Opposition 2theMart's Reply Brief
In re 2theMart Securities Litigation
STATES DISTRICT COURT
DISTRICT OF WASHINGTON
In re 2TheMart.com, Inc.,
This Document Relates To:
U.S.D.C. (C.D. Cal.)
BRIEF IN OPPOSITION TO MOTION OF J. DOE TO PROCEED UNDER PSEUDONYM
AND TO QUASH SUBPOENA ISSUED TO SILICON INVESTOR/INFOSPACE, INC.
March 30, 2001
III. SUMMARY OF ARGUMENT
the subpoena served on Silicon Investor/Infospace (the Subpoena)
is entirely consistent with traditional First Amendment principles.
Although the Users had the right to speak anonymously over the
Internet message boards, they had no such constitutional right to
maintain anonymity after the time of speech. Since the evidence is
clearly relevant to the defense in the underlying securities
litigation, Defendants Steven W. Rebeil and Dominic J.
Magliarditi are entitled to the identifying information for each of
the twenty-three users (the Users) listed on the
Subpoena. Defendants hereby respectfully request that this Court
deny the Motion of J. Doe to Proceed Under Pseudonym and to Quash
Subpoena Issued To Silicon Investor/Infospace, Inc. (the Motion).
B. THE FIRST
AMENDMENT PROVIDES NO RIGHT TO REMAIN ANONYMOUS
J. Doe claims
that the disclosure of the Users identifying information
threatens their constitutionally protected choice to speak
anonymously over Silicon Investors message boards.
[Motion, p. 5.] J. Doe fails to realize that speaking
anonymously is far different from remaining anonymous
thereafter. Individuals have a constitutional right to speak
anonymously that is guaranteed by the First Amendment. In contrast,
the First Amendment is completely silent as to anonymity in and of
itself. J. Doe, therefore, has no constitutional basis for its
Motion to Quash.
2. The Right To Speak Anonymously Is Entirely
From The Right To Remain Anonymous.
Supreme Court Has Recognized The Right To Speak Anonymously.
In McIntyre v.
Ohio Elections Commn, 514 U.S. 334, 131 L.Ed.2d 426, 115
S.Ct. 1511 (1995), the Supreme Court recognized that, as part of the
First Amendment right to free speech, individuals are guaranteed the
right to speak or publish anonymously. Id. at 341-343. To
reach this conclusion, the Court reasoned that the identity of
the speaker is no different from other components of [an
expressions] content. Id. at 348 (emphasis
added). Since information about a speakers identity may
function as an element of content, a speaker should be free to
include or exclude that element within the content of his or
her expressions. Id.
and subsequent cases have upheld the right to speak anonymously,
striking down statutes that require individuals to include their
identities as speech content. For example, the following types of
statutes have been held unconstitutional because they impose an
unconstitutional burden on the First Amendment right to choose the
content of ones expression:
(1) Statutes requiring a speaker to disclose his or her identity as a
part of the expression, see, e.g., Buckley v. ACLF,
Inc., 525 U.S. 182, 142 L.Ed.2d 599, 119 S.Ct. 636 (1999)
(identification badge requirement for petition circulators struck
down) [Motion, p. 6];
(2) Statutes prohibiting anonymous speech, see, e.g.,
McIntyre v. Ohio Elections Commn, supra, 514 U.S.
334 (1995) (prohibition on the distribution of anonymous campaign
literature struck down) [Motion, p. 6]; and
(3) Statutes prohibiting the use of false identifications, see,
e.g., ACLU v. Miller, 977 F. Supp. 1228 (N.D.Ga. 1997)
(prohibition of Internet transmissions which falsely identified the
sender) [Motion, p. 7].
In effect, the
challenged statutes in these cases were content-based, requiring
disclosure of the speakers identities as a condition of
entry into the marketplace of ideas. McIntyre, 514 U.S.
at 343. Since the statutes regulated content, they were
impermissible as direct regulation[s] of pure speech.
Id. at 345.
b. The Right To Speak Anonymously Does Not Create
To Remain Anonymous.
