RIAA Backs Down After Receiving Letter from Defendant's Lawyer Threatening Malicious Prosecution; Voluntarily Dismisses Case

In SONY v. Merchant in California, after receiving a sternly worded letter from the defendant's lawyer, Merl Ledford III, of Visalia, California, threatening a malicious prosecution lawsuit, the RIAA immediately withdrew its lawsuit:

Notice of Voluntary Dismissal*

The text of the stern letter was as follows:
************************************************************************************

From: Merl Ledford III, Esq. [mailto:m.ledford3@ledfordlaw.net]
Sent: Tuesday, March 27, 2007 1:11 AM
To: Thomas McCarten Kerr, Esq
Cc: Barry Merchant
Subject: Sony BMG et al. v. Merchant Eastern Dist of Cal. Sacramento Branch 2:07-CV-00340-DFL-DAD

Dear Mr. Kerr

Thank you for your letter of March 23, 2007 received in my office today. I did not receive a copy of the letter by PDF although that method of delivery was shown on the letter.

Incorrect Venue and Emotional Distress


The lawsuit filed by your office and your letter arrive at a particularly inappropriate time in Barry and Cathy Merchant's life. Mrs. Merchant left my office after our first meeting to attend to ill father in Colorado. She and Barry Merchant left my office today to attend his funeral. You should advise your clients that they are facing a "thin skull plaintiff" either on a Rule 11 sanctions motion or (upon favorable termination) in a malicious prosecution action. The emotional distress inflicted by your clients' litigation -- filed in Sacramento rather than the Fresno Branch of the Eastern District Court where my clients' live in violation of the Rules of Court -- has been extreme.

Your client should carefully consider whether it has probable cause to proceed at this point. Mr. Merchant's hard drive is available for immediate, carefully supervised inspection by your client; a carbon copy of the drive has been made by technicians to insure that the evidence is well backed-up.

At the time of inspection, we will expect your clients to be prepared to dismiss all claims with prejudice. The pleadings may be e-filed from my office the same day. Although dismissal will not avoid your clients' exposure to attorneys' fees under the Copyright Act, it will certainly mitigate damages to Mr. and Mrs. Merchant and the possibility of escalating the issues by counter-claim on federal grounds that have been successfully pleaded in other states as well as on pendant California claims that have, thus far, tempered your clients' California zeal for litigating in this state.

Selling a Settlement and the AOL Subpoena

I have evidence of one letter dated June 5, 2005 from an attorney in your firm who is not licensed to practice law in California to Mr. Merchant claiming copyright infringement and demanding settlement negotiations. There is no other record of any kind.

Please provide copies of other correspondence that your clients claim was received by Mr. Merchant (whether by AOL or others) demanding settlement. Is it the same AOL letter that your clients' represented was sent by AOL to a woman with MS who lives in the New York borough of Queens. See Elektra v. Schwartz, Cent Dist NY, 1:06-cv-03533-DGT-RML, Document 21). When the letter was finally produced, after objection and delay, it became clear that its contents had been misrepresented to the Court. (How anyone from the former Gray Cary firm ever pull such a stunt stuns me; it used to be such a fine office.)

Also, please provide my office with copies of all telephone records of contacts your clients claim to have had with Mr. or Mrs. Merchant, and (with respect to your discussion of the AOL subpoena), proofs of service of Notice of Opportunity to Appear and Oppose RIAA's subpoena, a copy of the subpoena, and all of the parties' pleadings in support and opposition to issuance of the subpoena. In the event the AOL litigation named Doe defendants in violation of the Federal Rules of Civil Procedure and obtained any information regarding Mr. Merchant's long-standing without appropriate notice or in violation of California consumer privacy laws, I will request a preclusion order barring any use or derivative use of any information so obtained. See, e.g., Fonovisa v. Does 1-41, W.D. Texas, Austin Div. 04-CA-550 LY.

Independent Factual Investigation and Probable Cause to Sue: Background

Your office has a duty of good faith independent factual investigation and legal research sufficient to support a finding of probable cause to sue.

