The Sex.Com Chronicles, by Charles Carreon

For the sake of ornament and illumination.

Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:33 am

Back Cover

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Suppose you found something that turned out to be worth $15,000 a day? And what if before you ever saw a penny, someone stole it from you and pocketed all the money for himself? What would you do to get it back?

With his Stanford MBA and knack for online business, Gary Kremen had been featured in both Fortune and Forbes magazines before he turned 30. In March of 1994, when he registered Sex.Com, Gary had no idea his world would soon collide with the criminal career of Steven Michael Cohen, a conman doing time in Lompoc Federal Penitentiary. Shortly after his release from Lompoc, Cohen stole Sex.Com with a forged document. But when Gary sued to recover his property, the courts turned a deaf ear to his claims -- that is, until Gary met Charles Carreon, an Oregon trial lawyer with "muleskinner wisdom." Cohen had met his match!

"A white-hat warrior lawyer saves a case plunging headlong to disaster and pilots it to victory. We all need to learn this trick. Carreon should win more cases and write more books!" -- Brian Kenny

"Once I started reading Carreon's story of the brutal battle for Sex.Com, I couldn't put it down." -- Hal Meyer
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:34 am

FOREWORD

“It is by his courage, please observe, by his courage alone, that a gentleman can make his way nowadays. Whoever hesitates for a second perhaps allows the bait to escape which during that exact second fortune held out to him. You are young. You ought to be brave for two reasons: the first is that you are a Gascon, and the second is that you are my son. Never fear quarrels, but seek adventures. I have taught you how to handle a sword; you have thews of iron, a wrist of steel. Fight on all occasions. Fight the more for duels being forbidden, since consequently there is twice as much courage in fighting.”

Thus did D’Artagnan, a fictional warrior as real as any history has created, receive his patrimony. For young men without wealth or titles, the only way up was to possess fighting skill, and the courage to apply it. Three hundred years ago, I might have taken the soldier’s route to fortune, but since the days of Dumas, we have evolved an alternative to bloody combat in search of profit. Affluent people have decided it is easier to retain wealth when open bloodshed is not the norm. This trend toward non-violent conflict resolution has become popular with almost everyone except gangsters and heads of state. Consider this: However angry Bill Gates ever got at David Boies over the Microsoft lawsuit, it was only in fantasy that Gates may have contemplated putting together a hit squad to kill Boies and his team. With billions of dollars at stake, and the prestige of the richest man in the world on the line, no one pulled a gun, no one detonated a bomb, no one took hostages.

Why? Because the wealth and power at stake were legitimate dollars and socially-approved prestige. If Bill had used homicide to accomplish his goals, he would have forfeited the game; indeed, to the extent that we perceived him as an arrogant man who presumed to write his own rules, he lost prestige. Membership in civilized society was more important to Bill than absolute power, because without the approval of society, he couldn’t play in the world’s biggest game.

In the legal war over Sex.Com, my client Gary Kremen and I defeated Stephen Michael Cohen, who had leveraged himself into the financial big leagues with a single criminal act—stealing Sex.Com from Gary. He used the money from the theft to buy the appearance of legitimacy. When Gary sued him, he deployed the legal system with merciless effectiveness in an effort to defeat Gary’s claims. There was nothing unusual about this. Theft by deception, the laundering of wrongful gains, and the employment of lawyers to make theft secure, are standard operating procedure in the half-world of criminality and business that found a home on the tech frontier. Sometimes CEO’s are con men and bankers are thieves. Professionals can be found to defend almost any scheme. What was unusual was that Gary and I fought and won.

On November 27, 2000, Judge James Ware took Sex.Com from Cohen, and gave it back to Gary. On August 30, 2002, with one sentence, the U.S. Court of Appeals for the Ninth Circuit put an end to Cohen’s misuse of the courts, dismissing his appeal. The court stated: “In light of Cohen’s status as a fugitive from justice and his egregious abuse of the litigation process, we exercise our discretion to dismiss his appeal pursuant to the fugitive disentitlement doctrine.” To avoid the effect of a $65 Million judgment, Cohen had moved all of his assets offshore, abandoned a $3 Million home in San Diego, and made his permanent residence in Mexico. He failed to appear in court even when Judge Ware issued a warrant for his arrest. He chose to be a fugitive, so the court refused to listen to his claims. Years after the verdict had become final, he was arrested on the outstanding warrant, and was released only after serving over thirteen months in federal custody for refusing to disclose where he had hidden the money he derived from Sex.Com. When you have read the story, I suspect you’ll agree that Cohen never reckoned all he stood to lose from his encounter with Gary. As it happened, notwithstanding Cohen’s gift for taking the measure of men, Gary and I fell outside the ambit of his experience. We were warriors.

Our world, far from being a tidy one in which we can trust the law and authorities for protection, is a ground of endless contention. Whether we fight with words and proof, or with weapons of destruction, there will always be tragic outcomes, unfair successes, and outrageous results. Might never makes right, and victory cannot cleanse the taint of injustice. For right to have a fighting chance, it must be at least as smart and hopefully tougher than the forces posed against it.

Most trial lawyers have heard they should study Sun Tzu’s The Art of War, Clausewitz’s On War, and Machiavelli’s The Prince. It is good advice. Trial lawyers have inherited a role derived both from the medieval tradition of trial by combat, and the 18th-Century tradition of deductive reasoning. The duty of loyalty to the client harks back to the early days, when a man in trouble sought a champion rather than a scholar. Most clients still judge their lawyer’s worth primarily by his commitment and zeal. It is a fair standard by which to judge, because it measures their courage, without which right and justice are substanceless words.

To courage, the advocate must add skill gained from study and practice. Finally, there is that essential ingredient—resources to pursue the battle. Then, perhaps we can have a fair contest, one fair enough that we would all lay down our weapons to play, secure that our fortunes are better determined by the application of rules and argument than on the all-destroying fields of war. To inspire those who wish to fight for right, to help train warriors old and young, and to share my love of the lore and legend of strategy, I have written this book. May your weapons always be sharp in the service of the good.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:34 am

PIZZA IN OJAI

When I first met Gary Kremen, it was a beautiful day. I had been delighted to receive a phone call from my old friend Robin Kaufer, with whom I graduated from UCLA Law School in 1986. Since then, she’d earned an advanced degree in tax law and become an IRS lawyer. Not exactly what I expected from our days at UCLA, riding motorcycles, worshipping The Ramones, and holding poetry readings in the law school courtyard, but she’s still got her kinks. Robin said she was coming through town with a friend on the way to a party in Santa Monica, and since her friends were usually smart and made good conversation, I was anticipating their arrival.

It was the summer of 1999. I was living with my wife and two of our three kids, Joshua and Ana, in a two-bedroom apartment in Carpinteria, California, a beachside community a few miles south of Santa Barbara. We had recently arrived after six years in Oregon, and I was looking to set up a criminal defense practice in Ventura County. Local legal gossip told me the prosecutor was overzealous, filed lots of cases, and was doing everything possible to help defense attorneys earn a living. Sounded good to me.

I opened an office in Ojai, a little town about 20 miles inland from Carpinteria, and a nice motorcycle ride from our apartment. The office was tiny, but had high-speed Internet and a Ventura County phone number, so I figured I was ready for business. I was re-contacting old L.A. buddies to see what I could stir up, working on a couple of Oregon cases, and living on savings while things picked up. My son was working at Starbucks, my wife was working as a legal secretary, and my daughter was working as a page at the Santa Barbara Library. I was doing laid-back things like meeting my wife for lunch with homemade sandwiches, picking up my daughter after work, and occasionally doing research on the Oregon cases.

I did my research in the old library at the Santa Barbara Courthouse. Outside the courthouse, a plaque commemorates the arrival in 1776 of Francisco DeAnza, the Spanish explorer who pioneered the overland route from Sonora to Spain’s coastal settlements. I was pleasantly surprised when I saw the plaque, because while DeAnza is a noted historical figure of the American Southwest, since childhood I’d thought of him as the man in the portrait on my Aunt Pearl’s living room wall, with the big feather in his military hat. My aunt commissioned the picture because he is a direct ancestor on my mother’s side. My mother and aunt were named Ainsa. DeAnza married into the Ainsa family as the fortuitous result of his search for relatives of his same name.