The holding in
McIntyre cannot be extended to encompass what J. Doe claims is
a right to remain anonymous. Although no law prevents a
speaker from trying to maintain anonymity after exercising the right
to speak anonymously, and a speaker may even have a legitimate
purpose in remaining anonymous, this prerogative cannot affect the
rights of another party subsequently to ascertain that speakers
identity. The First Amendment does not guarantee anonymity; nor has
any Court ever held that the First Amendment blocks the efforts of
others to determine a speakers identity. In other words, the
absence of the speakers name from speech does not necessarily
protect either the author or the distributor of the speech from being
held responsible for the consequences of the speech. Id. at
The United States
Supreme Court has specifically refused to recognize the right to
remain anonymous in Buckley v. ACLF, Inc., supra. In
Buckley, the Court upheld a statute that required circulators
of state initiative-petitions to disclose their identities in
affidavits after their initial expressions of anonymous speech.
Buckley, supra, 2 L.Ed.2d at 613-614. In upholding the
required disclosure, the Court held:
Unlike a badge requirement worn at the time a circulator is
soliciting signatures, the affidavit is separated from the moment the
circulator speaks. . . . [T]he name badge requirement forces
circulators to reveal their identities at the same time they deliver
their political message; it operates when reaction to the
circulators message is immediate and may be the
most intense, emotional, and unreasoned. The affidavit, in
contrast, does not expose the circulator to the risk of heat of
the moment harassment.
(citations omitted). The Supreme Court further held that the
affidavit requirement in Buckley exemplifie[d] exactly
the type of regulation for which McIntyre left room.
Id. at 614.
2. J. Doe Has No Right To Remain Anonymous.
Internet has spawned an entire field of developing law, the existence
of the Internet as a new mode of communication cannot form the basis
for J. Does attempt to deviate from basic constitutional
principles. The First Amendment applies equally here as it did in
McIntyre and Buckley. Clearly, J. Does argument
for an extension of the right to speak anonymously does not comport
with established precedent. Like the affidavit requirement in
Buckley, the Subpoena is proper because it does not require or
force the Users to include their identities within the content of
their Internet message board postings.
This lies in
stark contrast to the cases cited by J. Doe, where the Courts
invalidated content-based regulations of speech. Unlike the
identification badge requirement in Buckley, supra, the
Subpoena does not require the Users to state their identity as part
of their message board postings. Unlike the prohibition on anonymous
campaign literature in McIntyre, supra, the Subpoena
does not forbid the Users from posting anonymous messages, bereft of
any identifying information. Finally, unlike the prohibition on
false Internet identifications in Miller, supra, the
Subpoena does not prohibit the Users from using pseudonyms like
NoGuano in their message board postings. In sum, any
disclosure of information required by the Subpoena in the instant
case is far removed and entirely remote from the content of the
Users speech, and, therefore, the disclosure required by the
Subpoena does not infringe on the First Amendment right to free
2. The Seescandy Case Has No Application To J. Does
Motion To Quash.
J. Doe cites the
case of Columbia Insurance Co. v. Seescandy.com (Seescandy),
185 F.R.D. (N.D.Cal. 1999), to support its purported right to prevent
disclosure of the Users identities pursuant to the Subpoena
served on Infospace. In fact, the holding in Seescandy
related solely to the right to pre-service discovery to identify
fictitiously-named defendants. The courts ruling was based
upon the fact that the plaintiff sought to obtain a temporary
restraining order against a Doe defendant before it had
ascertained that defendants true identity. Id. at
578-581. The Seescandy test, therefore, does not apply in the
2. Infospace Does Not Possess The Same First
Privileges Available To Journalists.
In its Motion, J.
Doe confuses the journalists privilege with the First Amendment
right to speak anonymously. J. Doe claims that the journalists
privilege should apply here to prevent the disclosure of the Users
identities. J. Does claim fails for the simple reason that the
principles underlying the journalists privilege have no bearing
or relevance to the instant case.
between a journalist and a message board operator like Infospace is
clear from their respective roles in speech. A journalist is the
author of the news stories that it disseminates to the public. As
the author, the journalist has control over the content of the speech
it chooses to publish. Thus, journalists may enjoy the First
Amendment right to freedom of speech; that right, however, entails
the possibility of having to answer for such speech.