In Williams v. Coombs (1986) 179 Cal. App. 3d 626, the California Court of Appeal held that attorneys who participate in the filing or maintenance of litigation without probable cause are personally liable for malicious prosecution of a civil action.

In Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal. 3d 863, the California Supreme Court narrowed Williams, holding that a trial court may not delegate the ultimate determination of probable cause to the jury; it held that the question was one of law which must be resolved by the Court. Id. at 876. The Sheldon decision specifically disapproved of dicta from Tool Research & Engineering Corp. v. Henigson (1975) 46 Cal. App. 3d 675, at 683, that the attorney must have a "subjective belief" in the tenability of his or her client's claim in order to avoid malicious prosecution liability. Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal. 3d at 881. It nevertheless "strongly emphasized" that its conclusion "does not by any means suggest that an attorney who institutes an action which he does not believe is legally tenable is free from the risk of liability" because the lawyer's subjective belief "would clearly be relevant to the question of malice." Id. (emphasis supplied); see also Slater v. Durchfort (1995) 35 Cal. App. 4th 1718, 1724.

The Shelton Court also disapproved of Tool Research dicta suggesting that lack of probable cause may be proven "simply by showing that [the attorney] failed to perform reasonable legal research or factual investigation before filing a claim." Id. at 882. Rather, the Shelton Court held that such lack of diligence is relevant on the issue of malice. Id. The Shelton Court specifically disapproved of the Williams decision's apparent use of lack of investigation to prove lack of probable cause, although it fully endorsed the Williams analysis of the tort of malicious prosecution itself. Id. at 882-883 (footnote 9).

Although malicious prosecution was once characterized as a “disfavored action,” it has been somewhat expanded in recent years in apparent frustration with continued "shotgun" lawyering tactics by Plaintiff's counsel. In Crowley v. Katleman (1994) 8 Cal. 4th 666, the California Supreme Court upheld a malicious prosecution complaint where only five of six underlying causes of action were alleged to have been brought without probable cause. The court specifically rejected the defendant's claim that because one of the original causes of action was based on probable cause, the entire complaint was made immune from malicious prosecution liability. Id. at 694-695. Similarly, in Zamos v. Stroud (2004) 32 Cal.4th 1297b, the Court endorsed an action against an anti-SLAPP motion where a litigant’s counsel filed and maintained causes of action without probable cause.

Independent Factual Investigation and Probable Cause to Sue: Lack of Probable Cause

I know of no facts on which a good faith finding of probable cause by either your clients or your law firm could be based to support a claim for relief against Mr. Merchant.

It is well documented that your clients' reliance on MediaSecurity (an admitted "non-expert;" UMG v. Lidor, East Dist NY No. 1:05-cv-01095-DGT-RML) and its overall method of identifying P2P copyright infringers is wholly unreliable and inadequate. See, e.g., February 23, 2007, deposition of the RIAA's expert. http://www.ilrweb.com/viewILRPDF.asp?filename=umg_lindor_070223JacobsonDepositionTranscript. See also expert witness statement of Prof. Pouwelse and Dr. Sips: http://www.ilrweb.com/viewILRPDF.asp filename=foundation_upcnederland_witnessdeclaration and amicus curiae brief of the ACLU, Public Citizen, Electronic Frontier Foundation, American Association of Law Libraries, and ACLU Foundation of Oklahoma, in Capitol v. Foster decrying the RIAA's "driftnet" litigation strategy: http://www.ilrweb.com/viewILRPDF.asp?filename=capitol_foster_amicus.

Such facts were known or reasonably should have been known to you and your law firm before suit against Mr. Merchant was filed. Thus, unless you and your office undertook additional independent investigation to identify Mr. Merchant as a person who actually has engaged in copyright infringement by illegal downloading, good faith basis for a Rule 11-compliant probable cause finding consistent with the Williams line of cases cited above simply did not exist to file the action. . . and does not exist now for it to be maintained.

