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Diamond Consortium, Inc. v. Manookian

United States District Court, E.D. Texas, Sherman Division

August 3, 2017

DIAMOND CONSORTIUM, INC. d/b/a THE DIAMOND DOCTOR and DAVID BLANK, Plaintiffs,
v.
BRIAN MANOOKIAN, CUMMINGS MANOOKIAN, PLC, and BRIAN CUMMINGS, Defendants.

          OPINION AND ORDER REGARDING SANCTIONS

          KIMBERLY C. PRIEST JOHNSON UNITED STATES MAGISTRATE JUDGE

         Pending before the Court is Plaintiffs' Emergency Motion for Order to Show Cause (Potential Contempt of Court and Sanctions) (the “Emergency Motion”) (Dkt. 269), the motion having been referred to the undersigned pursuant to 28 U.S.C. § 636 (see Dkt. 288). Having considered the motion, as well as the responsive briefing thereto, and the evidence adduced during the Show Cause Hearing held on July 12, 2017, the Court is of the opinion that Plaintiffs' Emergency Motion (Dkt. 269), as supplemented by their additional briefings (Dkts. 306 and 310), should be GRANTED in part and DENIED in part.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Plaintiffs filed their Emergency Motion on June 27, 2017, stating they became aware of a Facebook advertisement sponsored by the Diamond Integrity Standards Foundation (the “DISF”), three (3) websites administered by the DISF, the proactive publication of said websites to witnesses and the press, and “robo-calls” targeting certain customers of Plaintiff Diamond Consortium, Inc. d/b/a The Diamond Doctor's (“Diamond Doctor”). Records obtained by Plaintiffs from the Tennessee Secretary of State show the DISF was incorporated by Defendant Brian Manookian (“Manookian”) on May 4, 2017, and its registered agent is Defendant Cummings Manookian (“Cummings Manookian”). See Dkt. 271-2 (Sealed). It has also been established that the DISF's business address is the same as Cummings Manookian's address. See Dkt. 307, July 12, 2017, Hearing Transcript (“Hrg. Tr.”) at 115:16-24.

         In addition to asserting that the DISF is nothing more than an “alter ego” or “shell entity” controlled by Defendants (see Dkt. 310 at 1, 5), Plaintiffs allege Defendants have proactively publicized the DISF websites in an attempt to influence witnesses and improperly prejudice the jury pool against Plaintiff David Blank (“Blank”).[1] See Dkt. 269.

         Also at issue is how the DISF obtained Diamond Doctor's proprietary customer information-information which is arguably subject to the Court's Protective Order (see Dkt. 128). Diamond Doctor customer information, including customer names, contact information, and detailed purchase information, was published on the DISF websites and was also used to send solicitation emails and “robo-calls” to targeted Diamond Doctor customers. In addition, the DISF, or someone acting on its behalf, sent emails to the media and others, including Plaintiff Blank himself, alerting them to the DISF websites.

         The primary issue before the Court, as articulated in Plaintiffs' Emergency Motion and clarified and/or amplified by the subsequent briefings, is whether the actions and activities attributed to the DISF were, in fact, orchestrated by Defendants to improperly influence witnesses and/or prejudice potential jurors, and whether the Court should impose sanctions for such actions.

         Plaintiffs' current pleading requests relief “in addition to the relief already requested” in their Emergency Motion, “including the award of reasonable and necessary attorney's fees.” See Dkt. 310 at 8. However, the only relief specifically requested in the Emergency Motion is that the Court conduct a show cause hearing, which it has done. Plaintiffs did not specifically request attorney's fees in the Emergency Motion but have requested attorney's fees and expenses in their subsequent pleadings. See Dkts. 306 and 310. Thus, the Court will focus on the relief requested in Plaintiffs' current pleading (see Dkt. 310).

         Plaintiffs ask the Court to impose sanctions against Defendants, pursuant to Rule 37(b)(2)(A)(i), (ii), and (vii), as follows:

(a) finding that the actions of DISF are the actions of Defendants for purposes of this lawsuit; (b) holding that Defendants are prohibited from calling as witnesses any former customers of Diamond Doctor; (c) holding that Defendants are prohibited from offering a substantial truth defense to Plaintiffs' defamation, libel and business disparagement claims; (d) sanctioning Defendants for Plaintiffs' costs and fees incurred in pursuing the Emergency Motion and related discovery; and (e) Defendants be fined for every day they fail to disclose how they obtained the Diamond Doctor customer lists and which customers received “ringless voicemails” or were otherwise contacted by the DISF.