Infospace, on the
other hand, performs no function similar to that of a journalist.
Unlike a journalist, Infospace plays only a passive and
non-communicative role in online speech. Infospace merely provides a
blank message board and a vehicle for delivery through which the
Users may independently author and express their own speech.
Infospace is more similar to the person who delivers the newspaper,
or a broadcaster, or a printer of pamphlets than it is to a
journalist. Since Infospace performs no speech function, unlike a
journalist, J. Doe may not import any First Amendment right to
Does argument is flawed because, taken to its logical
conclusion, it frees all parties from any responsibility for online
speech. J. Doe argues that individuals have a constitutional right
to free Internet speech and have an extended right to remain
unaccountable for such speech. J. Doe applies the same argument to
Infospace and similar broadcasters of Internet speech.
J. Does argument, therefore, creates an virtual safe
haven where no author can be held to answer for his or her
speech, a result which the drafters of the First Amendment certainly
could not have intended.
Finally, J. Doe
fails to recognize that the journalists privilege is qualified
and not absolute. Shoen v. Shoen, 5 F.3d 1289, 1292 (9th Cir.
1993). The privilege can be overcome in instances where the
opposing need for disclosure outweighs the First
Amendment right to freedom of the press, which is, essentially, a
recognition of societys interest in protecting the
newsgathering process . . . and in ensuring the free flow of
information to the public. Id. at 1292-1293. For the
reasons outlined above, Infospace bears no similarity to
newsgathering journalists and disclosure of the Users
identity will have no effect on the freedom of the press. Thus, no
legally justifiable reason exists to apply the journalist privilege
in this case.
2. The Instant Case Bears No Semblance To Cases Which
Member Lists Pursuant To The Right To Association.
Amendment right to association invoked by J. Doe also does not
prevent the disclosure of identifying information pursuant to the
Subpoena. The right to association only prevents disclosure of
membership for groups engaged in advocacy. NAACP v.
Alabama, 357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958); see
also Black Panther Party v. Smith, 661 F.2d 1243 (D.C. Cir.
1981). J. Does argument fails for the simple reason that no
group association can exist based on mere Internet communication.
B. THE INFORMATION SOUGHT BY THE SUBPOENA IS HIGHLY RELEVANT TO
THE DEFENSE IN THE UNDERLYING SECURITIES LITIGATION
2. Defendants Have Asserted As An Affirmative Defense That
Were Not The Proximate Cause Of Plaintiffs Damages.
This Court should
deny J. Does Motion because the information sought by the
Subpoena is relevant to the Defendants affirmative defenses, as
asserted in Defendants answer to the Complaint.
In the Complaint, the Plaintiffs allege that the Defendants made
material misrepresentations and omissions to the investing public
about the 2TheMart website, causing them and the other class members
to purchase 2TheMart securities at inflated prices to their financial
detriment. [Declaration of Michael A. Cabotaje (Cabotaje
Decl.), ¶ 2, Exh. A (Complaint, ¶¶ 1-9).] Among
several other affirmative defenses, Defendants claim that no
act or omission of any of the defendants was the cause in fact or
proximate cause of any injury or damage to plaintiffs.
[Cabotaje Decl., ¶ 3, Exh. B (Answer, p. 17).] Defendants based
this affirmative defense upon evidence showing that changes in
2TheMart stock prices were not caused by the Defendants
but by the illegal actions of individuals who manipulated the
2TheMart stock price using the Silicon Investor Internet message
2. Defendants Intend To Demonstrate That Plaintiffs
Caused By An Illegal Manipulation Of 2TheMart Stock
b. Enforcement Of The Subpoena Is Consistent With
Securities Laws Against The Unlawful Manipulation Of Stock
Exchange Act of 1934, as amended (the Exchange Act),
contains far-reaching proscriptions against market manipulation.
Market manipulation under the federal securities laws is defined as
intentional or willful conduct designed to deceive or defraud
investors by controlling or artificially affecting the price of
securities. Ernst & Ernst, 425 U.S. 185, 199
(1976). All practices in the marketplace which have the effect
of either creating the false impression that certain market activity
is occurring when in fact such activity is unrelated to actual supply
or demand and tampering with the price itself are manipulative.
