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 1:37 am

DOWN THE RABBIT HOLE

Although Lewis Carroll was a mathematician, lawyers love his writings. Alice’s world of absurd characters and paradoxical declarations perfectly mirrors the arbitrary realm of “The Law.” In Wonderland, as in law, things are often so just because they are. Also in law, logic is subordinate to authority. For Alice, things were not always so strange. Once she was a normal girl in a normal world. It all changed when she fell down the rabbit hole. My life changed when I fell into that dot that divides Sex.Com precisely in twain. In chaos theory, they talk about “strange attractors,” vortices of force that generate order and disorder in equal shares. Like a force of myth or legend, Sex.Com distorts reality, makes all things believable and nothing incredible. Just to go after it was to join in a fabulous quest. Or so I thought.

It’s the intoxication of advocacy. When you are fully charged up, totally committed to the advocate’s role in an important case, the energy changes. The atmosphere will almost start to shimmer. You are speeding ahead, plying a sword that is both immensely heavy and totally maneuverable. You feel the enemy on the other side, as he parries your blow, and your opposed wills clash like ringing steel. The blades dance, you thrust, evade, lure his edge and seek the opportunity to strike. It’s a game you play for a living, and it feeds your body and soul. You identify with your victories, and each victory contains the energy you need to move on to the next one. Along the way, you make a living, but the victories themselves are worth far more than the money you’re paid.

And that’s my problem. I enjoy it so much I’ll practically do it for free. I’ve spent too much time treating cases like motorcycles that you can kick-start and tear ass all over the dirt in. I’ve come to see clients and witnesses as fuel to burn, weapons to deploy, and obstacles to be destroyed. Sex.Com was like a big, fire-breathing road rocket with 100,000 cc’s ready to blast off like a George Lucas creation hitting hyper-drive with the Empire in hot pursuit. God, I wanted to ride that thing, but it was dead stock still. In October 1999, Gary had no gas money. The time left to take discovery was ticking down, and Gary wasn’t doing much but getting behind on his legal bill, so two things had to happen. He had to find some money, a lot of it, and I had to find a way to make it until he did.

We came up with an agreement that hung on a big if. I would keep working on the case if he promised to pay me $55,000 when he got a few million bucks out of a stock IPO that he was sure would be happening within the next few months.

You can imagine what your wife says when you come home with one of these agreements. She’s like, “An IPO?” And you’re like, “Yeah, you can make a lot of money on them.” You reassure her that you’re not going to put another 500 hours into this case and have nothing but an unfulfilled promise to show for it. She squints her eyes and shakes her head with a tight smile on her pretty lips. I have a small collection of worthless agreements to show for lots of work done free, so this is a bit of a sore point with her.

But I had to go on. I was down the rabbit hole, where things just get “curiouser and curiouser.” It seemed curious enough to a lot of people when, just five months after I had moved to Carpinteria and put an Ojai address on my stationery, I was back in Medford, Oregon, renting office space with my old friend Peter Carini across from the courthouse. “So what about Ojai?” they would ask. The answer was always the same. I had a big case that I was working on now, and I needed to focus on it and keep costs down.

Peter thought I was crazy. He’d saunter into my office in his tailor-made suit, snugly buttoned over a custom shirt and matching tie, ask me about the case and act interested. But when his true feelings came out, he just shook his head and snorted. The whole thing was going to come to nothing, and it was sad because I was pouring my soul into it. Of course, he wouldn’t say this straight out, instead expressing disappointment that I wouldn’t throw in with him full-time in the criminal defense biz. Peter is the undisputed king of Southern Oregon DUI, with sights set on the statewide crown. With me handling drug cases, we would’ve been unstoppable. His disappointment was visible.

The office was a fun place. My daughter Maria, who had stayed in Oregon when the rest of us moved to California, was Peter’s secretary, so I got to spend time with her. I had an upstairs space with good sun from big windows to the north and west, and a nice view of the parking lot and the blue Oregon horizon. I could drink beer on the landing and look at the backside of the old courthouse. It got good sun from big windows to the north and west. I brought in my huge oak library table desk, set up the computer and my new three-in-one HP 3100 faxer, scanner, printer, a beast that is still in service to this day, and now, surely, I was ready for anything.

It was good to be around people, too, because even though they take up your time, they give you ideas. Also, the marveling tone of a couple of secretaries like Kim and Teresa can really make you feel smart, which feeds your desire to go engage in more exploits. Lee Werdell was a serious trial lawyer who had an associate named Sue Whatley, who was not good at getting up in the morning but liked to work late. We became good friends, and I started to give her small projects on the case. John Hanson loved to wander into my office and ask questions with this wide-eyed look, while poking through my mail. He was generous with his praise, telling me I was farsighted and this was all going to come in really big for me. He complained a bit about my excessive use of the fax paper, so I bought my own fax machine.

My office quickly took on the look of a paper nightmare. I had four Bekins boxes of documents from Katie Diemer’s copy of the file, an endless stream of works in progress, storms of paper coming from Dorband and Dolkas. I attached a satellite to the roof of the building for faster Internet access. Gary wanted to give me an even bigger dish that he planned on getting from Hughes Engineering as part of a consulting deal. Fortunately, I was able to simply transition to DSL. It was too much work, for too little money. But the New Economy was hitting on all cylinders. IPOs were blasting off everyday, like volleys of spaceships lighting up the sky, heading for new planets. I had a piece of that new world. I was reading Wired, surfing the Net, and talkin’ tech like nobody’s fool. I was filing papers, writing, talking and emailing like a son of a gun.

And then it happened. Gary became a millionaire. A company called Interwoven went public on October 8, 1999. Gary was in a position to cash in nearly immediately. Unlike many of the other stockholders, his holdings were not under any sale restriction, and thus could be sold immediately. That was great, because after an IPO, a lot of stocks spike up in value, but by the time the restrictions are lifted, they’ve taken a slide. Selling sooner is often better. But the transfer agents, the people who actually give you your stock, so you can turn it into money, weren’t cooperating. They didn’t like the idea that anyone wasn’t under sale restriction.

So I shook the money tree, calling the lawyers for the transfer agents, implying threat as politely as I could, while Gary played the crazy client. He would call up the transfer agents and threaten lawsuits. Then I would pick up the other end and apologize for my client’s untoward behavior, but emphasize that his frustration was understandable, given that his stock had no restriction and he should be allowed to sell it immediately. Dot-commers got away with murder in those days, so it was kind of like cleaning up after a bratty kid -- all smiles and apologies.

After about a week of heckling the transfer agents, the money broke loose for Gary, but as became our usual pattern, I then had to break my share loose from him. Gary wanted to pay me, but he also wanted me to promise to sue more people. I had some serious concerns about adding more defendants in the case. We had already sued a bank in the British Virgin Islands, and a bank officer, Andrew Keuls, but I had never served them with the lawsuit, so they had never appeared. I didn’t want more defendants appearing. Too many defendants make a case completely unmanageable, as more and more lawyers show up to beat up on the plaintiff’s lawyer. I couldn’t afford this risk, and drew the line. It would not be a good idea to seek to amend the complaint to allege more claims against new defendants. Gary almost fired me again, threatening right up to the line. I knew that if he fired me, I’d never get paid for the work I’d already done, which amounted to several hundred hours. It was like tying a rope to restrain an oil tanker that was gently drifting away. Gary was a millionaire now, and could have any lawyer he wanted. But we talked it through. The rope held. He wire transferred $55,000 to my account. Peter couldn’t believe it.

I could hear the jet fuel flowing into that big red road rocket with the 100,000 cc engine as I settled into the cockpit. I was surrounded by the armored embrace of an Internet war chariot. Scanning the instrument panel, all my weapons were available at a touch. The visor slowly lowered over my eyes, and through it I could see the beautiful designs of war, and in the corner of my vision, a clock pulsing down the months, weeks, days and minutes left to win the game. My hands rested firm on the controls as I and the whole machine gently became weightless.