The Santa Barbara courthouse is a jewel, a large two-story building with white stucco walls and clay-tiled hallways. Broad spiral staircases at the corners of the building open onto the lawns of an expansive courtyard where weddings are often held. In courtrooms, immense murals record the progress of the California settlers, beginning with the gold-helmeted Spaniards wading ashore from their vessels anchored in the bay. In the large courtrooms the air is scented with leather and fresh sea air, which circulates freely through the building. I sometimes sat looking at the bold figures of conquistadors in leather armor, bearing muskets and crosses, planting vines and mining gold, and felt the thought stirring: What lands might I conquer?

Robin called from her cell phone on a Saturday morning, and I spun down to a parking lot in downtown Carpinteria to meet her and the mystery friend. The first thing I noticed was the car. It wasn’t Robin’s car. She wouldn’t drive something like that. Her style was more the classic tangerine Porsche 914 she’d babied for years. This car was an old, beat-up Honda, with body work that looked like it had been done in the parking lot at the beach by a guy with a bucket, a can of bondo and a pack of sandpaper. The stereo had been ripped out, leaving a couple of wires protruding. The interior was the essence of grungy. And the owner was Gary Kremen.

Impish is the only word to describe him in those days. His constant mannerisms were emitting outrageous remarks punctuated by a playfully malevolent smile and questioning eyes. His grinning face, shining with mischievous glee, surmounted a nebbishy bulk that he nevertheless whisked about with considerable energy. I found it impossible not to like him.

Since it really wouldn’t be out of the way, we agreed to take a day trip to Ojai so they could see my office. Tiny as it was, I was proud of it, and mention of the high-speed Internet connection piqued Gary’s interest.

It’s a nice drive from Carpinteria to Ojai. You leave the fog behind, rising into the hills to the mirrored expanse of Lake Casitas, a large drinking water reservoir in which swimming is not allowed (but boating is). Then you descend into the warm Ojai valley, which sports such attractions as wall-to-wall orange groves, a few nice restaurants, cheap office space, a new-age community, and a famously pink sunset.

We had lunch together, my wife Tara, my daughter Ana, Robin, Gary and I. Between bites of Hawaiian-style pizza, Gary spoke the fateful words: “I was the first person to register Sex.Com.” He had been first to register it, he said, but a convicted thief by the name of Stephen Michael Cohen had stolen it using a forged letter. Cohen, Gary said, had done forty-six months in Federal Prison for fraud and other crimes, and had stolen the name shortly after his release in 1995. The story sounded screwy, but I make it a policy not to say that to a prospective client. Gary said he was disappointed with his lawyers, because they weren’t doing a good job. He was particularly annoyed that they weren’t interested in playing up Cohen’s criminal past, which seemed to him like a trump card. He hadn’t chosen his own lawyers, because the litigation was being financed by other people, but now he had money, and wanted control of the strategy. He wanted lawyers who would listen to him, and most importantly, win the case.

The wheels started turning instantly in my mind. This was 1999, and the dot-com skyrocket was gaining altitude. I was excited about the legal issues. Back in 1995, my Ashland office landlord, Lance Pugh, had put a bug in my ear about the Internet. Lance is a red-headed, fast-talking, forward-thinking, big-idea kind of person. He was one of my first business clients as a sole practitioner; indeed, I paid Lance half my rent in legal services. So he would routinely barge into my office, waving a copy of the Wall Street Journal, and start holding forth about how the Internet was going to change everyone’s business life, and I needed to get on the bandwagon now! Sounded like a great idea, but finding Internet clients in Southern Oregon wasn’t easy. Now here I was, talking to a real Bay Area dot-commer.

Gary was sitting there across from me at the table, grinning. Was he setting the hook, or was I? I looked him dead in the eye and said, “This is the case I’ve been waiting for.” I didn’t know how right I was.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:34 am

THE HARDER THEY COME

Sex.Com preyed on my imagination. As I read the LA Times at the Starbucks down the street from my apartment, it was all dot-com news. Barry Diller was paying homage to the new magnates, admitting that he admired their ability to painlessly raise the billions that he couldn’t pull in with all his media assets. Opportunity was knocking loudly, and I was eager to see its face.

Down at the Santa Barbara library, I did a little research. The legal issues were open. There were no court precedents about the nature of domain names -- were they property or not? What happened if you stole one? I started reading the news more carefully for domain name stories, and every one was about how valuable they were -- selling for hundreds of thousands, even millions of dollars. And Sex.Com was the world’s most valuable domain name. A guy could become somebody with a case like that.

A case like Sex.Com doesn’t often come to a sole practitioner, but here was an opening. Gary was offbeat. I was offbeat. He was a bit of a loner, and so was I. His big money lawyers were letting him down -- so try a street fighter on for size. Gary knows how to convey the impression of wealth. The junky car and sloppy clothes were part of the impression. I thought he could pay for the work, and even if he couldn’t pay for all of it, there was always taking a share of the name. I waited for Gary to call back after our meeting, but he didn’t.

A couple of weeks later I phoned Gary at his office on Montgomery Street in San Francisco, just a block downhill from that section of Broadway where the bars have names like “Centerfolds” and “The Garden of Eden.” He said he’d been meaning to call me. I said I’d be passing through on my way to Oregon to cover a criminal case, so we made a date to get together. When I arrived, about a week later, he showed me around his office in the afternoon, and then we went to pick up Robin, who was getting off work. Together we enjoyed refreshments at a fish and brew place on an industrial wharf, the sort of gritty amenities Gary likes.

After drinking a few beers, we headed over to Gary’s apartment, a nice walk-up on Fulton Street in Haight-Ashbury. Gary was sharing the apartment with an Asian accountant/tech-nerd/pizza gofer named Bob Deschl, and Ella, a hefty African-American woman social worker. Bob and Ella were nice, and sometimes we’d all eat take-out together in the living room. But on this day, they cleared out of the living room and left Gary, Robin and me to discuss business. Robin helped us do this by sitting very quietly on the floor by the coffee table, being her tiny pleasant self, while Gary ruled the room from a seat on the couch, surrounded by a pile of Wall Street Journals and Barron’s financial news, which he read at breakneck speed, one page after another, while tossing off difficult questions with practiced ease.

After he threw me a question, his eyes would dart back to the print, and he would start flipping pages. When I returned an answer, his eyes would pop back up, stabbing like headlights on bright, and he would instantly ask another question that he had formulated while apparently reading the paper. It was like playing tennis close to the net with a guy who had an evil slam that he was constantly directing toward your backhand. We were playing a game in which it was necessary for me to rack up points, or this thing was going nowhere. The good thing about Gary is he pretty much has his scoreboard right out where you can see it. He lets you know when he likes what you’re saying. He gives feedback and pushes for the next right answer. If you said good things, he would question the positive assessment by asking about downsides, weak points, and pitfalls. Happy talk would not make this man happy.

What made Gary happy were the little things. Months later he said the thing that impressed him the most was the pocket copy of Sun Tzu’s The Art of War that I always kept in my briefcase. He also liked the fact that I had a chrome-handled lock knife with a slender four-inch blade that I used to perform minor cutting tasks. Besides playing with knives, my other sports are fencing and archery. He also liked these things.

That I was an Oregon lawyer also had appeal for Gary, because Cohen’s lawyer was based in Oregon, and had played a difficult opening hand with remarkable skill. When Gary’s lawyers started work on the case, they predicted easy victory. Apparently Cohen hadn’t heard he was supposed to lose. Bob Dorband of Duboff, Dorband, Cushing & King, a Portland intellectual property firm, had been scoring devastating hits against Gary’s case. I had read the paperwork, and there was an Oregon slant to Dorband’s approach. His papers were spare, to the point, and armed with aggressive confidence.

Dorband had put Gary on the run by taking a daring tack, calling Gary himself a con man who was trying to steal Sex.Com. Gary was a come-lately who wanted a chunk of the Internet sex action, a pornographer wannabe looking to take what Cohen had earned with honest sweat. The accusation stung Gary painfully, and I rallied him to repudiate this lie. I called Dorband’s lawyering “smallpox blankets and firewater,” harking back to the days when lawyers, miners and railroads used phony deeds and bio-warfare to steal native land. How the West was really won. It was sneaky and dirty. Like the old rail barons, Cohen had produced a phony deed to steal Sex.Com. Gary needed a skilled civil lawyer with criminal experience and the ability to take the case all the way to trial. California civil lawyers have little familiarity with criminal conduct, but as a prosecutor in rural Oregon, I had convicted many people of forgery and theft. These California never-tried-a-case lawyers didn’t have the stuff to get down and go for the knees like I would. Gary needed to hire someone with Oregon frontier savvy. Muleskinner wisdom. Someone like me. Have gun, will travel.