Hundahl v. United Benefit Life Insurance Co., 465 F. Supp.
1349, 1360 (N.D.Tex. 1979).
of the Exchange Act [Section 9(a)(2)] evidences the
states interest in prohibiting the manipulation of securities
prices. Section 9(a)(2) requires that an individual effect
a series of transactions in a security registered on a
national securities exchange,
creating actual or apparent active trading in such security or
raising or depressing the price of such security, for the purpose of
inducing the purchase or sale of such security by others. 15 U.S.C.
§ 78i(a)(2). Improper activity under Section 9(a)(2) may be
coupled with devices, such as misleading representations, to
manipulate the stock prices further. See, e.g., U.S.
v. Minuse, 114 F.2d 36, 38 (2d Cir. 1940) (illegal manipulation
achieved through transactions that gave an appearance of active
trading, combined with the distribution of misleading literature).
Section 10(b) of the Exchange Act broadly prohibits the use of any
manipulative or deceptive device or contrivance in connection
with the purchase or sale of securities. Similarly, Rule 10b-5,
promulgated under Section 10(b), prohibits the multitude of
deceptive and manipulative devices which continually appear in the
securities markets, including activities directed ... toward the
manipulation of securities prices. United States v.
Charnar, 537 F.2d 341, 351 (9th Cir.), cert. denied, 429 U.S.
The case of
Miller v. Asensio, 101 F. Supp.2d 395 (D.S.C. 2000)
illustrates the applicability of federal securities law to situations
similar to that in the underlying matter. In Miller, the
plaintiffs alleged that the defendants published through the Internet
false and fraudulent reports together with a misleading strong
sell recommendation regarding the subject company. Id.
These misrepresentations suggested that the companys market
price was grossly inflated. Id. at 399. The defendants also
allegedly engaged in illegal short selling in a successful effort to
drive down the price of the stock. Id. The Court in Miller
held that the allegations were sufficient to state a claim under
Section 10(b) and Rule 10b-5. Id. at 400.
As in Miller,
the evidence in the underlying securities litigation provides support
to Defendants claim that the unlawful manipulation of stock
prices caused the alleged losses. This evidence consists of: (a)
negative, false and misleading comments about both 2TheMart and the
Defendants made on Internet message boards, and (b) concurrently
posted comments on message boards that were written by Silicon
Investor users to induce others to sell 2TheMart stock.
have obtained records of numerous negative, false and misleading
comments made on the Silicon Investor message boards during the Class
Period. Many of those comments were posted by an author
pseudonymously known as The Truthseeker (listed as #5 on
the Subpoena). On May 25, 1999, for example, The Truthseeker posted
statements on the Silicon Investor message board calling 2TheMart
(TMRT) a Ponzi scheme and accusing the Defendants of
defrauding past employers and customers. [Cabotaje
Decl., ¶10, Exh. C.] Similarly, on July 26, 1999, The
Truthseeker referred to the Defendants as two bit POS CRIM
attorneys of TMRT. [Cabotaje Decl., ¶11, Exh. D.]
about 2TheMart and the Defendants abound in the Silicon Investor
message boards. On July 15, 1999, a poster using the pseudonym
trader14U (listed as #23 on the Subpoena) called the
Defendants liars and criminals while attacking the
2TheMart corporation. [Cabotaje Decl., ¶12, Exh. E.] Another
poster called the Defendants various epithets, such as lying,
cheating, thieving, stealing, lowlife, criminals. [Cabotaje
Decl., ¶13, Exh. F.] Still others challenged the involvement of
IBM in the construction of the 2TheMart website. For example, on
July 26, 1999, an as-yet-unidentified author of a Silicon Investor
posting stated: OTHER THAN PRELIMINARY DISCUSSIONS, IBM HAS NO
CURRENT RELATIONSHIP WITH 2THEMART.COM!!!! Id. As with
many of the postings, this message board statement was untrue;
Plaintiffs themselves alleged in their Complaint that IBM began
contracting with 2TheMart for the website development as early as
February 3, 1999. [Cabotaje Decl., ¶1, Exh. A (Complaint, ¶5).]