It’s happening now. Judge Ware is clearing me for takeoff, thumbs up, wearing an aviator cap. Near the starting line, I see a young girl. Is it Alice, poised to drop her hanky, announcing the start of the contest? Do I hear Baby Sex.Com crying out for me to save her? Is that dragon Steve Cohen, oozing smoke, holding her captive? Is that Black Knight Bob Dorband? What’s that racket? Down at the end of the runway, frantically gesturing with her crown askew and her sceptre held high -- The Red Queen! No, it’s Gary screaming “Off with their heads! Off with their heads!” I’ve already hauled back on the throttle. I hurtle past Gary, past the dragon and Baby Sex.Com, then past Judge Ware’s smiling face as big as the sun as I clear the runway, watching the blue get bigger in front of me -- heading for the open sky.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:38 am

GARY’S DEPOSITION, PART TWO

Gary had to finish his deposition. I had been holding out on this, despite repeated demands from Cohen’s and NSI’s lawyers. At the October 4th hearing, when Dorband said that Gary was refusing to finish his deposition, Judge Ware showed one of his notable traits -- a willingness to order people to do things despite no motion being on calendar, and with no notice to the party about to be ordered to do something, that the issue would be coming up. Immediately upon hearing that Gary’s deposition hadn’t been concluded, Judge Ware ordered it to proceed within 30 days. Maybe that’s one of the reasons why Gary was feeling crabby on the way back from the hearing.

Depositions adjourned under hasty circumstances often lead to problems. Having read the first and second days of Gary’s deposition transcripts carefully, I had established to my satisfaction that he never said anything to contradict the “Dr. Ruth” strategy. Gary’s sketchy, one-page doodle of a business plan had been briefly identified in his first two days of deposition, and referred to casually. It made no mention of Dr. Koop, Dr. Ruth, or a “kinder, gentler Sex.Com,” as Wired Magazine referred to it years later in April, 2001. By the time we showed up at Gary’s deposition, Dorband and Dolkas were aware of this new twist in the moral high ground, because it had been specifically alleged in the third amended complaint.

I bet they were kicking themselves that they hadn’t “gotten Gary in cement” on this issue during the first two days of deposition, when it would have been easy. They had been operating on the supposition that if Gary had ever gotten around to it, he would have operated a pornography site. It didn’t seem to have occurred to anyone that Gary, not being a pornographer, might have done something different with it, based on his fundamental inclination. That inclination was evident in his other ventures, like Match.Com, that Gary was creating while Cohen was building Sex.Com into a pornography website. Match.Com expressed Gary’s own desire to get a date, and ultimately became the world’s most successful dating site. Match.Com was acquired by Cendant Corporation for $50 million. Not that Gary got any of that money -- he had already been forced out of the company by that time.

Gary and his friend Kevin Kunzelman would often remark that they had played their positions in Match badly. But few people knew of this wrinkle in the story and Gary would never reveal it, finding it politic to be perceived rich even when he wasn’t. Cohen learned the truth about Match, and would deride Gary for it: “He didn’t make any money out of that!” But what good did it do? Most tech-groupies believed otherwise. And unlike pornography, dating was part of a wholesome, American lifestyle. Match.com prided itself on being a site where people actually met and married. Match gave credence to the “wholesome Sex.Com” scenario.

Gary handled his third day of deposition well, maintaining the truth of what was alleged in the third amended complaint, that if he had developed the Sex.Com website, he would have done so differently, and in a manner to serve the public interest. I was relieved that there was no nasty cross-examination on this issue. It was more a disbelieving silence. If I had been cross-examining Gary on this topic, I would have been much tougher on him, examining the one-page business plan in greater detail, and challenging him to indicate where it reflected his kinder, gentler intentions. But such questioning was not done. Neither Dorband nor Dolkas attempted to nail Gary down about when he had originated the Dr. Ruth approach, whether that had been before or after he prepared his one-page business plan, whom he had disclosed this plan to, and what objective evidence there was to show that he ever had such an intention.

Gary’s claim was barely questioned, on the assumption, I presume, that it was so preposterous no one would believe it. What Dorband and Dolkas didn’t think was that the story would be circulated so widely in the press, and be credited by a judge. As the months went by, this story proved to have legs. Some people poked fun at the notion, but Judge Janice Stewart of Portland discussed the Dr. Ruth theory in her thirteen-page opinion halting the RICO lawsuit Cohen later filed against Kremen and myself. The fact is, Gary carried off his white-hat schtick with understated élan.

The fourth day of Gary’s depo was another story. Gary had pushed himself to the limit the night before, and was exhausted. Sitting in front of Dorband and Dolkas, with the videotape running, Gary was goggle-eyed and bleary, his thinning black hair looked sticky, his sweatshirt more worn than usual. Dorband led off with a roundhouse. I’m sure he realized he should have asked the question long before, but there’s never a bad time to ask someone, “Are you taking any drugs that might impair your memory?” I don’t flinch. No worries. I’m thinking Gary will answer “no,” of course, because he could remember an IP address or the last email you sent him regardless of his condition.

Gary answered, “Maybe.” Worries. This is called “opening the door” to areas of inquiry that should be kept shut. Dorband continued his questioning. I felt like a security system vainly bleeping “intruder” to an unresponsive occupant. I wanted to stop everything, but the video was running. Dorband asked the nature of the drugs involved, and Gary described an assortment of tranquilizers. Then Dorband asked the identity of Gary’s psychiatrist. I hesitated before failing to object. The name popped out of Gary’s mouth, and immediately I was kicking myself. I objected to all questioning about diagnosis, treatments or complaints, and instructed Gary not to answer them, but it was too late to prevent the inevitable: a subpoena from Dorband to the good doctor for Gary’s medical records.

When the doctor received Dorband’s subpoena, I successfully moved the court for an order to quash it, thus protecting Gary’s psychological records from disclosure. After the danger was past, Gary had the chutzpah to claim his “maybe” answer was good for him, because he didn’t say his medications did cause memory problems, just that they might. He thought this was good, because it would give him wiggle room to adjust his prior testimony. Unfortunately, there would be no wiggle room left, or any matter left to the imagination, if the records were out in the open. And the judge could easily have required the doctor to produce them. We had dodged a bullet, and now Gary was trying to out-lawyer me. At least the ordeal was over.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:38 am

THE FRENCH CONNECTION

While Gary was developing his dating and classifieds ads websites, Cohen was executing a well-planned strategy to make his theft secure by acquiring a trademark in Sex.Com from the U.S. Patent & Trademark Office (the “USPTO”). On May 20, 1996, seven months after Cohen sent the forged letter, one of his lawyers, Leonard Duboff of Portland, filed USPTO Service Mark Application #751-6638. Although many people scoffed at the notion of trademarking “Sex,” on the grounds that it was “merely descriptive of the product,” Duboff almost did it. The key to his near-success was Cohen’s willingness to swear in his official trademark declaration that, based on his prior use of the mark in commerce, Sex.Com had become “distinctive,” despite its descriptive character. Based on Cohen’s declaration, the USPTO examining attorney concluded that Sex.Com was a valid trademark, and ordered it “published for opposition” in the Trademark Gazette. Gary then learned of the application, and Sheri Falco filed an opposition.

When I took over the case, I sent the USPTO a copy of the third amended complaint, which caused the USPTO to suspend proceedings. Still, the mere fact that the USPTO had approved Sex.Com for publication was troubling, because one thing was becoming increasingly clear in the legal world–trademark ownership trumps the mere registration of the domain name. If Cohen could establish that Gary had registered the domain name in violation of Cohen’s pre-existing trademark, then Gary would be a cybersquatter, with no rights to the name at all. Cohen’s cross-complaint against Gary alleged a cybersquatting claim under the new anti-cybersquatting law. So Cohen’s “trademark defense” was very much a live issue.

We got the complete Sex.Com trademark application file from the USPTO. Cohen’s application included documents that claimed to show he had used Sex.Com as part of an online business called the French Connection BBS. The file contains a series of documents that tell a believable story of events that never happened. Without anyone to contradict those facts, it’s not surprising the USPTO examining attorney was deceived.

The USPTO awards trademarks only to those who show that they generate revenue from use of the trademark, so Cohen had to do the numbers for his imaginary business activity. Looking over his shoulder on March 19, 1997, we would have seen him seated at his computer, typing this:

I, STEPHEN M. COHEN, declare that:

1. I am the owner of the website http://www.sex.com and am making this declaration in the belief that the trademark “SEX.COM” has become distinctive of the services of my website by reason of my substantial and continued use in commerce of the mark for at least seventeen (17) years immediately before the date of this statement. Prior to use of the mark on my website, it was used on my electronic bulletin board.