Gary liked my attitude. He also liked the fact that I was willing to sleep on his couch from the first night. I logged many other nights on that couch, generally five-hour stretches between two and seven, spent under a bare blanket with my head on an armchair pillow. In all fairness, Gary often offered to swap me for his bed, but that offer never seemed too appealing. Better an early dawn through the uncurtained street-side windows than a sojourn in the place where Gary formulated his dreams and nightmares. When dawn broke over Fulton Street the next morning, we had forged a bond. After coffee from the latte shop on Fulton we agreed I would return soon.

I returned a few days later, on my way back from Oregon, and he introduced me to one of his lawyers, Sheri Falco. She was working at his Montgomery Street office, and provided me with a copy of her file. This file wasn’t complete, I soon discovered. It lacked the court documents showing that Katie Diemer, local counsel in San Jose, had missed a crucial deadline, putting the case a hair’s breadth away from final dismissal, and was now trying to get out of the case. Sheri was also trying to get out of the case, because Gary’s litigation financiers had actually sued her, she said, although she didn’t have a copy of the lawsuit. Gary wanted to be sure that I wasn’t going to back away from the case if I were sued, and I assured him that first of all I would avoid the missteps that had led to the current representation problems, and second, since any such suit would be meritless, it would not affect my commitment to the case. Subsequently, when Cohen sued me, I lived up to this promise.

After another late night session of questioning and case strategy, Gary popped his proposal. Fifteen percent of Sex.Com in exchange for full-time work on the case. I explained to him that fifteen percent sounded great, but full -time was not an option, and I had to be paid hourly for my work. Considering the minimum I could take and still keep afloat with this monster case, I suggested fifteen percent plus $100 per hour and expenses. Gary took it under advisement and made an appointment for us to have a breakfast meeting the next day with his personal attorney, Steve Sherman.

The next morning at breakfast Steve was polite, but did not welcome my appearance on the scene. He had been presiding over the demise of the case for some time now, and had plans for the future. As I later learned, he had monitored the breakdown in communications that lead to Katie Diemer’s inaction on the case. He knew that the breakdown in relations between Gary and the two pornography financiers lay at the root of the problem. He was ready to hand the seat that Katie wanted to vacate to some lawyer friends of his, and expected to broker the relations between Gary and new counsel. My appearance wasn’t likely to put any money in his pocket, or the pockets of his friends. So why would he like me?

Steve is an equivocator. He just can’t say “yes!” To him every cup is potentially a sieve, and he thinks lawyering means pointing out the many routes to failure. He did not want Gary to hire me, but had no answers for Gary’s problems. So, squinting and shaking his head to communicate incomprehension, he suggested to Gary that it seemed unlikely a person in my position could contribute anything to the case. From Ojai? That was a long way from the courthouse. From Oregon? What was that about? Oh, Robin Kaufer was my UCLA chum. Ah, that explained it.

I began my assault on Steve’s authority by trotting out my credentials. Top 25% at UCLA Law, 1986; worked for the mega-firm Morgan, Lewis & Bockius for my first two years; then did trademark litigation for Louis-Vuitton at the L.A. office of the New York city firm of Reboul, McMurray, Hewitt, Maynard & Kristol. My last three years in L.A., I did plaintiff trial work at Mazursky, Schwartz & Angelo, a personal injury and insurance bad faith powerhouse with three famous partners who all had multi-million dollar verdicts to their credit. Admitted in both California and Oregon, I’d tried around sixty cases, chalking up wins in both states. I’d worked as a Deputy DA in Oregon, and was the first appointed member on the local Federal criminal defense panel. My civil caseload was all business litigation, and I was very excited about the Internet as an emerging area of practice.

Steve’s resistance was a godsend. Gary could see Steve couldn’t see the gameboard or the pieces, and worse yet, lacked the will to fight. I unholstered my best sardonic attitude to attack Sherman’s naysaying. This was just a matter of modeling Gary’s style of putting the other guy on the defensive with pointed questions. Gary loved it. Sherman staggered.

Questioned later under oath whether this had been a “breakfast meeting,” Sherman had this answer: “I ate breakfast.” True as to me: I stuck to coffee, but in those days Gary rarely let a full plate get away from a table, so I’m sure he ate my food. Who cared about eating, anyway? I was hungry for business, and was pretty sure I had sewed up an arrangement with Gary. Later that day, at the Montgomery Street office, he gave me a three-thousand dollar check to investigate the case, and tell him how I would win it.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:35 am

THE STARLIGHT SPECIAL

Arriving back at my Ojai office, my ordeal began. Gary tested my mettle by forcing me to run a gauntlet of five to fifteen emails a day, with follow up telephone calls to discuss each matter. My reply skills won his approval and soon I was on my way to San Francisco for a third time, riding the Starlight Special, the slowest train in the United States. It runs up the coast of California and is clearly intended as a tourist ride. The trip gave me a chance to read Gary’s deposition.

Depositions, as everyone undoubtedly knows by now, are where the witness is put under oath, in a lawyer’s office, and questioned ad nauseum in order to extract concessions. In Gary’s case, the second day of depositions had been abruptly terminated by his attorney after Gary committed several verbal missteps. I understood why Gary did not want to resume his deposition.

On the good side, it was clear Steve Cohen had stolen Sex.Com. What Gary testified to, and turned out to be the gospel truth, was the following:

• He was an Internet pioneer, with a degree in engineering from Northwestern and an MBA from Stanford.

• On May 9, 1994, using the Internet and certified mail, he registered the domain name Sex.com in the name of “Online Classifieds, Inc.,” a business name Gary was using at the time, without ever incorporating. Gary paid zero dollars for the privilege of registering the name.

• His business plans never got farther than one page of doodles, and he never created a website to use Sex.Com. He may have sent email a couple of times through Sex.Com, just to test and see if it was working.

• Shortly after October 17, 1995, Kremen discovered that the registration to Sex.Com was no longer his, when a friend told him that the WhoIs database did not indicate that he was the owner.

• Gary checked the WhoIs himself, and discovered the fateful news. Sex.Com was now registered to Sporting Houses Management Corporation, a Nevada corporation, whose registered agent was Stephen Michael Cohen.

• Further inquiries to the domain name registrar, Network Solutions, Inc., (“NSI”) led to further unpleasant discoveries.

• NSI sent Gary’s lawyer a copy of a letter on Online Classifieds, Inc. stationary, authorizing NSI to transfer the domain name to someone named Steve Cohen. But it was not the real company stationery, which had a custom logo and a different typestyle.

• Strangest of all, the letter was signed by “Sharon Dimmick, President of Online Classifieds, Inc.,” one of Gary’s former roommates, who had never been employed by Online Classifieds, Inc. in any capacity. Further, Dimmick’s first name was misspelled. She spelled it “Sharyn.”

Riding in the Starlight Express, which is so named because you coast into San Francisco at about 25 mph, sipping on the sun setting over the ocean waves as the hours drift away, I felt optimistic. But I also felt a twinge of fear. Assuming Gary’s story to be true, Cohen was one of the most brazen people in the world. He was a forger, a liar, and as Gary had repeatedly emphasized to me, a convicted federal felon with a degree in bankruptcy fraud and attorney impersonation. I’d already seen Bob Dorband’s paperwork, and it was formidable. I had a fight on my hands, and not with any ordinary foe.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:35 am

WITH FRIENDS LIKE THESE...

In addition to Sheri Falco, Gary had two big-time lawyers working on his case -- Katie Diemer of Campeau & Thomas, a San Jose firm, and Joel Dichter of New York City. You would think three lawyers would be enough, but Gary had a problem. None of them were doing a damn thing.

The case had been filed in June, 1998, with legal fees being paid by two Internet pornography magnates, Seth Warshavsky and Ron Levy. Warshavsky, now a fugitive, was famous for putting Pamela Lee Anderson’s sexual adventures before the eyes of millions, and Ron Levy is the owner of CyberErotica, a large Internet porn site. Gary had agreed that if Seth and Ron paid the cost of suing Cohen, that all three would jointly own the domain name after victory. Seth and Ron had outbid famous porn loudmouth Serge Birbrair for this privilege. The agreement became well-known in the porn industry as a result of postings on the infamous LukeFord.com website. Ford wrote that Gary was a “big dummy,” a quote from Gary’s own video testimony, which Ford viewed thanks to Cohen. Gary had called himself a “big dummy” when asked whether he was known by any other names besides “Gary Kremen.” Gary turned a simple question about aliases into an opportunity for self-deprecating humor. Which Luke turned into an admission of stupidity. It takes a journalist. Everyone in “the industry” read Ford’s website in those days, so everyone knew about the agreement. The problem was, said Gary, Levy and Warshavsky hadn’t been paying the bills, and the lawyers weren’t doing any work.

