year. Discovery is almost completed. Indeed, the
parties had the court extend the discovery cutoff from a prior deadline of March 24, 2014,
to June 23, 2014. Three videotaped depositions were taken, including two videotaped trial
depositions. Multiple disclosure statements were exchanged. A Motion for Protective
Order was filed, briefed, and ruled on. Written discovery demands were served and
responded to. Subpoenas for production of documents were issued. There were also three
depositions scheduled and on calendar prior to the Notice of Voluntary Dismissal, along
with discovery requests that had been served on Plaintiff and Guild Mortgage.
For Plaintiff to file the Notice at this point in time was merely an attempt to
avoid placing itself in a situation to where it would subject itself to Rule 11 sanctions. It is
believed the principals of Plaintiff’s company, Kent Clothier and Chris Clothier, knew, in
fact, there had been buyback requests made by Fannie Mae to Guild Mortgage, and there
were actually loans repurchased by Guild from Fannie Mae. At their depositions, these
principals would have either had to acknowledge they did not have any information, one
way or the other, sufficient to justify filing the lawsuit, or they actually were aware there
were both buyback requests and buyback purchases actually made, in which case the
lawsuit was brought without justification. This is an abuse of the process. Plaintiff should
not be permitted to litigate the case, make serious allegations, and then simply dismiss the
case on the eve of their baseless allegations being exposed – all the while filing documents
with the court in which they claim their lawsuit was meritorious.
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Plaintiff’s gratuitous, self-serving language is improper and should be
stricken for all of the following reasons.
1. Rule 41 Does Not Allow for the Type of Gratuitous and Self-ServingLanguage that Plaintiff has Included in Its Notice of Voluntary Dismissal.
Rule 41 allows a Plaintiff to file a notice of voluntary dismissal before the
opposing party either serves an answer or motion for summary judgment. See Fed.R.Civ.P.
41(a). However, there is no provision in the Rule for the notice containing self-serving
statements as to the merits to their claim.
Striking the language would also be consistent with Rule 12(f), Fed.R.Civ.P.,
which permits the court to strike from a pleading any “redundant, immaterial, impertinent,
or scandalous matter.” In this case, Plaintiff’s self-serving recitation of what it believes the
evidence is has no relevance to the notice of dismissal and only serves to potentially
prejudice Defendants. This is especially important in the context of this case, a defamation
case. By including the self-serving statement in the Notice, Plaintiff purports to declare
itself the “winner” in the defamation case. Presumably, Plaintiff will point to this as proof
it prevailed in one fashion or another, which would be highly prejudicial to Defendants.
2. Plaintiff Dismissed the Case Because It Knew Its Bogus Position was SoonGoing to Be Exposed.
Defendants contend Plaintiff knows Waite’s statements were true or
substantially true and dismissed this case solely out of concern that its bogus position was
going to be exposed. Prior to noticing the depositions of Kent Clothier and Chris Clothier,
Defendants issued a Subpoena Duces Tecum to Guild Mortgage. The Subpoena essentially
requested Guild to produce those documents pertaining to the requested buybacks
involving the Memphis Invest properties. By issuing the Subpoena, Defendants anticipated
the documents would confirm that, in fact, there had been buyback requests and some
mortgages were actually bought back by Guild from Fannie Mae. This would prove
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Defendant Waite’s statements were true or substantially truthful. It would also establish
Plaintiff had no basis in which to bring the defamation claim.
Plaintiff’s Notice of Dismissal was filed after the Guild subpoena was issued,
but before the documents were actually produced. In fact, as set forth above, the attorney
for Guild confirmed in writing the documents will, in fact, confirm exactly what Waite
stated: there were buyback requests and actual buybacks. See Exhibit “F” hereto.
Moreover, this was not an isolated occurrence. Guild’s attorney confirmed in writing that
Guild received from Fannie Mae 44 buyback requests on Plaintiff’s properties and was
forced to buyback 15 of those mortgages. Id. Further, both witness Locke and Guild’s
attorney confirmed the buybacks related to the violation of Fannie Mae’s 90/120 rule.