2. The mark SEX.COM is recognized in the trade and by consumers of my services indicating my services.

3. Income from services performed under the SEX.COM mark since its introduction has been as follows:

1979: $4,872
1980: $11,370
1981: $13,770
1982: $15,320
1983: $14,780
1984: $15,270
1985: $18,550
1986: $21,990
1987: $41,020
1988: $57,720
1989: $68,010
1990: $72,233
1991: $88,670
1992: $62,450
1993: $84,950
1994: $97,010
1995: $186,440


As an inspired piece of imaginative writing, this apparently dry statement of numerical income would not seem to rank high; however, upon further consideration, the subtleties appear. No one can fail to notice that business has improved steadily over the years without any notable alteration in the trend except for a brief stumble, from $88,670 to $62,450 in 1992, when Cohen suffered minor business interruption due to his induction into Club Fed. Nor could anyone miss the run of double numbers that seems to put the whole column in motion. Each number is a helpless conscript in Cohen’s war against reality. Take $72,233, a royal number if ever there was one, who appeared, like a state dignitary on the wrong floor of an apartment building, in the decade-marking year 1990. Compare Cohen’s highjacking of this regal figure with his induction of the hard-working $15,270, who rang in solid returns for 1984. Finally, in 1995, the year he stole Sex.Com, like the sun separating the clouds, his numbers break into six figures, a sign of much better days to come. History is thus manufactured by those bold enough to seize it while others are napping.

When I started practicing as a lawyer in L.A., trademark law wasn’t cool. Anything to do with the USPTO was considered deadly dull, to be avoided by a smart associate at all costs. Patent and trademark lawyers were considered nerds, and the only sexy intellectual properties were music, movies and software. Nevertheless, after two years in the L.A. litigation department of the venerable Morgan, Lewis & Bockius, I was lured by substantially higher pay to a New York firm that did the trademark enforcement work for Louis Vuitton, the famous luxury goods manufacturer.

Our receptionist at the firm, the lovely African goddess Donna Grimes, loved to say every syllable of the firm name: “Hello, Reboul, MacMurray, Hewitt, Maynard and Kristol,” she would brightly recite every time she answered the phone. The job was politically incorrect. I spent much of my time filing lawsuits against people who sold luggage that looks exactly like Louis Vuitton, complete with the intersecting “LV” logo, but is actually counterfeit, manufactured in Korean linoleum factories. These lawsuits were necessary to avoid the damaging effects on the brand that result when a Beverly Hills matron mistakenly grabs the cleaning lady’s purse off the counter on her way to meet with her charity group, and ends up trying to pay for lunch at an exclusive eatery with a handful of bus tokens. Thus, I worked hard to get the fake stuff out of the garment district chop shops and South Central LA swapmeets in order to keep prices for the real stuff high at Neiman Marcus, Saks 5th Avenue and other trendy outlets.

I called this job “keeping the world safe for luxury goods,” and learned the usual MO for the trademark enforcement lawyer, which is a sort of rinky-dink imitation of undercover narcotics work. Certainly it has a similar effect, keeping prices high by suppressing the sale of contraband. I often refer to the DEA as the Office of Narcotics Price Maintenance. Like the DEA, we hired trademark narcs and set up buy-and-bust operations. First we hired private investigators to “make buys” of the infringing merchandise, then we would use these paid informants to swear out an application for a search and seizure order, which would be secretly issued by an obliging federal judge. With a crew of off-duty LAPD and a stack of paperwork about three inches thick, we would head over to the infringer’s place of business, then and there to take the phony luggage into custody, leaving sad-faced Koreans with a stack of legal documents and nothing left to sell. This was called a good day.

One day I had too much of a good thing. The night before I’d seized a bunch of luggage from a gal named Melissa, who was selling through Tupperware-type house parties. She was a nice blonde gal with about six years of partying on her thin Mayflower features. She had good quality fake LV. Because of the controlled setting, I went alone with only one cop, a cool-handed off-duty LAPD homicide detective. Our narc, Jodi, ushered us into Melissa’s living room and we saw all the tan and brown leather LV logos. The homicide dick is standing behind me as I move forward with a stack of papers. Melissa smiles her “Hello, gentlemen” smile, but it freezes on her face, and she follows up with “What’s goin’ on?” She looks incredulous. Jodi’s having a hard time, but she stays professional. I give Melissa the paperwork and explain why we have to take the stuff. I put the fake LV in the back of my car, street-value around $10,000 dollars.

The next morning I went downtown to do another, much bigger raid. I drove my car, a turquoise-blue late-seventies Dodge Swinger with a white vinyl top, to a loading dock near Santee Alley in the L.A. garment district. There, by pre-arrangement, I met my crew -- a half-dozen off-duty cops, my boss Andy Tashman, and the disgruntled Mexican worker who was tired of making $25/day working for the big LV pusher. This guy, who told me the job was a step up from selling Mexican popsicles for $8 a day, had signed an affidavit fingering five different locations. I left my Swinger with Melissa’s luggage in the back seat. That day we seized about $200,000 worth of luggage from three locations, packing it into big trucks for transport.

When I got back to my car, though, I not only had three parking tickets, I had an empty back seat. A Swinger is a two-door style, and the two doors are easy to pop with a slim-jim. Someone had done it. No evidence against Melissa. I had to report to the judge the status of the lost evidence, so I buried the information in a declaration that I handed to Melissa when she showed up at the post-seizure hearing. Any lawyer seeing the loss of the evidence, would’ve hit the sirens and the overhead lights, and had me up against the wall. My case against Melissa would’ve evaporated. It might be difficult to prove Melissa’s LV was counterfeit, now that I’d lost it. But Larry Lydick, Senior Judge, never mentioned the disappearance of the evidence at the court hearing, choosing instead to lecture Melissa about the error of her ways. I felt like the abyss had yawned open, then shut, swallowing only Melissa.

I left Reboul after barely a year doing this kind of work. At the Christmas party in New York City that year, a partner asked me how I was enjoying “the Vuitton work.” With a chipper smile I responded without hesitation, “Oh, it’s great. I love making Korean women cry.” The partner laughed wryly, and several other lawyers raised their champagne glasses and murmured assent to second my candor. Still, I’ve often said we learn the most from the worst jobs, and what I’d learned at Reboul proved useful early on in the Sex.Com case, when Gary and I performed a search of all the computerized docketing records of the United States Federal Court system, looking for any cases in which a Stephen Michael Cohen had been a party.

Our search turned up a large number of lawsuits involving Cohen, including one called Ashton-Tate v. Stephen Michael Cohen, John Cook and the French Connection. Indeed, Cohen had identified this case in his Rule 26 disclosures, but without providing the case number. I knew it was a trademark and copyright enforcement lawsuit filed by the SPA, the Software Protection Association, to seize computers that were being used to sell pirated software. As it happened, while at Reboul, I also worked for the SPA. So I subpoenaed the records from Howard, Rice, the big Bay Area lawfirm that had represented the SPA. A paralegal was able to retrieve a box of documents including a videotape. For a few hundred bucks, she sent me the lot.

The box contained printouts of what appeared on the computer screen when you dialed up the French Connection back in 1989. These were made by the SPA investigators, who signed declarations filed with the court, describing the business operations of the French Connection. Private investigator Richard Klaus’s declaration said he’d met Cohen, who took him to the address of Midcom in Orange County, showed him a million dollars worth of computers, and told him they were running the French Connection. The Klaus declaration also stated that the French Connection charged a $15/month membership fee, for which the user obtained access to a large database of pirated software. The French Connection had no sexual content. It was a supermarket for stolen software, including some of the big moneymakers of the day, like Lotus 1-2-3, WordStar and Word Perfect. Best of all, the videotape showed Richard Klaus dialing up the French Connection on a personal computer, revealing how the system worked. It did not, at any point, open a portal into a world of online porn.

The box also contained a news story from an Orange County newspaper, detailing how Cohen had been charged by the City of Tustin with running a house of prostitution. Some of the jury believed him when he said no, it was a private swing club, because he was acquitted. Although the French Connection in the eighties was never what Cohen later claimed it was, but rather what Klaus’s videotape shows, Cohen reimagined events, blurring the line between the Tustin swinger-club activity and the French Connection, to gin up a plausible story for claiming that Sex.Com was his based on prior use. Cohen’s claim that he began using Sex.Com five years before domain names were invented in 1984 was not a gaffe, but part of the big-lie strategy. The way Dorband explained it, “.com” was a file ending, like “.doc” or “.exe,” and Sex.Com was a “service” that earned money and became distinctive. I think I got more benefit from the SPA’s suit against the French Connection than the SPA did. Cohen gave the SPA lawyers the runaround for months, dodging service of process, pretending to be a lawyer named “Frank Butler” for purposes of delay, and promising to settle, but never signing the settlement papers. The file was ultimately closed for lack of action. Although originally filed under seal by the SPA, by 1999 the seal had been lifted, so I looked forward to showing the documents to Cohen at his deposition.