The case had started out well enough. Sheri Falco got a signed affidavit from Sharyn Dimmick stating under oath that she had nothing to do with Online Classified’s letter to NSI, and hadn’t signed it. Sheri also confirmed with Dimmick what Gary had said about their “relationship.” There never was one. Kremen had rented a room in Dimmick’s rent-controlled apartment at 252 Cole Street, the two had never gotten along, and Gary had moved out. Indeed, as later investigation would show, Dimmick was not even living at 252 Cole Street on October 15, 1995, the date of the forged letter.

Then Joel Dichter decided to do a strange thing. Apparently he believed that because the Sex.Com registration was in the name of Online Classifieds, Inc., the company should be a plaintiff in the lawsuit. One problem only -- there was no such company, because Gary had never incorporated.

So, before filing the lawsuit, Dichter created Online Classifieds, Inc., a Delaware corporation, because there was already an Online Classifieds, Inc. registered in California. I wouldn’t necessarily disapprove of that strategy, if you would just do one additional thing -- have Gary assign his ownership of Sex.Com to Online Classifieds, Inc. It’s nothing new for an individual to acquire property for the benefit of a corporation that they intend to create, and then later to give the property to the corporation after it is formed. This is called “assigning the rights,” and it would have made the new Online Classifieds, Inc. the owner of Sex.Com by either of two directions -- owning it directly based upon the registration, or owning it through Gary Kremen based upon the assignment. Dichter didn’t do this.

On July 10, 1998, Gary’s lawyers filed his original complaint, naming Online Classifieds, Inc., a Delaware corporation as a co-plaintiff, along with Gary Kremen. Cohen was on the mistake like a hawk. He knew how to search corporate databases. He knew Online Classifieds, had not been incorporated anywhere at the time of the original registration. He got the Delaware incorporation documents to prove it.

Cohen’s lawyer, Bob Dorband, filed a motion to dismiss Online Classifieds, Inc. from the lawsuit on the grounds that it didn’t even exist when Gary registered Sex.Com. Gary had no assignment to present in response to this argument; accordingly, Judge Ware ruled that Online Classifieds, Inc. was not the “real party in interest,” and had “no standing” to sue Cohen. And Dichter stood there looking like Wile E. Coyote from the Roadrunner cartoons -- still holding his exploded stick of dynamite, while Cohen disappeared around the bend with a final “Beep-Beep!”

The Online Classified, Inc. issue created more problems later, at Gary’s deposition. According to the correspondence I’ve read, Gary failed to meet with his lawyer to prepare for his deposition on several occasions. Therefore, no one had explained to him the strategy that had led to the creation of Online Classifieds, Inc., or if they had, he couldn’t remember it. Since Online Classifieds, Inc. had been dismissed from the lawsuit on the grounds that it had no standing, it was essential to stick with the “no assignment” story. Nevertheless, on the second day of his deposition Gary testified that he had in fact assigned the rights to Sex.Com to Online Classifieds, Inc., a Delaware corporation. By this blunder, Gary put himself on a spot that the judge had already declared a dead zone. I’m sure at that moment Dorband literally thought, “Checkmate.”

What Gary was thinking at that moment is one of life’s unanswered mysteries. As a lawyer once said in a luncheon during my early years: “If your client is just not getting it in deposition, and the answers are killing you, as a last resort you can always take your cigarette lighter and discreetly set his chair on fire.” I’m sure that when Gary testified he had assigned Sex.Com to Online Classifieds, Inc., Katie Diemer would have been willing to soak him with lighter fluid and ignite him with her Bic, if necessary. As it was, she hustled him out of the room, got him back in long enough to say he didn’t understand the meaning of “assignment,” and adjourned the deposition in a flurry of acrimony. I bequeath to Katie my golden cigarette lighter, for in this, she did well.

After that encounter, Katie was shell-shocked. When we talked on the telephone, she had little confidence in the case. Her early correspondence with Dichter had expressed great confidence she would achieve a swift victory, but a series of reversals had attended her efforts. Judge Ware had dismissed Online Classifieds, Inc., and additionally, had dismissed Gary’s claims for fraud, racketeering and unfair competition. The forged letter wasn’t a fraud, Judge Ware ruled, because Cohen hadn’t used it to deceive Gary. Even though Cohen was a convicted felon, and what Gary had alleged was a theft, this was not “racketeering” within the meaning of the statute. Finally, the theft of the domain name wasn’t an act of “unfair business competition” because it hadn’t caused any injury to “consumers.” These were important claims. Katie’s head must have been spinning.

Past experience told me that Katie was trying to convince herself that the client’s lawsuit was worthless, and thus if the case were dismissed, it would cause no real loss to Gary. This is a common syndrome among attorneys who are tiring of a difficult case, since the law provides that even if a lawyer commits malpractice, the client must still prove that competent representation would have put money in their pocket. Katie was clearly trying to convince herself that even if Gary had hired Daniel Webster, Clarence Darrow, Gerry Spence and Johnny Cochran, he would never have recovered Sex.Com.

The waiting room in hell is papered with documents that lawyers forgot to file. Most commonly seen among them is the fabled “Opposition to Motion to Dismiss.” On November 12, 1998, Cohen filed a Motion to Dismiss Gary’s second amended complaint. When it landed on Katie Diemer’s desk, she went missing. She never filed an opposition. Not filing opposition to a motion to dismiss is roughly the same thing as walking to the center of the ring, hands down, eyes closed, waiting for the knockout punch. When I finally got my hands on the motion to dismiss, and learned what Katie hadn’t done, I pointed out to Gary that he was about to be knocked out. Gary started pounding the table, demanding to know why an opposition had not been filed. As a result, Katie asked the judge for more time to file an opposition to the motion to dismiss.

I have seen some good excuses for not filing papers on time, but Katie Diemer’s absolutely takes the cake. Her motion for more time to respond to Cohen’s motion to dismiss said that she had negotiated an extension of time with Bob Dorband, or thought she had, but couldn’t remember for sure because she had had a hockey accident, and had memory problems. Judge Ware, a kindly and understanding jurist who overlooks the foibles of attorneys as part of his general procedure, granted the extension. That gave Katie until July 12, 1999 to file an opposition to that dreaded motion to dismiss the second amended complaint. Through that brief window of time, daylight shone for me.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:35 am

WHAT MORAL HIGH GROUND?

At that breakfast meeting with Steve Sherman, one of my pointed questions was whether we had seized the “moral high ground” in the case. Steve seemed perplexed. His face twisted into a mask of near disgust. “What moral high ground?” said Steve, “This is pornography!” He seemed revolted by the perverse nature of the question. I learned something there. Gary’s lawyers were weak because they were apologizing for the case. They were ashamed of their product. They didn’t want to be seen in public with Sex.Com. I pointed out to Steve, in California-speak, that theft was immoral: “Like, uh, Thou Shalt Not Steal?” Steve rolled his eyes.

But besides the fact that Cohen was a thief, there was a far more valuable moral high ground to seize. In 1999, Gary was not, and had never been, a pornographer. It was entirely unfair for Gary to be tarred with the porno-brush simply because Cohen had chosen to make Sex.Com the cornerstone of international online sex sales. When I met him, Gary was a bit ashamed of the case. He preferred to make money in regular business. He was a business consultant and a new technology engineer. He’d been written up in Forbes magazine and other publications as a tech visionary. He wanted to sit down with venture capitalists and corporate attorneys to craft billion-dollar deals. He didn’t want to have to explain that on one day in May, 1994, his dirty little mind had told him to register Sex.Com. More important, he didn’t want to talk about how he was willing to fight to regain control of the name, presumably to get his hands on all that porn revenue.

Cohen, of course, had no compunction about being the king of sleaze. Covered in slime, he extended the warm hand of greeting to Gary -- “Come,” he seemed to invite, “join me in the mud to fight for the Queen of Sleaze.” Cohen was confident that Gary would eventually slink away, like a john whose wallet is stolen by a prostitute. And this, I learned, is the great achievement of a good confidence man -- his victims go quietly to avoid humiliation. We had to escape the stigma that attached to sex itself, which made Gary and Cohen look, as I told Steve and Gary, like “two junkies fighting over a dime bag.” Your average judge or juror might throw up his hands and just say, “Who cares? It’ll kill you both!” Gary had to get out of the business of slandering himself by the very act of pursuing the lawsuit.