Maybe most significantly, Locke confirmed these buyback requests were of particular
concern because they actually came from the Fannie Mae mortgage fraud department. He
had not seen buyback requests come from that department before. He also stated buybacks
create significant financial risk to a lender like Guild and that, in this instance, there was
such a risk that Guild’s corporate office directed that all business with Plaintiff be ceased.
Thus, the truth is that Guild ran from Plaintiff and did not want to deal with the problems
caused by Plaintiff’s business practices. It caused Steve Bighaus to leave Guild and cost
Locke his position within the company. Guild’s experience with Plaintiff was – in a word
– a debacle. Thus, given this information, this case was not going to end well for Plaintiff
– or the Clothiers personally.
These facts prove that far from being defamatory, the statements made by
Waite are true. Assuming Waite ever stated that “all” of the Guild mortgages were at risk,
the fact is that a significant number were involved. And whether it was one or 15 or 44,
they created a financial risk, all of which was caused by Plaintiff’s purchase and resale
within the 90-day timeframe. None of this was of Guild’s doing or that of the prospective
investor. The problem with the buybacks originated with Plaintiff’s business practices.
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3. Waite’s Comments are Conditionally Privileged.
Aside from Waite’s comments being truthful or substantially true, Plaintiff
knew it would lose because the statements were conditionally privileged. One possible
privilege is the “common interest” privilege where one “is entitled to learn from his
associates what is being done in a matter in which he has an interest in common with
them.” Restatement (Second) of Torts § 596, Comment c. A qualified privilege applies to
“the social utility of protecting statements required to be made in response to a legal,
moral, or social duty.” Green Acres Trust v. London, 141 Ariz. 609, 616, 688 P.2d 617,
624 (1984) (citation omitted). The privilege applies in a context like associates in a
commercial enterprise, Prosser, Law of Torts (4th Ed. 1971) § 115, at 789; to users of
mercantile agencies, Antwerp Diamond Exchange of Amer., Inc. v. Better Business Bureau
of Maricopa County, Inc., 130 Ariz. 623, 528, 637 P.2d 733, 738 (1981); co-owners of
property, Restatement (Second) of Torts, § 596 Comment d; or co-members of the board of
trustees of a school district, Connor v. Timothy, 43 Ariz. 517, 33 P.2d 293 (1934). In these
contexts, each participant in the association, group, or organization depends on other
participants to supply relevant information. Through the qualified privilege, courts
facilitate the exchange of information by protecting statements about matters affecting the
goals of that organization or group. See Aspell v. Amer. Contract Bridge League of
Memphis, Tenn., 122 Ariz. 399, 595 P.2d 191 (App. 1979) (privilege protects statements
published by bridge club members about disciplining of one of the members).
“The common interest privilege is conditional and ‘exists where a
defamatory statement is made in good faith on any subject matter in which the person
communicating has an interest, or in reference to which he has a right or a duty, if it is
made to a person with a corresponding interest or duty.’” Lubin v. Kunin, 17 P.3d 422, 428
(Nev. 2001) (quoting Circus Circus Hotels v. Witherspoon, 657 P.2d 101, 105 (Nev.
1983)); see also Bank of Amer. Nev. v. Bourdeau, 982 P.2d 474, 476 (Nev. 1999).
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4. Plaintiff’s Dismissal was Filed To Avoid Having the Clothiers Admit theirLack of a Good Faith Basis for Filing the Lawsuit.
If there were 44 repurchase requests from Fannie Mae and 15 loans actually
repurchased by Guild, then Defendants’ statements about the buybacks were either true or
substantially true, either of which is a defense to this action. Because only Guild and
Fannie Mae have true personal knowledge of what transpired between them, it would
appear that either of two scenarios existed when the Clothiers decided to file this lawsuit:
(1) they knew or had been informed by Guild of the true facts and nonetheless filed this
lawsuit knowing there actually were a significant number of buybacks; or (2) they did not
know one way or the other and both they and their attorneys failed to conduct the most
basic of investigations (i.e., asking Guild) and filed the lawsuit in reckless disregard of
whether their allegations were true or not. Either position is sanctionable. See Rule 11,
Fed.R.Civ.P. and 28 U.S.C. § 1972.