To nail it all down, I wanted to find Richard Klaus. My private investigator, Paul Nyland of Beverly Hills, traced Klaus to a pair of P.O. Boxes in Chloride and Bullhead City, Arizona. I sent him two Express Mail letters, one to each mailbox, but he never answered. I was disappointed, since I wanted to go to Chloride, having never been there. I often wondered who Klaus was hiding from.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:39 am

AN INTRODUCTION TO FEDERAL DISCOVERY PRACTICE WITH FULL MILITARY METAPHORS

Discovery under the Federal Rules of Civil Procedure could be described in a number of ways. It might be described as a labyrinthine castle in which many young attorneys become lost, billing countless hours and still unable to find the essential facts of their case. On the other hand, it might be described as a massive siege machine, which if deployed with implacable determination and sufficient attorney time, can breach the walls of many a sturdy citadel.

First, we have the general disclosure provisions of Rule 26. This rule lays down the guidelines for discovery, and tells the lawyers what they can expect the court to require the other side to produce in the course of litigation. All parties to the litigation are required to disclose, right at the outset, the documents and witnesses they intend to use to prove their case.

From a strategic point of view, Rule 26 disclosures might be likened to getting your enemy’s map of the battlefield. However, since this is a forced disclosure, you can expect it to be rather sketchy, more of an exercise in trying to avoid telling the other guy anything he doesn’t already know than the open-handed business of “laying your cards on the table,” which young attorneys sometimes think is the right way to go. Indeed, some law school teachers will even tell you this sort of thing: “Tell the other guy about your case. Let him poke holes in it. Then you know where to shore things up. Maybe you’ll learn something from him or her in the process.”

The only problem with this idea is that if you don’t know the strong and weak points of your case in advance, or what the other guy already knows, you are likely going to hurt yourself by making uninformed disclosures. Additionally, you should make the other guy show you his case before you even consider disclosing yours. Finally, since deception is one of the major skills to apply in the art of war, even the truths you disclose should serve to mislead your opponent in some way. For example, you can win points for candor by “revealing” things the other guy already knows. You then act surprised when he discloses that he already knows these things, flattering him for his perceptivity and astuteness. This type of exchange works wonders for relationships and costs your client nothing but maybe the price of a few drinks.

Within the context of the general discovery rules, if the compelled disclosures are a map, then the artillery is the Rule 34 document demand. Like artillery, if you target it well, you can score a direct hit and request damning documents that the other side is powerless to hold back. Carelessly drafted document demands can be attacked on grounds of vagueness, burdensomeness, and a host of other defects. Requests for “every document,” may produce far less than one hoped. Indeed, no matter how good the artillery gunners are, you’re going to have to send in infantry units to follow up. Additionally, document demands are like artillery in that they are slow to reload and retarget. Generally a request for documents will remain unanswered for at least 30 days, and thus, as the time allowed for discovery begins to run out, the delaying tactics to avoid producing necessary documents become more and more crucial, and your demands for production must necessarily become more forceful.

Another favored discovery tool for experienced litigators is the famous “request for admission.” Doing requests for admissions is a lot like playing “battleship.” In litigation, if somebody admits something, on the record and under oath, it relieves the other party of any duty to prove the fact that has been admitted. I like requests for admissions because of their psychological effect. Like document demands, they require a response within 30 days, but they have a much nastier consequence for non-compliance. If your lawyer fails to respond to a document demand, he gets either a nice phone call or a nasty letter from the other guy, asking him when he is going to get the damn documents. If your lawyer forgets to respond to requests for admissions, they are “deemed admitted.” So the lawyer can’t ignore them. And since requests for admissions require the client’s response under oath, the lawyer has to get together with his client to discuss the requests long before the time to send responses. In my experience, this makes lawyers do what they hate the most: call the client, send him the requests for admissions, and engage in a detailed discussion of the facts of the case.

The last type of annoying paper you can send your adversary is an interrogatory, a written question that his client has to answer under oath. Depending on who is sending the interrogatories, they can operate as well-targeted sniper bullets pinning the adversary down to a fixed position, or forcing him to seek refuge in a cover story. On the other hand, some people dispatch a set of interrogatories like an invasion of lice that do little more than irritate the enemy soldiers. Many insurance defense firms, for example, send out vague interrogatories that are dangerous only if you don’t provide a response of some sort.

My philosophy of responding to interrogatories is to answer in a manner both verbally extensive and factually spare. But sometimes I like to answer with such brevity as to be arch: “Irrelevant. You know the answer already.” Discovery judge Patricia Trumbull described my answer as “smart-alecky” when I answered Cohen’s question asking “who” knew some facts with the blunt response, “You know who.” Hey, they did know who. I understand what Judge Trumbull meant, though . . . more ink, less attitude, Mr. Carreon. Let’s try, “Such facts are already within the knowledge of the propounding party.”

After paper discovery, we come to the true cruise missile/attack fighter/helicopter gunship of litigation, the deposition. A deposition is always a costly process. For the lawyer, it usually means a full day of work, not counting travel. For the client, it means, at a minimum, paying for the court reporter, the lawyer’s time, travel, witness fees, costs of videotaping, and the cost of producing the transcript.

A cruise missile type deposition is where there is one witness out there who knows a key fact or set of facts. You know they know it, and so does the other guy. It’s just a matter of getting it on the record before trial so that you’re sure the witness is going to say what you think he will, you won’t be screwed if you can’t manage to get him to the trial itself, and you can finally stop arguing with the other guy about what this witness is going to say. It’s expensive, but if you target it accurately, it hits the target, and when the deposition is over you have secured that position on the map.

A jet-fighter deposition is where you are relatively sure that there are a large number of issues to be nailed down with a witness, because they were in a good position to know things that you now want to establish in your case. A good example would be a nurse in a medical malpractice case, or a mid-level banking employee in a bank fraud case. Merely because of where they stood, they had to observe necessary things, but they will likely be difficult to ferret out and nail down. So for the jet-fighter type mission, you pack a lunch, as detailed a map as you can, a list of targets, questions, and as much ammunition, I mean paperwork, as you can possibly carry. Your hope is that when you see your target you will know it, and you will find the right weapon to take it out. These types of depositions often take a full day, as you keep flying over the terrain, trying to pick up clues and respond by establishing your version of events, or the opposite of the other guy’s version, whichever is appropriate.

Finally, we have the helicopter gunship deposition. This is where you know that you’re dealing with a hardened adversary’s emplacement. We’re talking about top level tobacco executives, malpracticing surgeons, and defendants like Cohen, who have all the advantages of wealth, inertia and cynicism. A helicopter gunship deposition continues until the witness is exhausted, all of the documents have been discussed twice, every crucial question has been asked at least three times and objected to twice, and the court reporter has started to talk about her babysitter.

Most litigators with five years experience have been through all of these types of depositions, and are familiar with them. Cohen introduced me to a new type of deposition, however. This is the decoy deposition. Like a decoy duck, the decoy deposition has no substance beyond appearance. A decoy duck may float, look and perhaps even quack like a duck, but it is fake. The same is true of decoy depositions.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:39 am

AN ARMADA OF DECOYS

I recently heard a news report about Amnesty International trying to restrict the sale of torture devices. I heard about stun belts, tasers, compliance batons, self-tightening handcuffs, and other nasty devices. Fortunately, aside from being handcuffed briefly by the LAPD after a motorcycle accident in which I was injured and my motorcycle damaged, I have never been subjected to any of those devices. Aside from being kicked in the ass for years during military school, and having the aforesaid LAPD try to break my arms just before they handcuffed me, I have rarely been the victim of intentional efforts to cause me suffering.

No, in order to bring the experience of torture into my own life it has been necessary to purchase a fax machine. Why a fax machine, you ask? Because using a fax machine, that I had to pay for, my legal adversaries are able to instantaneously beam into my office scores of pages of accusations, challenges, arguments, and other terrifying things. The other guy can spend months pulling together information, gathering it into an attack refined through hours of dedicated effort. And the whole thing pops into your office in ten minutes, neatly typed, meticulously argued, carefully proofread, arrogantly signed.

