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Case 2:11-cv-01426-GMS Document 140 Filed 10/31/12 Page 1 of 10

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

David S. Gingras, #021097 Gingras Law Office, PLLC 3941 E. Chandler Blvd., #106-243 Phoenix, AZ 85048 Tel.: (480) 668-3623 Fax: (480) 248-3196 David@GingrasLaw.com Attorney for Plaintiff/Counterdefendant Xcentric Ventures, LLC

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Xcentric Ventures, LLC, an Arizona limited liability company, Plaintiff, v. Lisa Jean Borodkin, et al., Defendants. Raymond Mobrez, Counterclaimant, v. Xcentric Ventures, LLC, and Edward Magedson, Counterdefendants. Case No.: 11-CV-1426-GMS PLAINTIFFS RESPONSE TO DEFENDANT LISA BORODKINS MOTION FOR RULE 11 MOTION SANCTIONS

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Plaintiff/Counterdefendant XCENTRIC VENTURES, LLC (Plaintiff or Xcentric) respectfully submits the following response to Defendant LISA BORODKINs (Ms. Borodkin) Motion for Sanctions (Doc. #134).

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

Ms. Borodkins motion claims that Xcentric and undersigned counsel have violated Rule 11 for the following reasons: 1.) 2.) 3.) Xcentrics Complaint is Frivolous Xcentrics Complaint Lacks Evidentiary Support; and This Action Was Brought For An Improper Purpose

Each point will be discussed in turn below. I. ARGUMENT a. Xcentrics Complaint Is Not Frivolous Motion Borodkins motion contains approximately one full page of discussion under the heading Plaintiffs Complaint Is Frivolous starting on page 12 of the brief and ending on page 13. In this short section, Ms. Borodkin argues (incorrectly) that Xcentric has not pleaded that she acted with malice. She further argues that she had a reasonable basis for pursuing the RICO/extortion claim because: 1.) a previous allegation of extortion was made against Xcentric in a totally unrelated case styled Hy Cite Corp. v. Badbusinessbureau.com; and 2.) based on a case entitled Monex Deposit Co. v. Gilliam, California courts have recognized a private cause of action for attempted extortion ... even if no money changed hands. Mot. at 12:56. These arguments have no merit. Taking the easiest issue first, Ms. Borodkin previously raised the exact same argument regarding Monex in the prior California action, and the district judge found the case to be completely inapposite; The present case bears no resemblance to Monex. Asia Economic Institute, LLC v. Xcentric Ventures, LLC, 2011 WL 2469822, *20 (C.D.Cal. 2011) (emphasis added). The reasons for this conclusion are obvious. In Monex, the defendants personally created a website disparaging the plaintiffs business entitled www.monexfraud.com and then demanded $20 million to remove it. See Monex Deposit Co. v. Gilliam, 2010 U.S.Dist.LEXIS 9344, *1920 (Jan. 25, 2010) (order granting summary judgment on issue of attempted extortion). Because the defendants created harmful information and then demanded millions of dollars to remove it without any right to do so, the court found this constituted attempted extortion. 2

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

At the Motion to Dismiss phase of the case, the Monex court agreed with the plaintiffs theory that a claim of attempted extortion could be made even though Monex never paid any money or transferred any property in response to Defendants threats. Monex, 666 F.Supp.2d at 1135. However, at the summary judgment phase of the case, the court noted that such a claim still required proof of actual injury and that such injury was actually and proximately caused by the defendants unlawful conduct; As a civil tort action, Monex agrees that it must also establish injury and causation. Monex, 2010 U.S.Dist.LEXIS 9344, *7. The court then found that Monex proved actual economic loss and that such loss was caused by the defendants actions, see 2010 U.S.Dist.LEXIS 9344, *2022, and partial summary judgment was granted on that basis. As the California district court already determined, not one of these facts were present in the action prosecuted by Ms. Borodkin. Indeed, she presented no evidence showing that either Xcentric or Mr. Magedson created any damaging websites or pages about her clients, and she presented no evidence showing that either Xcentric or Magedson offered to remove such material in exchange for money. Furthermore, unlike the plaintiff in Monex, AEIs total revenues were $0 during its nine years of operations, so AEI could not possibly establish either actual loss or causation. For those reasons, the California court easily rejected Ms. Borodkins reliance on Monex: Unlike in Monex, the Plaintiffs here have not presented any evidence that Defendants created the negative reports about Plaintiffs on the RipoffReport.com website or solicited others to create reports about Plaintiffs. Further, unlike the defendants in Monex, here, there is no evidence that Defendants ever demanded money from Plaintiffs in exchange for the removal of negative reports. Indeed, there is no evidence that removal of reports was ever advertised as part of the CAP program. To the contrary-it is undisputed that Defendants repeatedly told Plaintiffs that reports are never removed from the website. In sum, for the reasons stated above, the Court finds that no triable issue of fact exists as to whether Defendants engaged in attempted extortion. Asia Economic Institute, 2010 WL 4977054, *20 (empahsis added). 3