Having read Gary’s deposition carefully, I knew there was no testimony about how Gary would have developed the site if Cohen hadn’t stolen the name. During two days of depositions Cohen and NSI’s lawyers never asked Gary what he would have done with the site. I assume this was because they thought just like Steve Sherman -- of course Gary would have turned the site into a porn portal. There were no documents indicating that Gary intended to create a porn site. Attached as an exhibit to Gary’s deposition there was just one scribbled page of a “business plan” in Gary’s typical scrawl, with references to “sex workers” and other vague terms on it. I read those deposition transcripts carefully, and in the end I was comfortable -- my plan could proceed without risk of contradiction.

We were free to announce to the world what was obviously the case, but everyone had overlooked -- that Gary Kremen, the Stanford MBA and Internet visionary, the originator of “Match.Com,” the world’s largest matchmaking site, would have developed Sex.Com as a “public health, woman-friendly site” à la “Dr. Ruth” or “Dr.Koop.Com.” And when that fetched a belly laugh, we hit ’em with the backup punch -- don’t laugh: it would have made good business sense, because instead of harvesting a few million porn-dollars, Gary would have developed a public company and harvested hundreds of millions of dollars. In mid-1999, this argument was believable. Hell, I believed it. And Gary loved wearing his new white hat.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:36 am

THE IMPORTANCE OF BEING FIRST IN LINE

The cornerstone of Gary’s claim to ownership of Sex.Com was a simple principle known to every schoolchild– he was first in line. This principle is universally used to distribute benefits in a civilized society, and NSI had used it to distribute domains. If being first in line meant nothing, or if it could be overridden by theft, we were on the way to anarchy. Well aware of its importance, judges have boiled it down to a pithy aphorism -- “First in time, first in right.” The principle had often been applied to real estate and water rights, as in Yuba River Power Company, where the California Supreme Court held that the first person to register a water right owned the right, over and against a claim jumper who dug a ditch upstream from the original claimant’s point of diversion. Yuba River was an old case, though, dating back to the early days of California law, and no court anywhere had applied its holding to the registration of Internet domains, so the argument was far from certain to prevail. Still, as principles go, it was among the most solid, and I was determined to stake the case on it. Our entire system of resource allocations was built on it, so whenever anyone asked me why Gary should win the case, I had my answer ready -- he was first in line.

Katie Diemer had filed three complaints, and seen all three dismissed. She had adequately articulated Gary’s status as the first to register, but that alone was insufficient. We had to argue that by being “first in time,” Gary had become “first in right,” to hold the registration of Sex.Com. A magic word was required, and that magic word was “property.” Being first in line had given Gary property rights in Sex.Com, something that Katie’s complaints had never specifically alleged, even though the newspapers were daily announcing domains selling for large amounts of money. Wallstreet.Com had sold for $1 Million, and Business.Com for $7.5 Million.

This part of the argument was well supported by California law, that defines property as “everything capable of being owned.” Sex.Com was obviously capable of being owned, and the owner had the power to control the most popular webpage on the Net. The way I saw it, Sex.Com was a property magnet, drawing in other pieces of property in the form of credit card subscriptions to Internet pornography, bringing in $24.95/month. Sex.Com was a node, an in-drawing spiral galaxy of credit transactions generating a white hole of cash that was gushing into Cohen’s pockets. In June 1999, Cohen put out a press release that stated:

“Sex.Com boasts over 9-Million members who pay $24.95 per month for access to the world’s largest sex-related Internet site, which receives more than 146-Million unique ‘hits’ daily. Advertisers on the 1,000-page-deep porn site pay up to 1.5 Million monthly to display their banners. For premium ad space, there is a waiting list of over one year.”

You do the math. That’s a lot of money for a country boy. The way I saw it, all of those credit card transactions were Gary’s property. It’s an old principle in property law that property owners hold not just the rights to the property itself, but all “appurtenant” rights. In other words, you don’t just own the cow, you have a right to the milk. So if property is wrongfully taken, the owners should receive “restitution” of everything that was lost -- not just the cow, but all of the milk the thief got from her while they were deprived of possession. Why? Because any other rule would encourage people to steal, by allowing them to keep all the benefits produced during the time they held the property unlawfully.

This theory of restitution had not been emphasized in the prior complaints. However, it was very clear that under the California Unfair Business Practices Act, the court could order restitution of money wrongfully obtained.

Restitution was essential to Gary’s case, because it would have been impossible to show that Gary would have made anywhere near the money that Cohen made from operating Sex.Com. Cohen, after all, was a criminal, familiar with the adult industry and its profit potential. He knew the players, didn’t take crap from anyone, and made money with the ruthless effectiveness of a con man who wouldn’t know regret if it ran over him in the street. Cohen allowed some of the hardest core pornography to be shown on Sex.Com without even a cursory check to determine whether the user was an adult.

The theory of restitution says that if you let the people keep the profit they make from using stolen property, it will encourage people to steal, because they will get the value of the property for as long as they are able to hold on to it. To explain this better, I had a story. When I was a kid living in Valencia, Spain one summer, some guys stole the bus that ran from town to the beach. They operated the bus all day long, and collected all the fares. At the end of the day they were arrested. Do you think the judge just gave the bus back to the bus company and let the thieves keep the fares they collected? Of course not. The bus company owned the bus and the fares.

Pushing the property angle improved our claim against NSI. If Sex.Com was property, and Gary was the owner by virtue of being the first to register the domain name, then NSI should have some obligation to Gary to protect his property from being transferred to another person without his permission. Just as there had been a land rush on the American frontier, there had been a land rush in cyberspace. Gary had been an early prospector, who identified a valuable claim and staked it. NSI had been hired by the government to serve as the land office in cyberspace. When Gary recorded his registration, NSI assumed a duty to dispose of that property only according to his wishes, because he had sole authority over it as the owner.

These rules of law go back a long ways. It is well established that if you leave personal property with someone to take care of, such as a horse or a saddle, they have a duty to take care of it for you. This makes you the “bailor,” and the person receiving your property the “bailee.” When someone performs a bailment for pay, that is called a “bailment for consideration,” and if the bailee mistakenly gives the property to the wrong person, they are responsible for conversion of the property. Liability for conversion is pretty much absolute. According to California case law, a parking lot attendant that gave a parked car back to a passenger to drive was responsible for conversion when the passenger crashed the car. It was no defense for the parking lot that the attendant was perhaps reasonable in releasing the car to the passenger. The terms of the bailment were that it should only be released to the person who deposited the car and had the ticket. The passenger did not have the ticket.

Significantly, in our case, neither did Cohen. NSI had granted Cohen authority that only Gary had. Gary created the domain name by thinking it up, deposited it with NSI for safekeeping by registering it, and as the administrative contact, was the only person with a right to change the registration.

Nevertheless, Katie had not pled a claim for conversion against NSI. Perhaps she thought that in order to be liable for conversion, NSI had to show some intent to convert the property, or some desire to join with Cohen’s wrongful intent. Lawyers unfamiliar with the law of conversion are apt to make this mistake, but I had tried a case in Portland a few years earlier in which my clients were charged with conversion, and I knew it to be a claim that is deadly in its simplicity. The absence of wrongful intent is no defense if the property was someone else’s, and it was taken without authority.

NSI had been well aware of the dangers that lay down the path if they ever admitted that domain names were property. NSI having been in the Internet business a lot longer than I, had firmly taken the position that domain names are not property. In a series of judicial decisions, NSI had gotten judges to agree that domain names were more like toll-free telephone numbers, which could also be arranged to read “1-800-Sue-Them.” Users of 800-numbers had lost the battle to establish 800 numbers as property long ago, and NSI had been pushing the analogy ever since. NSI suffered a brief setback when a Virginia judge found that domain names could be seized by creditors to satisfy a money judgment. However, a year later the Virginia Supreme Court reversed the decision, finding a domain name to be more like a telephone number than an item of personal property. Strangely enough, in mid-2000, NSI began appropriating and auctioning off the domain names of registrants who had failed to pay their registration fees. This seemed an awful lot like seizing property to satisfy a debt, but who am I to judge?