Every lawyer’s favorite time to send a fax stuffed with powerful toxins and terrifying portents is 4:48 p.m., Friday afternoon. That way they can screw up your whole weekend. Most fax machines ring before they begin to fuck up your life. Then, like a loyal servant who has become a mouthpiece for the enemy, they begin to spit out just what you did not want to see, packaged for your consumption by the last person you wanted to hear from, the other guy.

So it was that, on the evening of November 12, 1999, the fax machine began to disgorge its ill-omened load of paper, faxed directly from Duboff, Dorband, Cushing & King. What popped out was a flotilla of decoy depositions. Without the slightest preliminary discussion, Cohen had announced his intention to take nine different depositions at locations around the globe so far separated that I doubted any two were in the same time zone. The names of the people were unusual, like Thanin Sacchasiri. His deposition, the first of the nine, was set for December 3, 1999, in Bangkok. Then there was Eliyahue Roussos, whose deposition was scheduled for December 16th, in Tel Aviv, in the morning. During the afternoon of the 16th, Dorband planned to depose Ami Dvash in Haifa, presumably a short but dusty cab-ride and a couple of roadblocks away through what was not then an actual war zone. I was vexed that three depositions were scheduled in Moscow, which seemed too much like a great place for me to last be heard of. On the bright side, the junket was scheduled to conclude on December 22nd in Athens, so I could probably celebrate Christmas in flight on the way back to Oregon.

I gathered up and reviewed the pages that had piled up in the tray of the fax machine and spilled over onto the floor like toxic waste. After assembling the pages I got the drift pretty quickly. Cohen wanted to give me “diesel therapy.” This is a term that federal prisoners use to describe the kind of treatment you sometimes get from the Bureau of Prisons if you’re a naughty prisoner, or if you’re just unlucky. The United States Marshal Service has a fantastic fleet of trucks and buses in which they move prisoners all over the country. Sometimes prisoners spend more time on the road than they do in jail. The process is tiring, soul-wearying, and guaranteed to wear down the spirit of the most hardened prisoner. Being in jail is bad, but being imprisoned in transit is even worse. Cohen wanted to chain me to his deposition schedule and soak up Gary’s entire litigation budget before he got a chance to pursue any of his own discovery. Making things worse, all of these depositions were during my time that I’d already scheduled for Cohen’s deposition. Finally, these depositions were happening during the holiday season right before Y2K, when airports, hotels and the skies themselves would be jammed with vacationing civilians. I could smell the jet fuel already.

Never had I heard of anyone abusing the discovery process so blatantly. Around the same time as the decoy depositions, Cohen also served subpoenas on Gary’s doctor, three of his former attorneys, and five former business associates. All were to take place during the same one-month time period. Gary was willing to throw me at the task. He was a millionaire now, and if necessary, he would match Cohen penny for penny. However, I would rather have hung by my thumbs for a designated period of time than pursue this useless “discovery.”

I imagined the nine decoy depositions as intercontinental ballistic missiles, arcing across the globe from their various launching pads, converging on my desk. I had to bunker in to survive the attack, and began building a hardened emplacement, which in Federal discovery comes in the form of a “motion for protective order,” under Rule 26. Of course the motion would be granted, because Cohen’s tactic was transparently outrageous, but it would be a lot of work to write it. I would win, but I wasn’t going to get a whole lot of sleep until the motion was filed.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:39 am

THE EXTRA-LEGAL PARALEGAL

I arrived with my wife and daughter in San Francisco a few days before Thanksgiving 1999. It was raining at the airport, where we parked on the roof. We wheeled their luggage into the international terminal while dodging the falling drops. In 26 years, my wife Tara and I had been separated rarely for more than a few days, and now she was leaving with my 18-year old daughter for Kathmandu, Nepal. Ana would be spending several months in a Tibetan language and Buddhist studies program. They were excited and looking forward to the adventure. I was looking forward to spending all my time on Sex.Com. Like the gravity pull of a black hole, Sex.Com had started to rip apart the stitches of my life. As Ana and Tara drifted past the event horizon, I was confident I would see them on the other side. For the moment, Dorband’s decoy depositions were the largest objects on my view screen, and I desperately needed to get my shield up.

After spending a decent interval at the airport, mourning the departure of my loved ones and having a drink, I headed into the city to meet with Gary and a guy named Mark Irvine. Gary was thrilled to have me all to himself, and he’d even hired Mark, a paralegal, to help me prepare the motion. Part tenant’s rights advocate, part pro-se litigator, Mark was tall, blonde-haired, apparently sincere, a veteran with a liberal prescription for pain killers and the noisiest laptop computer I have ever heard. Gary had used him in his unsuccessful fight to retain the Fulton Street apartment from which he had been evicted recently.

Mark introduced me to the Hastings Law School Library in downtown San Francisco. He thought it was a wonderful place, and I liked the printer setup for laptop computers. We labored there together for a couple of days cranking out the motion for protective order. Mark surfed the Internet to find out approximately how much it would cost and how many hours I would have to spend on airplanes to cover all of these depositions. The totals were impressive. My motion informed the judge that I would have to fly 222 hours, and Gary would have to spend around $17,000 on airfare. After adding in the cost of paying me at my reduced hourly rate, the total cost to Gary of defending the decoy depositions would be over $70,000.

In addition to arguing that the decoy depositions were intended to obstruct Gary’s efforts to obtain discovery against Cohen, and to waste attorney time and money, we filled the judge in on a few other details. Many foreign nations do not take kindly to the American deposition procedure. Some countries consider that people who take depositions in their country are undertaking unlawful judicial acts without authorization. (Perhaps some governments think Americans conduct depositions like the locals conduct their own “judicial investigations,” but I think this assumption is unwarranted, as there have been no Amnesty International accusations against the American civil justice system.) In any event, you can get thrown in jail for conducting a deposition in the wrong country. Since a number of these depositions were scheduled in countries with completely undemocratic legal systems, such as Moscow and Greece, I thought I’d push the “risk, danger, burden” angle for all it was worth. It was my life, after all.

We also pointed out to the judge that Cohen was obviously trying to get deposition testimony from people who would refuse to appear at trial. Even a Federal District Court subpoena has no power outside U.S. territorial limits. “Extraterritorial witnesses” cannot be compelled to appear at trial. However, their depositions can be submitted on the grounds that they are “unavailable,” i.e., outside of the jurisdictional power of the subpoena. Thus, Cohen figured he could notice the depositions, get the testimony, use it at trial, and never have to present these witnesses before a jury. If I failed to attend the depositions, they could go forward without cross-examination, and an uncross-examined deposition, admissible at trial, is a ticking bomb you have not even had the opportunity to try and disarm.

To up the risks and increase the pressure, Dorband used a tactic he was often to repeat. He insisted that I get all my motions for protective order filed by November 24, 1999, or he was going to book all of his plane reservations in anticipation of proceeding with the trip. Thus, I was under the gun to produce the motion for protective order within that time frame. Two full days were required to prepare the motion, writing, researching, adding exhibits, and finalizing all the paper. What’s ironic and painful about writing a motion for protective order is that, in order to get the protective order, you need to show it would be “burdensome and oppressive” to go forward with the discovery. Meanwhile, the whole time you are writing the motion for protective order, you are burdened and oppressed.

When the work was done, everything prepared, filed and sent off, Mark Irvine and I had sushi together. He was affable and intelligent. I thanked him several times for his hard work on the project, and anticipated that we would work together in the future. Unfortunately, a few weeks later, he and Gary had a major falling out. He ultimately sued Gary for stealing his shirt and some prescription medications. But the big claim he asserted was that Gary had induced him not to go to law school in exchange for the promise to pay for his law school education if he would work on the Sex.Com case instead. This allegation sounded so crazy and absurd that it was hard to believe when I saw it in Irvine’s complaint. In retrospect, however, anything seems possible.

After a brief effort to mediate the decaying relations between Mark and Gary, I gave up. But Gary wasn’t through with him. After defeating Mark’s lawsuit with an onslaught of legal firepower wielded by the redoubtable Steve Sherman, Gary pursued a jihad to ban Irvine from the legal system as a “vexatious litigant.” To me, this seemed like taking a cane from a blind man, since Irvine didn’t do much else but sue people. For Gary, it was like target practice for a budding Billy the Kid. He was growing up, and the world would hear about him.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:40 am

WE’RE NOT GOING TO BANGKOK (OR ATHENS, MOSCOW, HAIFA, ETC.)