Your clients apparently argue that Mr. Merchant's failure to respond to "settlement" demands justifies their lawsuit without other basis on which a finding of probable cause to sue could be claimed. You devoted the bulk of your letter advocating that position. As you know, however, that posture is repugnant to both Rule 408, Fed.Rul.Evid. and California Evidence Code §§ 1152 and 1154.

The Evidence Code sections are quite clear: settlement negotiations of all kinds may not be used to prove the validity of any claim or defense. Mr. Merchant has and had no more duty to respond to attempts to "sell" him one of your clients' boilerplate, non-negotiable $3750 settlements than he has to return cold calls from pushy life insurance salespeople. If your client (and your law firm?) are seeking probable cause shelter in a settlement negotiations house of straw (as suggested by your March 23 letter), all of you should consider the prevailing winds of the Evidence Code before making yourselves too comfortable. Straw will burn.

Your client take the position that my middle-aged, conservative clients should speculate regarding the identity of persons your clients' claim used their AOL account to download pornographic-lyric gangsta rap tracks as predicate to possible case resolution. In an age of Wintel-virus created bot-farms, spoofs, and easily cracked WEP encrypted wireless home networks (among other easy hacks), the only tech-savvy response to such a request is, "You've got to be kidding." The extensive press that has been generated over computer security (and the insecurity of Windows XP and its predecessors) underscores the complete absence of facts on which probable cause to sue my clients could be established and your clients' willingness (even insistence) that others be implicated in Big Music's speculative, "driftnet" litigation tactics. Sorry: Mr. Merchant cannot and will not expose himself to still more litigation by speculating.

Settlement Option

It is not too late to correct your clients' (and your law firm's) mistakes.

Mr. and Mrs. Merchant's emotional condition puts a premium on immediate case resolution. Thus, although I generally do not make opening legitimate offers as defense counsel, the clients' non-monetary interests and their probability of recovering their fees and costs in this matter (at a minimum) suggest that a defense settlement offer would not be inappropriate. Therefore:

My clients are willing to accept dismissal of the litigation in exchange for

1. Payment of Mr. Merchant's reasonable fees and costs including retainer of $6,880.25. The payment represents good value considering what your own firm's billings will have been to date and use of those billing records as the loadstar rate for Mr. Merchant's award. See Capitol Record v. Foster, Western Dist. Okla No. 5:04-cv-1569-W, Docment 182 filed 3-15-07).

2. Apology on your firm's letterhead by your supervising partner for inappropriately filing and maintaining an action against Mr. Merchant without probable cause and for the emotional hardship that such litigation caused; and

3. Execution of a mutual general release of all claims in my office's usual form. The RIAA form of release I have seen will not be used. It is my practice in these kinds of cases to require that the plaintiffs indemnity my clients against claims by third parties as part of my general release language. (E.g., your clients sue a site for posting guitar tabs to copyrighted music; my client visits the site, read the tabs, plays them on his guitar, and get sued by way of cross-claim by the guitar tab site). My form of release also anticipates class action litigation that is in the works at several SoCal class-action offices on RICO, Unfair Practices Act (Bus & Prof. Code §§17200 et seq.) and other grounds against RIAA, MediaSentry, and all of your named clients in the Merchant action. My clients will agree to opt out of any such litigation; the release language is tailored to your clients are not giving up any defenses they might otherwise have to the class claims.

4. Confidentiality: It is my general practice to disfavor confidential settlements. Under the circumstances, and so long as your clients are prompt and candid in dealing with their mistaken, misplaced lawsuit, I would consider a reasonable confidentiality provision. Again, quick response, full payment, and immediate dismissal will allow confidentiality as an option.