Indeed, it would be for Judge Ware to decide, and I was not excited by the prospect of going toe-to-toe with NSI over the property issue. Even as news stories heated up the environment with stories about domain names selling for five and six figures, I was acutely aware that the temperature in the courthouse was a few degrees lower.

I hit the books hard for days on end, digging through case law for rulings that would help us out. I found a few. In addition to Yuba River establishing a property interest in being the first to register a water right, there was Kalitta Flying Services, that determined engineering drawings were property subject to conversion. And there was Thrifty-Tel v. Bezenek, a case the judges grappled with the interface of technology and law in a case that could only come out of California.

Thrifty-Tel was a phone company that sued two kids who had tried to gain free long-distance access by staging a brute force attack -- firing huge numbers of random passwords–at Thrifty-Tel’s computer. The clumsy hack slowed the long distance system down considerably, which Thrifty-Tel alleged as damages in a suit for trespass. On appeal, a verdict for Thrifty-Tell on conversion was upheld, and the court explained that the cyberattack was a “trespass to chattels,” for which damages could be awarded. The kids had trespassed because each random number was a physical thing, an electron packet, trespassing on Thrifty-Tel’s computer. Since the computer was an item of personal property, not a parcel of real estate, what had happened was actually a “trespass to chattels.” The last time I heard about chattels was in the Taming of the Shrewby Shakespeare, when the husband tells his unruly wife that she is but a chattel. A more concrete example of trespass to chattels would be someone borrowing and returning a delivery-man’s bicycle. But here was the California appellate court, exhuming this ancient cause of action out of dusty books that no one had opened in a long time.

The court had gone back to the future to find a cybertort to fit the need of the day. Further research showed that trespass to chattels had turned out to be a handy cybertort. Intel deployed it successfully to prevent a disgruntled former employee from spamming Intel workers with negative information about the company. Judge Whyte in the San Jose courthouse had ruled in Intel’s favor in that case.

I agreed with the court’s conclusion in Thrifty-Tel v. Bezenek that random numbers are really packets of electrons, and that bombarding someone’s computer system is a physical invasion. I questioned Gary about how the Internet worked, forcing him to provide facts about the engineering and architecture of the system. Again and again I looked at the maps of the domain name servers, the long lines making a net over the globe, imagining the flows of communication as concrete data packets moving through telephone wires, fiber optic cables, Cisco routers, Sun servers, and into the offices, dens and garages of the world. I saw the faces of all those net-heads out there, basking in the monitor’s glow as they journeyed through cyberspace, the artificial world that we had created.

I’ve been reading science fiction since I was a kid, and still have my original paperback copy of William Gibson’s Neuromancer, where the word “cyberspace” first appeared in print. I knew that what happened to Sex.Com in this lawsuit was going to make a mark on the face of the Internet. Given the way that porn had taken to the Net, Sex.Com was obviously the world’s most valuable Internet domain name. Since value is a characteristic of property, the more valuable something is, arguably, the more likely it is to become property. Being the most valuable domain, Sex.Com presented the best-case scenario for a judicial finding that domain names are in fact property. The eyes of the world would be upon this case. Indeed, they already were.

The case had garnered major tech-media attention when Wired.Com published Craig Bicknell’s The Sordid Saga of Sex.Com just before Gary and I met. The article was favorable to Gary’s position, while expressing appropriate skepticism for what looked like a long shot. We wanted to maintain that buzz, and a good way to get more publicity about a lawsuit is to send copies of the complaint to reporters. So you want the complaint to be interesting, lively, informative, hell, well-written! Under California law, anything you say in a complaint is absolutely privileged, which means it cannot be the basis for a defamation lawsuit, even if absolutely false. So your complaint can be the basis of a news article about all the claims you have alleged. The complaint told the story of the origin of the Internet itself, Cohen’s criminality, his use of the forged letter to steal Sex.Com, and the fabulous wealth that was now flowing his way as the result of the theft. Following the lead established by Thrifty-Tel v. Beznick, I concretized everything. I described all of the electronic credit card transactions that were happening via Sex.Com as “data packets” that were appurtenant property of Sex.Com. I emphasized the relationship, as it were, between the milk and the cow.

I charged NSI with conversion on two grounds: first, that NSI was the bailee of Sex.Com for the benefit of Kremen, the bailor. Second, I alleged that NSI and Cohen had conspired to convert the Sex.Com domain name. This second allegation had a reasonable basis in fact, because Cohen had been quoted as saying that he had a “girlfriend at NSI,” who could get him any domain name he wanted. Gary had heard this from Lee Fuller, an adult website operator who had a cubicle next to Cohen’s at Midcom Corporation in 1995, when Cohen faxed the forged letter to NSI.

To strengthen our claims against Cohen, I built up the California Unfair Business Practices claim. This claim arises under California Business & Professions Code § 17200, a mainstay of California business tort law. This is a very broad statute that basically makes it unlawful to do anything unlawful. I’m not kidding. If you can find anything else unlawful that a defendant did, in a business context, you can probably also make a claim under California Business & Professions Code § 17200. And under that law, the court can grant you all kinds of fantastic relief. The court can order the disgorgement of unlawful profits. The court can grant attorney’s fees, and punitive damages. The only thing the court can’t give you is a jury trial on that claim. But that’s a small price to pay for all the other benefits.

Unfortunately, Cohen had scored an effective hit against the Unfair Business Practices claim, when he convinced Judge Ware that Gary had to allege some sort of injury to “consumers” in order to state an Unfair Business Practices claim. This was simply incorrect, but Katie had failed to counter it in her opposition to the motion to dismiss, and the judge had gone along with Dorband’s argument, dismissing the claim. I didn’t want to fly straight back through the opposition of the court’s prior ruling, and thus decided I had to allege some consumer injury resulting from Cohen’s operation of Sex.Com. So, I took a look at the Sex.Com site, clicked on the banners found there, and learned what I needed to know. Like other porn operators, the advertisers on Cohen’s site were engaging in mousetrapping, which causes a single click on the banner to trigger a sneaky bit of coding that commandeers your browser and funnels you into an endless loop of advertising banners from which there is no exit except to shut off your computer. After a mousetrapping session, your hard-drive needs a shower, and it is usually a good idea to delete all the temporary Internet files and reboot. You should run one of those pop-up purging programs, so that no innocent member of your family will be exposed to graphic sexual content. That sounded like consumer injury to me. Since it was common knowledge that the pornography site operators would often elicit and resell information such as birthdates, email addresses and credit information, I alleged this as a source of consumer injury. Finally, I alleged that Cohen was inflating advertising rates at Sex.Com by circulating inflated traffic figures via press releases. This qualified as consumer injury, because pornography sites are consumers of advertising.

I also gave the breach of contract claim against NSI an injection of steroids. This claim looked anemic, because the only documents that you could call a contract were the email registration from Gary and his certified mailing of the printout. Gary hadn’t paid to register Sex.Com, because registration was free. Any lawyer would look at it and say, “where’s the consideration?” When talking contracts, consideration doesn’t mean good manners, but rather Gary’s payment of something having value. If you don’t have to pay for your contractual rights, you don’t get any. Consideration can be as little as “a peppercorn,” but it must be there. In Gary’s case, I’d found a peppercorn of value. Although Gary hadn’t paid for the privilege of registering Sex.Com, he had surrendered personal information -- his name, phone number, email and home address. He thus became one of the ever-increasing database of domain name registrants that NSI’s initial public offering prospectus touted as a source of continuing value. Free registrations came swiftly to an end in mid-1995, and the registrants’ payment of fees became part of a swelling juggernaut of financial benefit that converted NSI into a stock market darling on the strength of registration revenue alone.

When you write a complaint alleging unusual facts that don’t fit the mold of past cases, you have to engage in imaginative pleading. To get past the complaint stage, you must recite the legal formula and confidently assert the things you hope to prove. It takes a lot of legal research and careful writing. In the four days before the filing, I spent about fourteen hours a day at the USF law library, leaning over my laptop, smelting down ideas and forging them into arguments. Pounding facts and law together, I felt like Vulcan hammering in his forge, tempering and sharpening his weapons. An argument is a pointy thing, and the point always goes toward your enemy. The sharpness of the point is comforting to him who holds the spear.