In the United States Federal District Courts, some judges are appointed by the President, confirmed by Congress, and serve for life. We call them “Article III judges” because their offices were established by Article III of the U.S. Constitution. Article III judges are not required to adjudicate the discovery squabbles that inevitably erupt in litigation. Federal Magistrate judges, who are not appointed by the President or confirmed by Congress, referee the verbal jousting matches between attorneys squabbling over what documents shall be produced, what witnesses shall be deposed, and what interrogatories shall be answered. The Magistrate assigned to hear discovery motions in our case was Patricia Trumbull.

On January 11, 2000, we had our first discovery hearing with Judge Trumbull. I had five motions on calendar that day, which is like serving the Judge five Big Macs at once. One is fine, two is too many, but for god’s sake, five! Still, it was the only thing we could do -- Cohen had barged into the discovery arena, demanded to use all the time deposing his witnesses around the world, wanted my client’s medical records because Gary said his medications caused memory problems, and wanted the records of two of his former trial lawyers -- Katie Diemer and Sheri Falco -- and one of his corporate lawyers -- Aaron Alter. When we filed our motions on November 24th, they effectively blocked all the depositions from going forward until the Judge made her decision, and although we would have liked the decision earlier, she was taking her time.

I didn’t think I was going to have a difficult battle on the motion for protective order to prevent the extraterritorial depositions. I thought Judge Trumbull would immediately perceive the entire stratagem for what it was, and grant a protective order. I was surprised when she led off with a mini-lecture about how this courthouse was very familiar with disputes involving international discovery, and there was nothing unusual about them. The suggestion was that, should it be necessary to take international discovery in a large-stakes Internet case, the parties would simply have to ante-up to meet the demands of litigation.

Why could I simply not attend the depositions by telephone, Judge Trumbull wanted to know? I had an answer ready: Because the whole case was about fraud, because the Sex.Com domain name had been stolen by use of a forged letter, because Cohen had been convicted of bankruptcy fraud and impersonating attorneys in the past, and because, most importantly, we could not trust Cohen to present witnesses who really were who he claimed they were. As I pointed out to the judge, “there could be anyone on the other end of the telephone.”

The judge had another question. “What good will it do you to be there?”

I told her I could “ask them for their driver’s license, and compare it with the person who was sitting in front of me.” This argument was successful. At the end of the hearing, the judge granted a protective order, telling Cohen’s attorney that he could proceed with the depositions wherever he wanted, but full videoconferencing had to be arranged for Kremen’s attorney at Cohen’s expense. In effect, the judge called Cohen’s bluff. Immediately after the hearing, Dorband told me that if he had to pay for videoconferencing, he’d just skip the depositions, and submit signed declarations instead.

So there we were, no trip to Bangkok, or elsewhere. And as for Gary’s medical records, we won that protective order too. Gary’s former lawyers, Judge Trumbull said, would have to submit to deposition, but as it happened, Dorband never followed up on them.

Thus, at great cost of time and energy, we were able to obtain a commonsense result. Courthouses are wonderful places to waste time in furious activity. On January 11th, that furious activity resolved itself into precisely the result I wanted: nothing. Cohen got no documents, no depositions, no medical records, and I got no diesel therapy. Sometimes just not getting smashed is a big win.

The subtler, but more important win occurred on the battlefield of Judge Trumbull’s mind. It is hard to convince a judge that your adversary is acting in bad faith. Judges presume that discovery devices are generally used for legitimate purposes, and that when a dispute kicks up it’s probably the fault of both parties. Winning with Judge Trumbull meant convincing her that I was wearing the white hat.

In written court filings, of the sort I sent to Judge Trumbull, I always led with Cohen’s criminal fraud convictions, and referred to “the forged letter” and the “stolen domain name.” Good trial lawyers control the language of a case by producing accurate sound bites that sell a concept in a short phrase. If a guy cheats people, call him a con-man! If no one disputes that the letter is a forgery, call it a forged letter! If property was taken from an unwilling donor without compensation, call it a theft! The subject of the case was blatant theft by deception, so I was justified in using direct language. Cohen’s act of theft was unconscionable, and righting the wrong was self-evidently just. This was not ordinary commercial litigation -- it was a civil prosecution.

For years Cohen was able to cynically deploy the legal system against Gary and many others, using the profits from Sex.Com, a fire hose of cash, to present a very aggressive defense, while cloaking his ruthless tactics behind a plea for fairness: “Sure, I’m an ex-conman, but I’ve paid my debt to society. Pornography is just a business, and I’m just a businessman.” To me it was a transparent tactic. I still had to sell that to the judges. At that hearing, Judge Trumbull began to see the first glimmerings of my vision, and a portion of her mind changed from Cohen territory to Kremen territory.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:40 am

MAKING LEMONADE

We’re all familiar with the saying, “When life gives you lemons, make lemonade.” When my fax machine sprang to life, and started spewing out a lawsuit against Gary Kremen, alleging multiple tortuous acts, and seeking $9 million in damages, this was clearly an incoming shipment of lemons. This lawsuit was procedurally presented as a “counterclaim” by “counter-plaintiffs” Cohen, YNATA and Sandman Internacional. A counterclaim is no different in its effect upon the “counter-defendant” than a regular lawsuit, and gives the “counter-plaintiff” full rights of discovery and other procedural devices for wreaking havoc. As it was still spewing out of the fax machine, I called Gary and told him that Cohen was cross-claiming against him for $9 million for Defamation, Unfair Competition, and Cybersquatting. Then I had a question: “Gary, do you have insurance for your business activities?” Yes, he thought he did. I told him to fax me his policy immediately.

Gary may have had trouble finding some documents, but he had his State Farm insurance policies to me within hours. It looked very good. He had one policy for $1 million in coverage, and another for $300,000. They both covered slander, that is, defamation. I called Gary back with the happy news. We would be making lemonade, and State Farm was buying the sugar!

Of course, as the old adage goes, “there’s many a slip twixt the cup and the lip,” and State Farm might have very different ideas about springing for our lemonade party, but I knew once Gary understood the principles of insurance bad faith law, his burning sense of urgency would get us either a defense or a hell of a lawsuit against State Farm. Because insurance companies don’t always like to defend you when a guy like Cohen, worth maybe hundreds of millions, sues you because you called him a thief. Or they might not defend you very aggressively. The key to getting a good, vigorous defense, worth hundreds of thousands of dollars, is knowing the law of insurance bad faith.

I learned about insurance bad faith first from Steve Schiffrin, a much-published author on freedom of speech and the First Amendment who now teaches at Cornell Law School. Steve was brilliant, way too brilliant in fact to be fully appreciated by a classroom of 75 new law students lucky enough to learn basic tort law from a bona fide fucking genius. Steve was what you’d call pudgy, with thinning, sandy hair, and the complexion of a guy who rarely–if ever–goes to the beach. He was sweetly sarcastic, and enjoyed dealing legal propositions with a broad outward sweeping movement of his right arm, hand extended, palm upward, with a satisfied pursing of his lips, and eyebrows contracting to make the point.

Steve introduced us to insurance bad faith law as the place where the law of torts -- which deals with legal wrongs between strangers -- collides with the law of contracts, which deals with legal disputes between contracting parties. You often get more in damages for tort cases, where you recover the entire loss, including things like pain, suffering, and emotional distress, than in contract lawsuits, where damages are usually limited to the face amount of the contract.

Steve introduced us to the case of Crisci v. Security Insurance. In that case, an elderly Italian widow named Rosina Crisci owned a rental with a second floor walkup, which was insured by Security Insurance for $10,000. She also had a very hefty female tenant. One day the stairs broke and the hefty lady fell straight through, leaving her hanging in midair, which caused physical injury and a “severe psychosis.” She had no prior history of mental problems. The hefty lady’s lawyers sued the landlady, and Security Insurance appointed lawyers to defend Mrs. Crisci. The lawyers who Security hired scoffed at all of the plaintiff’s settlement demands, which started at $400,000, but dropped to $10,000, and even lower, to $9,000. Even though Security’s expert physicians predicted a verdict in excess of $100,000, the company offered only $3,000 for the physical injuries, refusing to pay “one cent” for the psychological injuries. Mrs. Crisci offered to kick in $2,500 if Security would pay the $6,500 difference between that and the final $9,000 demand, but Security rebuffed this opportunity as well.