It is clear that
posters on the Silicon Investor message boards abused their Internet
speech for the purpose of inducing others to sell their 2TheMart
stock. On a Silicon Investor posting dated June 17, 1999, an
unidentified author advised Silicon Investor users: [The
2TheMart] stock has had it . . . . get short or sell your position
now while you still can. [Cabotaje Decl., ¶14, Exh.G.]
Similarly, on a Silicon Investor posting dated July 16, 1999, another
unidentified author advised Silicon Investor users on the 2TheMart
message boards to bail out now. [Cabotaje Decl., ¶15,
Thus, as in
Minuse and Miller, the negative Internet campaign made
to the investing public by The Truthseeker, trader14U and possibly
other Silicon Investor users appears to have been part of scheme to
manipulate the stock price of 2TheMart. Defendants believe that
these Silicon Investor users maintained short positions
in 2TheMart stock -- selling short when 2TheMart stock prices were
high during the Class Period -- and, therefore, had a direct
financial interest in driving down the share prices of 2TheMart from
that high level. Defendants believe that these individuals violated
federal securities laws, by working in concert, and inducing class
members to sell their 2TheMart stock to the class members
detriment, while eventually covering their shorts after a precipitous
fall in the 2TheMart stock price.
b. Identifying Information Requested By Subpoena
Determine Whether Unlawful Manipulation Occurred.
served the Subpoena on Silicon Investor/Infospace with the intention
of determining the true identities of The Truthseeker,
trader14U, flodyie and the other Silicon
Investor Users listed on the Subpoena. The Defendants require the
identifying information for each of the Users to determine the
validity of their affirmative defense based on unlawful manipulation.
Only by obtaining the true identities of The Truthseeker,
trader14U, flodyie and others, will
Defendants be able to determine, based on available trading records,
whether any of them actually manipulated the stock through short
sales and through the improper use of the Silicon Investor message
aware that some Users listed on the Subpoena may not have posted
negative messages about 2TheMart or Defendants on the Silicon
Investor message boards. However, Defendants believe that, through
Internet communications with the manipulators, Users such as
Smartypnts (listed as #8 on the Subpoena),
2themoon(listed as #14 on the Subpoena), and
NoGuano(listed as #22 on the Subpoena) may have been
induced to purchase or sell 2TheMart stock as a result of the
negative postings of the manipulators. Confirmation of this and
Defendants reasonable belief that the Plaintiffs damages
were caused by the illegal manipulation of stock rather than through
any conduct alleged by the Plaintiffs against the Defendants can only
be accomplished by obtaining the true identities of the Users listed
on the Subpoena served on Silicon Investor/Infospace.
J. Doe has failed
to demonstrate any valid claim to First Amendment protection on
behalf of the twenty-three Users listed on the Subpoena. Defendants,
on the other hand, have made an evidentiary showing sufficient to
demonstrate their right to obtain identifying information
sought by the Subpoena. This evidentiary showing, when combined with
the states interest in enforcing federal laws against the
unlawful manipulation of stock prices and with the liberal rules of
federal discovery, overcomes any argument asserted by J. Doe. For
these reasons, Defendants respectfully request that this Court deny
J. Does Motion to Quash in its entirety.
DATED this ____
day of March, 2001.
BUCHALTER, NEMER, FIELDS & YOUNGER
Keith B. Bardellini, Pro Hac Vice
Michael A. Cabotaje, Pro Hac Vice
Attorneys for Defendants Steven W. Rebeil and Dominic J. Magliarditi
CORR CRONIN LLP
Kelly P. Corr, WSBA No. 555
Joshua J. Preece, WSBA No. 15380
Attorneys for Defendants Steven W. Rebeil and Dominic J. Magliarditi
DEFENDANTS' BRIEF IN OPPOSITION TO
MOTION OF J. DOE TO
PSEUDONYM AND TO QUASH SUBPOENA
SILICON INVESTOR/INFOSPACE, INC. 14