The third amended complaint ran to 43 pages. As it developed, I shared the progress with Gary. We talked over the cell phone during the day, and back at his apartment we’d go over revisions in the evening. You can only convince a client that you are sincere by actually doing the job, and I was doing it. My only problem was that my 43 page opus kept needing further revisions. The time to get the final filing together was fast approaching. And computers can always tell when you’re nervous, can’t they?
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:36 am

COMING IN UNDER THE RADAR

Now, all of the time that I had been working on this third amended complaint, and thinking all these high falutin’ legal thoughts, I had not been Gary’s attorney of record in the case. Katie Diemer, Sheri Falco, and Joel Dichter remained in position. Strictly speaking, Gary Kremen wasn’t supposed to be filing anything but an opposition to Cohen’s pending motion to dismiss. Judge Ware had told Katie Diemer that if she wanted to file a third amended complaint, she would have to give him a copy of it so he could look at it, according to the “local rule,” and approve it for filing.

When faced with a motion to dismiss that has a serious likelihood of final success, you really need to come up with a good amended complaint. It’s less work than writing an extensive argument, and as a practical matter, motions to dismiss are often granted “in part,” so you end up having to “re-plead” your complaint anyway. So why not just write it and make the other lawyer’s arguments irrelevant? Besides, I didn’t want to defend Katie’s complaint, which didn’t tell much of a story and omitted all mention of my precious “data packets” of property. So I focused all my energies on submitting the “proposed” third amended complaint to Judge Ware. Of course, I still needed to file at least a nominal opposition to the motion to dismiss, and also an “association of counsel,” to establish my official role as “counsel of record,” before attempting to file any papers at all. I had allotted a small amount of time to prepare those in a pro forma fashion after I got done drafting the Third Amended Complaint.

So there I was, in Gary’s living room, working on my laptop, and printing out legal documents on a cheap HP inkjet printer. I got the association of counsel cranked out, but as I was trying to hack out the opposition to the motion to dismiss, my poor old laptop was breathing really hard. Characters were taking seconds to appear on the screen, and finally it just froze up, swallowing the document into the void. Bob Deschl, Gary’s pizza delivery man and computer jack of all trades, tried heroically to resuscitate it, but it was no use. I had cut it too close, and it was time for me to jump in my car, fight my way through traffic from San Francisco to San Jose, and file what I had prepared. And I had to leave early to pick up my daughter, who was arriving at the San Jose train station that same afternoon.

I also wanted to drop by and leave copies of everything with Katie Diemer, whose office was just a few blocks from the federal courthouse, and mooch a few photocopies off her while I was at it, since I hadn’t had time to make any. Now this was an interesting situation. I hadn’t talked to Katie in weeks. She’d been ordered by the court to file an opposition on or before July 12, 1999. Something in my bones told me she was just sitting on her butt, doing nothing. If that was the case, I wanted to catch her at it, and it wouldn’t be bad to have a witness. Since Ana’s train was arriving at 2:30 p.m., she could be that witness. It seemed like the timing would all work out, since the courthouse closed at 4:00 p.m.

I picked up Ana, right on schedule, and headed over to Katie’s office, a big gold cube on Santa Clara, the main drag in San Jose. The receptionist and the secretary were very nice, and sat us down in the conference room. We thought Katie was going to come walking in any minute, but then a funny thing happened. She called me on my cell phone. So there I am, sitting in Katie’s conference room, talking with her on my cell phone while she is sitting in her office. Finally, after a few minutes I tell her, “I’m sitting here in your conference room.” She sounded like I had just put my hands in a place where they shouldn’t be. Her voice went up an octave, “You’re in my office?!” I explained to her that yes, I was, and that I was going to file some documents in the case. After a few more minutes of talking, Katie declared that it was silly for us to be talking like this, and I invited her to come down and meet me in her conference room.

When things like this happen, you’re always glad there’s someone around to talk to about it later. You can check your impressions against theirs, and in this case, it was fun to get Ana’s impressions of Katie Diemer, which confirmed my own. Katie presented as a tall, rather imposing woman in a dark, tightly contained suit that was not entirely unflattering. A frizzy explosion of flaxen hair reaching to below the shoulders. A slightly puffy face with a severe expression covering over what seemed to be a lot of nervousness.

I gave her the documents and let her know what I was doing. Clearly, it wasn’t the way you usually do things. When a client replaces his lawyers, you almost always do it by filing an agreement in writing between the client, the outgoing lawyer, and the incoming lawyer, called a “substitution of attorney.” But in this case Katie had told Judge Ware that she was “unable to act” because of a “conflict of interest” existing between Gary Kremen and other people whose names she did not mention. These were of course Ron Levy and Seth Warshavsky, and she told the judge that she would tell him whatever more he needed to know in a secret, “in camera” hearing that Cohen’s lawyers would not be allowed to attend. Judge Ware hadn’t accepted Katie’s offer to discuss the grisly details of the conflict of interest, however, instead ordering her to file an opposition. Which Katie was not doing. She was going to stand on her claim that she “could not act” and watch the case die. Gary was therefore justified in doing whatever was needed to break the logjam, including hiring a stealth-attorney to flip a filing over the transom at the last possible moment. So I had no apologies for my presence.

Katie admitted she had no opposition to the motion to dismiss prepared. Only I, and the papers spread out on the conference table before me, could prevent Gary from losing Sex.Com forever, from having the gem slip through his fingers and down into the gutter of the legal system, from which it could never be retrieved.

But Katie wasn’t giving up. Did I know, she asked, who was running the litigation? Did I know about Seth Warshavsky and his company IEG? Did I know about the firm of Newman & Newman in Seattle, which represented Mr. Warshavsky? What I knew, I responded, was that none of these people was doing anything to keep the case from being dismissed, and I had to act. She told me that she had called Mr. Newman, and he was going to call back in just a few minutes. She asked me to please wait. It was 3:40 p.m., twenty minutes before the gates of hell were going to open up and swallow Gary’s claim to Sex.Com. I told her I had to go. She told me that it was only ten minutes to the courthouse, and I should really wait to talk to Mr. Newman. I told her I couldn’t. I got my copies from the secretary and headed over to the courthouse.

Once there, I was comforted by the sound of the clerk’s stamping machine putting the beautiful purple ink on my paperwork, “Received for Filing, July 12, 1999.” My baby was safe.

As we left the courthouse, it was closing. As we drove down the streets of San Jose a few minutes later, my cell phone rang. I had the pleasure of speaking with Derek Newman. Like Katie Diemer, he asked, “Do you know who is running this litigation?” My answer was simple, “I’ve always presumed it was Gary Kremen, the plaintiff.” Derek responded that wasn’t the whole story, and I said I understood that. But I wanted to end this interference, so I said “If you’re telling me that Gary Kremen is not the plaintiff in this action, and that he is merely masquerading as the plaintiff pursuant to some sort of agreement in which an undisclosed entity is the real party in interest, then I want to know it right now, so I can advise the court of it, because I will not be a party to any kind of deception of the court.” Our conversation ended a few moments later.

I had done it. I had wrested control of the case from the other attorneys. I had gotten past Steve Sherman’s nay-saying, Gary’s vacillating, and Katie Diemer’s obstructionism. I enjoyed a warm glow of triumph.

It would have been great to split town right then, but I had to finish up that opposition to the motion to dismiss that I’d lost in my laptop crash. Ana and I spent the night in a Best Western, and the next morning, as early as I was able to stir myself, I started finishing up the opposition to the motion to dismiss. But since it was one day late, I also had to write a motion under Rule 6(b). I call these “motions to deem timely filed,” because “deem” is a magical word that reminds the judge that when he says so, a late filing becomes timely. But the writing project took too long, and as going out for breakfast turned into checking out at noon, Ana’s mood got grumpy. At age seventeen, hunger can attack ferociously, and as we left San Jose in the two-p.m. heat, I was apologizing for the litigation lifestyle and promising a great sushi dinner in Walnut Creek by way of atonement.

With the last of my paperwork filed, Ana and I were free to head for Oregon. It’s a lovely feeling when you’ve done your work, and you can finally rest. Filing a complaint is an act of war. You have to work yourself up to it, and you know it’s only the beginning of a lot of trouble that you’re heading straight into for the hope of victory. I guess that’s why you send armies forth with flags, banners, trumpets and beautiful maidens waving. After getting close to the action in Katie’s office, Ana was jazzed on the intrigue that enveloped the case, so she was cheering me on eagerly.