The hefty lady went to trial and got the $100,000 trial verdict Security’s doctors had warned about. Her lawyers collected $10,000 from Security, the full amount of the insurance coverage, and then reached a settlement with poor Mrs. Crisci, who lost everything. As the California Supreme Court put it, Mrs. Crisci, “an immigrant widow of 70, became indigent. She worked as a babysitter, and her grandchildren paid her rent. The change in her physical condition was accompanied by a decline in physical health, hysteria and suicide attempts. She then brought this action.”

Mrs. Crisci sued Security for “breach of the covenant of good faith and fair dealing.” This “covenant” imposes a duty on the contracting parties to “do everything necessary to achieve the purposes of the contract, and nothing to defeat those contractual purposes.” The California Supreme Court held that the covenant of good faith and fair dealing was especially important when it comes to an insurance contract, because it is a contract for personal security and peace of mind. Thus, the court found that by rejecting a settlement demand within policy limits ($10,000 or less) when it was reasonably clear Mrs. Crisci would lose far more at trial, Security violated the covenant of good faith and fair dealing. Therefore, Security was subject to “extra-contractual damages,” that is, (gasp) the full $100,000 Mrs. Crisci got hit for at trial, plus Mrs. Crisci’s emotional distress, plus some punitive damages. This is now called “opening the policy,” and is justified on the grounds that it is the only way to teach insurance companies to not take risks with their insured’s interests, thinking “well, worst comes to worst, we just pay the policy limits.” Instead, they must settle every case as if they were going to have to pay the whole adverse verdict, for only then are they acting fairly.

During my first year at UCLA Law School, I completely missed the significance of Steve Schiffrin’s lecture on the Crisci case. But it became my daily bread at Mazursky, Schwartz & Angelo, where I worked on large claims, like Gary Lehto’s, who was rendered paraplegic when his car was rear ended by a car driven by a career drunk and owned by his drunken dad. Allstate screwed that case up when it refused to settle for the $25,000 policy unless Lehto gave a release to both father and son. Mr. Lehto’s final verdict was for $3.5 Million. An insurance company must treat these “over-limits” cases with the greatest solicitude, because if an insurance adjuster refuses to settle a multi-million dollar case for $25,000, Mrs. Crisci’s descendants may well have their way with the insurer’s assets.

At MS&A, we wanted them to refuse to settle. Sometimes we’d get a case on referral from other, no-name plaintiff lawyers who had been rebuffed by the insurers. When the adjusters saw MS&A on the case, their whole attitude would change. They would become eager to pay what had been out of the question before. My standard tough-guy response to these last-minute converts was, “In the future, always settle with a schmuck if you can. You missed your chance this time.”

Gary’s insurance policies for $300,000 and $1 Million were utterly dwarfed by the liability risk presented by Cohen’s $9 Million claim. Thus, even if Cohen only nicked Gary for a sixth of his total $9 million damages demand, it would exceed the value of both policies combined. You can see how that excess potential makes the risk of refusing to defend Gary one that State Farm would consider carefully. If Cohen got a $9 million verdict against Gary, because State Farm refused to defend him, Gary could sue State Farm for the loss, or even sell Cohen his right to sue State Farm. With this kind of leverage, the insurer must step up to the plate and defend.

The insurer then has one more decision to make -- whether or not to “reserve its rights.” By “reserving its rights” the insurance company says to its insured, “Okay, I’ll pay for your lawyer to defend this claim, but it may not really be covered under your policy, so I’m not promising to pay the verdict if you get hit, although I’ll defend you until then.” If an insurance carrier “reserves its rights,” their insured is actually benefited in two ways. First, the carrier must then pay for a lawyer, chosen by the insured, to advise the insured how to deal with the insurance carrier. Second, the insured also gets to pick their own lawyer for the main defense, rather than having the insurance carrier pick one of their “panel counsel.” So reserving rights can get expensive for an insurer.

State Farm at first denied coverage altogether under the $1 Million policy, and agreed to defend under the $300,000 policy, while reserving its rights. Thus, I tried to arrange to have State Farm retain the best First Amendment and speech law firm I knew of, Irell & Manella in Century City, Los Angeles. Irell & Manella thinks of itself as a firm that combines stellar intellectual firepower with a take-no-prisoners litigation ethic, basically promising to take your adversary on a rocket ride to hell. Actually, they are famous for delivering on this boast, and billing in a manner commensurate with their achievements. I clerked there when I was at UCLA, so I put a call through to partner Morgan Chu, who I figured was probably still representing ABC on speech issues. He put me in touch with his associate, David Codell, a 1999 magna cum laude Harvard graduate and a gem. David was interested in the case, so I started trying to get them onboard as Gary’s attorneys to defend against Cohen’s cross-complaint.

The plan to hire Irell & Manella was looking good until Jose Guillermo, the State Farm adjuster who had been assigned to the case, realized who they were and how much they charged. Their billing rates were way out of line with State Farm’s usual rates for insurance defense counsel. So State Farm withdrew its reservation of rights under the $300,000 policy. This decision was a no-brainer. Simple arithmetic. Better to be on the hook for $300,000 indemnity than pay for separate counsel, plus the cost of Irell & Manella’s rocket fuel. State Farm was then able to select one of its own panel attorneys, rather than have me make the choice for them.

State Farm hired Richard Diestel for the job. Initially, Rich was not taken with the case. I don’t think he had any intention of becoming involved in what he thought of as pornography law, and his involvement with defamation cases seemed neither deep nor extensive. However, it was my job to get him to spend abundantly from the great big bag of State Farm money, and Rich had an obligation to provide Gary with the best defense against Cohen’s counter-claims that could be mustered. It would not be long before he felt the sting of Gary’s emails, cell phone calls, and abrasive letters. He was in no way ready to start representing Gary Kremen in Cohen v. Kremen, but that had nothing to do with it. He was in the ring, Bob Dorband was in the other corner, and the bell had just rung. “Rich,” I told him, “you are going to make a lot of money on this case.”
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:41 am

WHERE’S THE DOGBITE?

Cohen bought himself a load of trouble when he alleged defamation against Kremen, claiming that Kremen had falsely called Cohen a thief by accusing him of “stealing Sex.Com” in an interview with WiredNews.com Magazine writer Craig Bicknell. The wonderful thing about having to defend a defamation claim, and having an insurance lawyer to help you do it, is that truth is a defense to defamation. Gary could win the defamation claim by proving that Cohen really had stolen Sex.Com. That’s how it became Rich Diestel’s job to prove that Gary Kremen was speaking the truth when he said Cohen had stolen the domain name. Cohen had created a two-front war. We now had two guns instead of one. Best of all, Diestel had an unlimited supply of ammunition and a directive to keep expending it until the threat of Cohen’s counter-claim was extinguished.

Still, Rich was a little slow on the trigger. While he wouldn’t ever really say it out-and-out, he must have been extremely uncomfortable with the case. His discomfort is perhaps best explained by a remark Rich made about how State Farm adjusters were reacting to the wave of Internet cases they were having to defend based on a simple homeowner’s insurance policy. Lots of tech businesses having been launched from bedrooms and garages, these cases generated a type of case load for the insurance adjusters that they hadn’t previously seen. According to Rich, when confronted with a case like Sex.Com, the adjusters were wont to ask, “Where’s the dogbite?” Rich was describing his own reaction, as well.

Rich likes simple stories. Simple stories like, “my client’s dog bit the neighbor’s kid.” The nice thing about a story like that is, it’s easy to investigate. You can find out that the kid was always torturing the dog, that he isn’t doing well in school, and that he stuttered even before he was bitten. You can get the kid’s medical records, his school records, and the dog’s veterinarian records. There is a limited universe of facts, a limited number of witnesses, and you can tell when your job is done.

By contrast, the Sex.Com story, being primarily the creation of Stephen M. Cohen, was replete with switchbacks and confusion, with more corporations than you could shake a stick at, with forged documents and prison records, and imaginary witnesses scattered over the globe. Cohen’s skein of lies frustrated Rich, even as it obsessed Gary. Rich thought it would be difficult to win using a trial story that was difficult to comprehend, let alone explain.