Dkt. 310 at 2.

         Plaintiffs also seek a finding that Defendant Manookian is in contempt of court by failing to comply with the Court's July 13, 2017, and July 14, 2017, Orders (Dkts. 300 and 305).

         A. THE DISF WEBSITES

         1. The DD Victim Fund Website

         On or about May 10, 2017, Plaintiffs became aware of a Facebook advertisement sponsored by the DISF with a reference to the DD Victim Fund Website, http://ddvictimfund.com/. See Dkt. 269. According to Plaintiffs, the site states the “Victim Fund” is administered by the DISF. The site invites visitors to “claim your award” and also provides a long list of Diamond Doctor customer names, dates of purchase, purchase prices, and detailed information about their diamonds.[2] It then links to a form for a “Pro Se Petition” against Diamond Doctor. The site invites customers to submit a “Declaration, ” so a representative of the “Victim Fund” can contact them. Plaintiffs allege the site contains links to the Cummings Manookian website: www.diamondlawsuit.com/diamonddoctor/. Plaintiffs assert that although the DD Victim Fund Website has been down at times, it “reappears whenever strategically advantageous to Defendants in this lawsuit.” See Dkt 269 at 2.

         2. The DD Sales Tax Fraud Website

         According to Plaintiffs, on June 19, 2017, Defendants' counsel, Andres Correa (“Correa”), sent Plaintiffs' counsel, Bruce Steckler (“Steckler”), an email stating Defendants had uncovered that Diamond Doctor had not paid sales taxes on certain in-state diamond sales. Subsequently, Steckler was made aware of the DD Sales Tax Fraud Website, www.ddtaxfraud.com. The site plays the Chris Isaak song, “Baby Did a Bad, Bad Thing” and displays an animated caricature of Plaintiff Blank behind prison bars, holding diamonds in one hand and dollar bills in the other. The website proclaims “IT'S TIME TO PUT NOTORIOUS FRAUDSTER DAVID BLANK BEHIND BARS, ” and alleges, “We now know that he was also perpetrating a massive tax fraud on the State of Texas and the citizens of Dallas.” The site lists partial names of Diamond Doctor's customers, along with purported purchase amounts, dates of purchase, and partial phone numbers. See Dkt. 269 at 4. Plaintiffs allege someone anonymously purchased the internet domain for the Sales Tax Fraud Website on June 10, 2017. Id. Plaintiffs further allege the Sales Tax Fraud Website is “copyrighted” by the DISF. Id.

         3. The Sue David Blank Website

         On July 8, 2017, Plaintiffs filed a supplement to their Emergency Motion (the “Emergency Motion Supplement”) (Dkt. 284), stating they became aware of another “harassing website.” Id. Although the name of the website was redacted, the third website is believed be the “Sue David Blank Website, ” also controlled by the DISF.

         B. PUBLICATION OF THE DISF WEBSITES

         Plaintiffs allege that on or about May 22, 2017, Defendants (and/or the DISF and/or someone acting on Defendants' behalf) engaged in an “automated robo-calling” campaign with recorded messages to Diamond Doctor customers, accusing Plaintiffs of fraud and directing recipients to the DD Victim Fund Website for purported compensation. Defendant Manookian admits that the DISF used a process called “ring-less voice mail”[3] to leave messages for approximately one hundred seventy-five (175) “specifically identified” Diamond Doctor customers informing them “they may have been victims of Diamond Doctor's fraud” (see Dkt. 279-9 at 2).

         Plaintiffs also allege Defendants-or persons acting on their behalf-have sent anonymous emails to selected individuals to ensure they are aware of the Sales Tax Fraud Website. See Dkt. 269 at 5. Specifically, Plaintiffs allege such emails were sent to Ronnie Mervis, a witness expected to testify at trial, Rob Bates, a diamond industry reporter, and Kendra Shapiro, an independent Dallas-area jeweler, alerting them to the website. See id. Plaintiffs also allege that since June 10, 2017, Manookian personally made calls to two additional Diamond Doctor customers. Id. According to Manookian, he contacted three Diamond Doctor customers as part of his “investigation of evidence of fraud by Diamond Doctor.” See Dkt. 279-9 at 3.