As we poked along through the Silicon Valley traffic jam, we compared notes and listened to heavy metal teen angst tunes off the “American Werewolf in Paris” soundtrack, enjoying the sounds of rage and destruction, then switching over to the sweet sounds of Frank Black as we neared Walnut Creek. There, at Tokyo Lobby, our favorite sushi bar, we unwound with the natives, enjoying excellent sushi, multiple color TVs, and impeccably polite service from the very Japanese waitresses, in short, a heroic repast. Afterwards, we got lattes from the Starbucks across the street and resumed our course for Oregon. By midnight, we were back in the cool mountains, seeing the bright stars.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:37 am

FORTUNE SMILES

There’s a useful saying to use with clients when nothing is happening, but you believe that they will get justice some day in the distant future: “The wheels of the law grind slow, but they grind exceedingly fine.” Perhaps it was Tulkinghorn, the old lawyer who ended up being murdered in Bleak House, who uttered this Dickensian phrase. In any event, you’ll note that it’s a long time from July 12, 1999, when the motion to file a third amended complaint was actually handed to the clerk in San Jose, and October 4, 1999, when Judge Ware finally ruled on the motion. During that time, I reversed course on my move to Southern California, and moved back to Oregon.

I had decided Sex.Com was the most important piece of legal business I was likely to stumble across, that Ventura County wasn’t as hoppin’ as I thought, and what the hell, if Bob Dorband lived in Oregon, it would all make sense in some weird way. After all, if Cohen had an Oregon lawyer, that must be a good thing, so Gary could have one, too. I got a space at 800 West 8th Street, upstairs from my old friend Peter Carini, a Southern Oregon criminal defense lawyer with New York style and a stellar trial record. The building was right across from the courthouse, and was owned by Lee Werdell and John Hanson, another couple of trial lawyers in the Oregon tradition. Typical Oregon legal maxims would be: Lay traps! Bushwhack! Win! Smile! Oregon trial lawyers can be inspiring companions.

If you want to wake up every morning and know that someone is going to be studying everything that you have done in order to find fault with it and accuse you of screwing up, you should definitely become a trial lawyer. This experience will become your daily fare. I don’t know if other people will admit it, but I still experience fear when I see envelopes printed with my adversary’s letterhead on them, or when I see alien paper coming through the fax machine. It’s nasty. You know they don’t mean you any good, they want to rip your heart out, decorate their den with your entrails, soak your grave with cheap whiskey, and dance all over it in hobnailed boots.

For a sole practitioner, there are additional problems. You have neither the prestige of being with a large firm nor their deep pockets. Some lawyers figure they can probably scare you away from the meat if they just growl loud enough. So the first stage when lawyers encounter each other is a little bit like the opening scene in 2001, A Space Odyssey, where two types of apes face off at the watering hole, and the facial expressions get really nasty.

Bob Dorband has mastered watering hole etiquette. In person he is unflappable, pleasant and cool. On paper, his fangs show and drip. Frankly, he scared the bejeezus out of me with his first letter. Dorband’s letter alleged a species of wrong that you have to be a lawyer to appreciate -- he claimed that local rules required me to file a motion for reconsideration of the court’s prior dismissal of the RICO claim before moving for leave to amend the complaint. My attempt to end-run the local rules, he claimed, was subject to monetary sanctions under Rule 11 of the Federal Rules of Civil Procedure. Today it’s easy to laugh at Dorband’s toxic pettifoggery, but back then I chose the safer expedient of sending him a conciliatory letter with a taste of steel, assuring him I was right on every issue, and had never been sanctioned so much as $1 in 13 years of practice, a record I intended to preserve.

My show of courtesy was strategic. I wanted to minimize the energy spent exchanging nasty letters, because arguing with other lawyers isn’t the point of litigation. The point is to get favorable court decisions, one after the other, all the way to final victory.

The first favorable decision came on October 4, 1999. I drove to San Francisco and crashed at Gary’s. The next morning Gary and I went to court in his car -- yeah, the same old beater I had first seen in Carpinteria, still no stereo, still no paint job. We headed upstairs to Judge Ware’s 4th floor courtroom. It’s a nice courtroom, not too big, with a gallery that probably accommodates 60 people. We walked in, and the place was jammed. The gallery was stuffed, the jury box also filled. The judge had put us at the end of the calendar, so we would be the last attorneys to make oral argument. In a complex case, this is a signal that the judge wants to give the argument plenty of time, presumably because he’s interested.

Being last to argue also gives you plenty of time to size up the judge. Does he listen? Does he question? Does he allow argument or cut it off? I was immediately charmed. Judge Ware is a handsome and congenial man, with warm African features of mahogany color. His voice is gentle and respectful. He rarely barks, almost never contorts his features, and treats everyone with respect.

When Dorband and I rose to argue the case, the judge let us know who the spectators were. They were two classes of students he was teaching at the local law schools. He had distributed copies of our court papers to them as part of their study, and they were attending to get a little education in courtroom procedure. After we concluded with our arguments, the judge informed us, we would “go off the record,” and the law students would be allowed to ask questions.

The formal argument was polite, and proceeded much as I had expected. Federal judges, when presented with a properly prepared motion to amend a complaint, are supposed to “interpret the rules liberally,” so that “substantial justice can be done on the merits.” In other words, plaintiffs shouldn’t be cut off at the knees before they have an opportunity to present evidence to support their claim.

But Dorband had a good point. He had already won a motion to dismiss several important claims. Motions to dismiss are intended to “narrow the issues” to be explored in formal discovery, and to “simplify the case” before trial. This means that you should proceed from more claims to less, as the issues get eliminated. A plaintiff, some judges reason, shouldn’t come into court with one theory of law, and when faced with motions to dismiss, respond with a sort of hydra defense, sprouting two claims for each one that is cut off. The judge had dismissed the racketeering claim, and Katie Diemer had acquiesced in that ruling, filing no racketeering claim in the second amended complaint; nevertheless, here we were alleging racketeering again. And there were other fun claims thrown in there, too. The new claim for conversion and conspiracy to convert against NSI. A claim for “slander of title” on the theory that Gary held title to Sex.Com and Cohen had slandered his title by claiming to be the true owner.

Throughout the argument, Dorband was fiercely eloquent, arguing for his “narrow the pleadings” approach, and suggesting directly and indirectly that Kremen was the real shyster here. Judge Ware took it all in stride. He questioned me gently, with a touch of humor, about why I had filed the racketeering claim again, after Diemer had allowed it to lapse. Was I asking him to ignore precedent and permit the reallegation? I conceded that he would have to go against precedent, but that it was justified. He seemed pleased with my candor, granting the motion, except as to the racketeering claim.

Afterwards, the students asked a few questions. That was a touchy situation. How could we be off the record? Sure, the court stenographer wasn’t writing this down, but the judge was hearing it all. And some of them had pointed questions. One young lady started talking about the statute of limitations, and I didn’t feel at all comfortable with that. The novelty of the experience was disorienting. Dorband took refuge in talking about “hypothetical” facts, and the questioning ended quickly.

Fortune had smiled. The judge had delivered my baby. She was breathing, her eyes were bright, her cheeks were rosy. The fight for Sex.Com was on in earnest.

But that didn’t mean Gary was happy. He felt cheated because Judge Ware had again rejected the racketeering claim. Gary couldn’t understand how the “Racketeer Influenced and Corrupt Organizations Act,” aka “Civil RICO” didn’t apply to Cohen. He didn’t understand that few judges approve of Civil RICO claims. This law was criminal in its origins, draconian in its provisions, and in the eyes of conservative scribes, threatened to turn every securities salesman into a mobster.

On the way back to the office, Gary started a fight, demanding that I sue someone or other that I really didn’t want to sue. He fired me. He hired me back. We arrived in San Francisco at his office, and although I had briefly ceased to be his lawyer, by the time we got inside, he regretted his brief intemperance, and things were back to normal.

Of course, normal with Gary Kremen is not normal at all. Things were looking great for him, but not so great for me. He owed me over $11,000 at that point, and $1,500 of that was out-of-pocket costs. I had sent him a simple agreement to sign, but he kept saying he wanted to come up with a more formal, lengthy agreement. He had something in mind of the sort he had entered into with Warshavsky and Levy, involving the creation of a new corporation that would receive the Sex.Com ownership interest once the litigation was successful. But I told Gary that wouldn’t fly. It didn’t look like that had worked out so well for Warshavsky and Levy, so I had a simple solution -- a present grant of my 15%. Like I own 15% now. We had talked and re-talked this in the preceding months. We were obviously at a high water mark for the attorney-client relationship, and if this boat was going to float, it would have to be now. As Shakespeare said, “There is a tide in the affairs of men...”
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