The Clothiers did not want to give testimony under oath knowing they would
be pressed to explain the exact factual basis for their belief that Waite’s statements were
false. What investigation had they done? Why did they think there were no buyback
requests? Why did they think Guild never had to buyback any of these loans? The
Clothiers would have to explain: (1) why Chris Clothier told Waite there was no
investigation of Memphis Invest and Guild no longer handled their mortgages only because
Guild “decided to go in another direction”; (2) whether they were the anonymous sender of
the smear material relating to Jim Reedy; (3) why they did not want to talk to Waite about
the questionable accounting posted on their website; and (4) why they had their lawyer
threaten Waite only minutes after being asked to talk about their accounting practices.
5. Plaintiff Misused the Litigation Process Merely to Harass.
Defendants contend Plaintiff never had any intention of seeing this lawsuit
through because it likely knew the true facts. Rather, Plaintiff’s true intent was to harass
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Defendants and hope that the litigation process itself was enough of a threat to prevent
Defendants – and any others – from reporting the facts.
This is borne out by the timing of the dismissal with Plaintiff’s unsuccessful
efforts to settle the case. It was Plaintiff – not Defendants – who wanted to “settle” the
case. No request was ever made by Defendants. Plaintiff initiated the request to discuss
settlement. In fact, Plaintiff’s desire to settle reached an almost fever pitch as the
Clothiers’ deposition dates and due date for the Guild subpoena approached, not to mention
Plaintiff’s need to respond to discovery demands Defendants had recently served, as well
as their obligation to identify the “unnamed” witnesses to the alleged oral statements.
Avoiding the depositions and having to deal with the real truth as revealed by
the Guild documents was consistent with other actions taken by Plaintiff demonstrating it
feared the openness of the litigation process and wanted to control the flow of information.
Plaintiff never revealed the identities of the witnesses to the alleged oral defamation –
assuming they even exist and are not complete fabrications. Plaintiff actually sought a
protective order to preclude Waite from talking to their witnesses. That sort of action is
almost unheard of – who wants to prohibit witnesses from talking if one has nothing to
hide? Another odd coincidence: Plaintiff never claimed it was damaged by the statements.
If the statements were so defamatory, why did Plaintiff not sue for the alleged financial
harm? Most likely, because it did not want its way of doing business exposed to discovery.
Filing a notice of dismissal along with its gratuitous, self-serving, and
improper proclamation that Plaintiff prevailed is just the next logical step in its “hit, run,
and cover” mentality. In the process, Plaintiff creates this contrivance it is dismissing this
action, not just because it has won, but because it sees no utility in pursuing the action
since there may be no recoverable insurance or assets. When did Plaintiff come to this
realization? In fact, there is insurance coverage and Nexus is an ongoing entity. This
rationale is another mere contrivance, especially considering Plaintiff did not sue for any
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special damages, and the initial settlement demand never even sought any money. The
transparency of why Plaintiff wants to dismiss this case is patent.
CONCLUSION
For all the foregoing reasons, Defendants respectfully requests that this Court
enter an order striking the language from Plaintiff’s Notice of Voluntary Dismissal set
forth at page 1, line 23, through page 2, line 2.
Dated this 2nd day of April, 2014.
LEWIS BRISBOIS BISGAARD & SMITH LLP
By /s/ Jason RevzinJason G. Revzin6385 S. Rainbow Boulevard, Suite 600Las Vegas, Nevada 89118
SCHNEIDER & ONOFRY, P.C.
By /s/ Charles OnofryCharles D. Onofry3101 N. Central Avenue, Suite 600Phoenix, Arizona 85012-2658
Attorneys for Defendants
CERTIFICATE OF SERVICE
Pursuant to Fed.R.Civ.P. 5(b), and Section IV of District of Nevada
Electronic Filing Procedures, I certify I am an employee of Schneider & Onofry, P.C., and
that a true and correct copy of the Defendants’ Objection to Plaintiff’s Notice of Dismissal
Without Prejudice or, in the Alternative, Motion to Strike was served via electronic service
and U.S. Mail on this 2nd day of April, 2014 to the address shown below:
Mitchell J. Langberg, Esq.Laura Bielinski, Esq.Brownstein Hyatt Farber Schreck, LLP100 N. City Parkway, Suite 1600Las Vegas, NV [email protected]
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[email protected]@BHFS.comAttorneys for Plaintiff
/s/ Crystal Guinn