         According to Plaintiffs, they became aware of the “Sue David Blank Website” when Plaintiff Blank received an email, threatening a Federal raid and containing links to all three DISF-controlled websites. Around the same time, Robert Bates, the same jewelry industry reporter who had received an email alerting him to the Sales Tax Fraud Website, received an email from the DISF to “spread the word to defrauded consumers” and containing links to the same three DISF-controlled websites. Dkt. 284 at 2.

         C. THE PARTIES' BRIEFINGS AND THE SHOW CAUSE HEARING

         The briefings related to the Emergency Motion have been extensive, consisting of the following documents:

1. Plaintiffs' Sealed Appendix in support of the Emergency Motion (Dkt. 271);
2. Defendants' Response to the Emergency Motion (Dkt. 279) with exhibits thereto;
3. Plaintiffs' Reply to Defendants' Response (Dkt. 280);
4. Plaintiffs' Supplement in support of the Emergency Motion (Dkt. 284); and
5. Plaintiffs' Sealed Appendix in support of their Supplement (Dkt. 285).

         After the Show Cause Hearing on July 12, 2017, the Court determined it needed additional briefing and discovery, and issued the following Orders:

1. Plaintiffs were ordered to file a brief explaining in further detail their requested relief and the rationale for said relief by July 17, 2017, at 5:00 p.m. Defendants' response, if any, was due by July 19, 2017, at 5:00 p.m.
2. Defendant Manookian was ordered to submit to Plaintiffs the name of a DISF corporate representative whom Plaintiffs could depose, as well as proposed deposition dates no later than July 26, 2017, by July 17, 2017, at 5:00 p.m.
3. Defendant Manookian was ordered to submit to Plaintiffs the names of the one hundred seventy-five (175) Diamond Doctor customers who received “ring-less voicemails” from the DISF, as well as the names of any other Diamond Doctor customers who received similar voicemails from the DISF or anyone acting on the DISF's behalf or at the DISF's direction, by July 17, 2017, at 5:00 p.m.
4. Finally, Defendant Manookian was ordered to submit to the Court by July 17, 2017, at 5:00 p.m., for in camera inspection, any and all documents related to his association with the DISF. The Order specifically stated a non-exclusive list of documents to include the following: engagement/retainer agreement; copies of any payments received; correspondence to, from, or in any way related to the alleged client and/or client relationship; notes, emails, or other documents in any way related to conversations, communications, instructions, or advice sought or provided; and any other form of information, in whatever format (e.g. digital, hardcopy, etc) that bears on the identification of the client and the legal advice allegedly sought or received from Manookian.

Dkts. 300 and 305.

         The following briefings were filed in response to the Court's Orders:

1. Plaintiffs' Brief in Support of Relief Requested Regarding their Emergency Motion to Show Cause (Dkt. 306) with exhibits thereto;
2. Defendants' Response to Plaintiffs' Brief in Support of Relief Requested Regarding Their Emergency Motion to Show Cause (Dkt. 308);
3. Plaintiffs' Notice of Defendants' Non-Compliance with the Court's July 13, 2017 and July 14, 2017 Orders and Supplemental Briefing Regarding Requested Remedies (Dkt. 310) with exhibits thereto;
4. Defendants' Response to Plaintiffs' Notice of Non-Compliance with the Court's July 13, 2017 and July 14, 2017 Orders and Supplemental Briefing Regarding Requested Remedies (Dkt. 313) with an exhibit thereto; and
5. Plaintiffs' Reply to Defendants' Response to Plaintiffs' Notice of Non-Compliance with the Court's July 13, 2017 and July 14, 2017 Orders and Supplemental Briefing Regarding Requested Remedies (Dkt. 314) with exhibits thereto.

         Plaintiffs filed their brief as ordered on July 17, 2017 (Dkt. 306), and Defendants timely filed a response on July 19, 2017 (Dkt. 308). In response to the Court's order for Manookian to provide Plaintiffs the name of the DISF corporate representative and the names of the one hundred seventy-five (175) Diamond Doctor customers receiving robo-calls-or any Diamond Doctor customers contacted by the DISF, Manookian, or someone on their behalf-Chris Schwegmann, counsel for Defendants, sent Plaintiffs an email on July 21, 2017, informing them that Manookian no longer represents the DISF and stating that:

1. the corporate representative of the DISF is Felipe Debase [sic], and Manookian cannot, himself, compel any testimony from Mr. DeMase;
2. [Manookian] does not havea list of the 175 names in his possession, custody, or control. They may be obtained from the DISF, which has already been subpoenaed in ...

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