The authorized settlement offer expressed in the preceding paragraphs of this email (and confirmed in staff-proofed letter format to be sent by fax and US Mail tomorrow; sorry for typos that are an unfortunate part of any quick-response email) may be accepted by signing a copy of this email and returning it to my office by fax no later than the close of business on Friday, March 30, 2007. It is intended to be presented to your clients as written in complete context of this email (and text-corrected letter to follow) in accordance with Rule 3-510, CRPC. It is the best offer that will be made in this litigation based on the facts and circumstances as they are known at this time. Substantial discovery, investigation, and exchange of information remains that could substantially alter the settlement position of the parties to the betterment of either side in ways that cannot now be responsibly predicted. The case settlement value will, however, trend upward the longer I have to work on it. And the emotional distress damages for willfully filing and thereafter maintaining claims for relief without probable cause will only increase as the matter drags on.

The offer is made pursuant to California Civil Code section 47 and in accordance with Rule 408, Fed.Rul.Evid. and California Evidence Code §§ 1152 and 1154 for the sole purpose of settling doubtful and disputed claims by and between the parties. Neither the fact that the offer was made, nor its acceptance, nor any statement made in the course of settlement negotiations shall be admissible to prove the strength or weakness of any claim, counter- or cross-claim, or defense raised or that could be raised by or between the parties regarding the subject matter of their dispute.

Procedural Issues

Your reminder about preservation of evidence, of course, cuts both ways. Since my client's hard drive completely exculpates him, functionally compels dismissal, and opens the door to substantial recovery, he is doing everything in his power to preserve and protect his evidence. In our part of the world, that is a mid-six to low seven figure piece of computer gear.

Procedurally, we need to address how best to move the case to the Fresno Branch so you can enjoy our new Courthouse and avoid Judge Levi's wrath for filing in the wrong court. (Senior Judge Bob Coyle was responsible for building both our new facility and the District Court building in Sacramento; and, although neither building is as grand as Judge Manny Real's showpiece in Santa Ana, the Fresno Court is not only nicer than Sacramento but also one of the top three court facilities ever I've enjoyed practicing in.) Handling the issue by stipulation and order would probably be the most simple way to move the file. We do that routinely in PACA litigation although I am open to suggestions if you prefer to handle it differently

Once the case is moved to the Fresno Branch, your clients should consider cleaning up their complaint. The FRCP and collateral estoppel from other RIAA law and motion matters require much greater specificity in pleading than your clients provided in the complaint I reviewed. Dates of the alleged downloads, which plaintiff (or affiliate) holds which copyright to which track, etc. must be specifically pleaded and proven. You are as familiar as I am with the results in other cases where RIAA's general allegations have been challenged. Let's get over that hurdle without unnecessary law and motion practice.

We should also discuss how quickly you can get your tech people here to do their hard drive inspection. Again, I would be happy to send the airplane to either Butler at SFO or Kaiser at Oakland for roundtrip convenience of you and your clients' tech people. (Oakland is usually faster for me from Civic Center; Kaiser has a shuttle from Bart that beats SFO by about 20 minutes each way most of the time.)

Because your techs will want to do a full data recovery scan to pick up any "negatives" left behind from erased files, I suggest we create a mirror image on an unformatted hard drive purchased commercially in everyone's presence for that purpose. Other RIAA cases have handled the issue by Stipulation and Order although hopefully we can agree on the procedure without that sort of formality.

Once your tech people have confirmed that none of the titles set forth in your clients' complaint (or any other infringements) are or ever were on the drive, you will have irrefutable confirmation of the information provided to you by my office. From there, it should be a short trip to dismissal even if it means getting our clients to mediate Mr. Merchant's positive claims in the absence of an appropriate settlement.

Concluding Remarks and

Thank you for your continued professional courtesy. It is no fun becoming a litigation target as the result of your clients' widely-discredited tactics. Although I have a client to represent, I will do everything I can to keep that aspect of the case at the lowest level possible. You have a hard-nosed client to represent too; and I completely respect that.

Merl Ledford III

An Email Transmission of
LEDFORD LAW CORPORATION
805 West Oak Avenue
Visalia CA 93291-6033
Vox 559.627.2710/Fax 559.627.0717
Web Site: LedfordLaw.net
"Team-Based Transactions & Business Litigation in State and Federal Courts"

* Document published online at Internet Law & Regulation

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