Before you sell your case to the judge or jury, you have to at least be able to sell people like Rich, who have been paid to agree with you. To sell Rich, I had to master all of the available facts, and render them in a simple, convincing story: “Cohen is a crook, he stole Sex.Com, and he’s hiding the money in a bunch of phony corporations.” Once I was able to articulate that story, and support it with documents and testimony, Rich bought it. What he bought even more was the fact that Bob Dorband, Cohen’s lawyer, was one of the trickiest rascals to ever walk up the courthouse steps. Bob tied Rich’s tail in a knot so many times that it made Rich furious toward the end of the case. That was when the lemonade really started flowing. Once Diestel was pissed.

Rich got along well with witnesses. I won’t say he got as much information out of a witness as I did, when we did depositions together, but I think witnesses generally tended to feel more comfortable with him. That was a good thing, because they would open up, and I could get more stuff. Rich was the kind of guy that you could stolidly share some hotel food with, while swapping the occasional war story, and cursing Dorband and Cohen. “That’s fucking bullshit.” That’s the sort of thing that Rich Diestel would say. He said it more often and with increasing conviction as the case wore on.

Diestel’s investigator, Phil Stuto, did some good work, too. He interviewed several of Cohen’s ex wives, and found a dying witness by the name of Arnaldo Peralta, whose name Cohen had forged in order to obtain Mr. Peralta’s “permission” to incorporate a California company with the name of Omnitec, since Mr. Peralta already operated a company with a confusingly similar name -- Omni-Tech. Stuto was also the only person to get a trip to the Islands out of this case. He seized his opportunity, early in the case, and promptly got his ass to the British Virgin Islands to check out Cohen’s phony corporations. He didn’t learn anything, but then again, it was never clear why he was going in the first place.

Once discovery reopened, Diestel gave us additional moral high ground with Judge Trumbull. Many judges are more sympathetic to a plea for more discovery from a defendant who is being pressed with the threat of damages. Somehow it seems unfair to allow someone to be sued for damages and prevented from getting evidence to prove or disprove those claims. So Diestel, in his position as Gary’s defender against a claim for $9 Million, had a strong interest in finding out just how Cohen had incurred those damages. As lost profits, presumably. To verify those, we needed to see financials. Since Cohen had no intention of producing any accurate financial documents, our strategy was first, to file motions to compel production of documents and attendance of witnesses, second, to attempt to enforce those orders, and third, to file new motions to compel compliance when Cohen inevitably failed to comply. A judge can only tolerate so much disrespect of her orders. With both Diestel and myself filing motion after motion, it wasn’t long before we were regularly able to recount an increasingly familiar tale of woe to an increasingly sympathetic Judge Trumbull. We gained momentum as the judge resolved one discovery battle after another in our favor. As we banked each victory, we had the piles of paperwork, the airline tickets and deposition expenses, the sixteen hour days to show we’d paid for each order dearly. In litigation, there is no substitute for pushing ahead aggressively in discovery. Diestel shared that burden with me like no one else.

Throughout the case, it was good to have a dignified guy like Rich Diestel standing there, employed by the most legitimate entity in the world, an insurance company, denying everything, admitting nothing, and insisting that he’s going to get a complete dismissal of all claims. That stuff really cuts some ice with judges and juries, even when it’s a bad case. And when a guy like that is plainly in the right, he is unbeatable.

In this case, Diestel was blessed with luck. He didn’t have to compromise one damned thing. He participated in the total defeat of Cohen’s position in a case that will impart a flavor of the exotic to his entire career. You wonder what could ever make him want to go back to doing dogbites.
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Re: The Sex.Com Chronicles, by Charles Carreon

Postby admin » Fri Jun 13, 2014 1:41 am

RENT-A-NERD

Henry Ford once made a comment about experts. It happened when he sued a man for slander who had said he was ignorant. Trying to prove that Ford was in fact stupid, the lawyer pressed Ford about some obscure point of history or science. Ford shot back that he saw no reason to clutter his mind with that type of information when he had “a row of push buttons” on his desk, pushing any one of which would put innumerable experts in all areas of human knowledge at his fingertips. If that was ignorance, then, well, he was stupid. You can imagine he got the better of the argument with the jury. To possess experts at your command, apparently, is better than to know something yourself.

We needed an expert. Gary found one. Affectionately, I call her a nerd. Ellen Rony is never so comfortable as when she has her Apple notebook computer on her lap, sitting in her solarium, culling through a few hundred emails from the friends in her vast global community. She corresponds with the luminaries of the Internet universe. Even the fearsome Phil Sbarbaro, longtime lawyer for NSI, called her a friend. Well, of course that was before he’d threatened to cut off her toes, but what’s a few digits between friends? No, Ellen might look like any other single mom with a dog in a suburb north of the Golden Gate Bridge, but the sleek profile of her pampered BMW suggested she had potential as a litigation weapon.

Ellen was the author of the Domain Name Handbook. Gary got a copy of the book for me, which comes with a CD-rom. Ellen was an Internet buff who had gotten so into chronicling the history of NSI that she actually had stuff saved off their old web pages that couldn’t be found anywhere else. This made me aware of something I had been worrying about -- the evanescence of the Internet record. The thought immediately casts an Orwellian shadow across the mind. Ellen Rony brought me face to face with the fact that the Internet had completely eliminated the need for the cutting and pasting department that was a necessary part of the Newthink/Newspeak system in the novel 1984. In Orwell’s novel the future was routinely rewritten, but the paperwork was immense. Entire newspapers had to be rewritten and reprinted, archived for history’s sake, then revised again. I remember in reading the novel that the very cumbersomeness of the process comforted me, as I thought that it would be impossible to accomplish that kind of historical revisionism. The paper record was a bulwark against it. And here, the Internet had destroyed one more barrier to deception, dissimulation, and alteration of the historical record. Truly, if corporations control the Internet, history is in unsafe hands.

Ellen’s book is not the sort of thing you would ordinarily find piling up next to my bed. Even if I want to study cyberspace, I’d rather read cyberpunk science fiction and see what rubs off that way. Ellen’s book had some good facts in it. Mind you, none about Sex.Com. The only mention of Sex.Com in Ellen’s book mistakenly states that it was originally registered by Cohen’s company, Sporting Houses Management Corporation. However, Ellen could not be faulted. She took the information directly from NSI’s website. According to Ellen, NSI should have listed Kremen as the original first-time registrant, with Sporting Houses Management coming later. For some reason, NSI deleted Kremen’s registration so completely that all records of the original registration were obliterated. Orwellian, again.

After reading a few chapters of Ellen’s book, I found some useful stuff. Particularly I liked her clear and simple statement that the term dot-com had been invented by John Postel in 1984. This was useful in debunking a defensive claim that Cohen had engineered using the trademark laws to validate his theft of Sex.Com. Cohen claimed he acquired a trademark in Sex.Com by “using it in commerce” since 1979 as part of a computer bulletin board operation. So citing Ellen’s book enabled me to argue early and often that Cohen’s claim was absurd, since “dot-coms hadn’t even been invented in 1979.”

Gary and I first met Ellen at a little restaurant on the water in Sausalito. Gary comes from the don’t drink at lunchtime ethic, but with the bright afternoon sun shining off the water, the three of us enjoyed our drinks. I forget what Ellen had, but it was something fruity and festive. I presume I had a Bloody Mary, your standard alcohol breakfast. My modus operandi with Gary was to back him up in all his flamboyant assertions about having lots and lots of money, to look well fed and well tended, and ask a few good questions. We wanted to recruit Ellen for our team because, as I repeatedly told her, she was the only person who could lay claim to being a published authority about the history and operation of NSI.

As with many a person, we were able to forge an alliance with a legitimate mainstream authority because we had taken the moral high ground. We circulated the third amended complaint widely to journalists and industry people like Ellen. Right there in the document Gary declared he was not a pornographer, and his site would not have been what Sex.Com had become. Gary enjoyed pitching this concept to Ellen, and his charisma caught fire as he did so, making him genuinely charming. His site would have been a far more wholesome, high-minded affair. This had an important effect on Ellen, who has a young son, Alexander, and hadn’t given much thought to pornography prior to our meeting. Gary’s presentation put her mind at rest, allowing her to concentrate on her field of expertise -- explaining exactly how Cohen had managed to get NSI to transfer the name, and why that was every bit as much NSI’s fault as it was Cohen’s. At first, Gary paid Ellen, but eventually, State Farm started picking up the tab, because after all, we couldn’t prove the case without her.
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