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

As the district court explained, the facts of Monex bore no resemblance whatsoever to the facts of the prior California action commenced by Mr. Mobrez and Ms. Llaneras. Whether or not she was initially aware of these points when she first appeared in the case on April 19, 2010, Ms. Borodkin quickly learned of all of these fatal flaws in the case based on the deposition testimony of Mr. Mobrez which occurred less than three weeks later on May 7, 2010. Ms. Borodkin proceeded forward anyway. Based on those facts, Ms. Borodkin could not have had an objectively reasonable belief that Monex supported her position. Importantly, the existence of probable cause turns on an objective standard which asks whether in light of the facts known to them, a reasonable lawyer would have thought the claim legally tenable. Franklin Mint Co. v. Manatt, Phelps & Phillips, LLP, 184 Cal.App.4th 313, 361, 109 Cal.Rptr.3d 143, 184 (Cal.App.4th Dist. 2010). Insofar as Ms. Borodkin suggests that Monex supported her view, Xcentrics position is that no reasonable lawyer would have agreed with that conclusion due to the obvious fundamental factual differences between the two cases and given AEIs undisputed status as a sham company with zero revenue. Ms. Borodkins reliance in Hy Cite fails for similar reasons. In Hy Cite, unlike in the prior California action prosecuted by Ms. Borodkin, the plaintiff alleged that Xcentrics predecessor actually created false reports about the plaintiffs business and then demanded money to cease this conduct. Hy Cite Corp. v. Badbusinessbureau.com, LLC, 418 F.Supp.2d 1142, 1150 (D.Ariz. 2005). Of course, Hy Cite involved the disposition of a motion under Rule 12(b)(6), and in that case the court did not consider whether any evidence existed to support this allegation. Rather, it simply held that assuming the allegations were true, the plaintiff had properly alleged threatened extortion. Obviously, the denial of a motion under Rule 12(b)(6) proves nothing about the actual merit of the underlying allegations because the court must assume the allegations are true even if they are not. See Ewing v. Wells Fargo Bank, 2012 WL 4514055, *3 4

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

(D.Ariz. 2012) (noting, In deciding a motion to dismiss under Rule 12(b)(6), a court must construe the facts alleged in the complaint in the light most favorable to the drafter of the complaint and the court must accept all well-pleaded factual allegations as true.). Rule 12(b)(6) does not permit the court to consider matters outside the pleadings, nor does the court ask whether any evidence exists to support the claims. As such, other courts have agreed that the denial of the 12(b)(6) motion in Hy Cite has no effect on the facts of subsequent cases. See Global Royalties, Ltd. v. Xcentric Ventures, LLC, 2007 WL 2949002, *3 (D.Ariz. 2007) (rejecting plaintiffs argument that Hy Cite showed that Xcentric was not entitled to immunity under the Communications Decency Act). The mere fact that a prior litigant made similar-sounding but wholly unproven allegations against Mr. Magedson more than five years before the phone calls between Mr. Mobrez and Mr. Magedson does not mean that this action against Ms. Borodkin is frivolous nor does it show that the prior California action had merit. On the contrary, Xcentric prevailed on the merits in the prior California case and it proved that Mr. Mobrez was never extorted at any time and he was not harmed in any way by the alleged attempted extortion. There mere fact that the plaintiff in Hy Cite made somewhat similar claims which were never proved does not excuse Ms. Borodkins pursuit of litigation which she knew had no factual basis. Under these circumstances, Hy Cite and Monex do not support Ms. Borodkins request for Rule 11 sanctions. b. Xcentrics Complaint Does Not Lack Evidentiary Support On pages 1314 of her brief, Ms. Borodkin argues that Xcentrics Complaint lacks evidentiary support for one reasonshe claims that both Mr. Magedson and undersigned counsel made prior statements showing that they believed Mr. Blackert was innocent of any wrongdoing and that Ms. Borodkin was unaware that her clients had lied about being extorted. These arguments are deeply misleading and as to Ms. Borodkin, her contentions are ultimately irrelevant because even if her assertions were correct, this does not show that Xcentrics current claims are groundless. 5

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

First, as explained in the affidavit of counsel submitted herewith, Ms. Borodkin is wrong when she claims that either Mr. Magedson or undersigned counsel somehow expressed a belief that Ms. Borodkin did not act improperly in the prior California case. This claim is simply false. Rather, at the early stages of the case immediately after Mr. Mobrezs false testimony was exposed, both Mr. Magedson and undersigned counsel initially gave opposing counsel the benefit of the doubt by stating that they assumed that Mr. Blackert and Ms. Borodkin were (up until that point) unaware of their clients lies. Rather than warranting sanctions, this shows that undersigneds counsels conduct was entirely ethical and appropriate; When presented with evidence which is consistent with two possible and equally plausible, but inconsistent, interpretations of how opposing counsel have conducted themselves, professional courtesy and dignity militate in favor of adopting that which is consistent with ethical and professional conduct, at least until the contrary is demonstrated beyond mere suspicion. Nault's Automobile Sales, Inc. v. American Honda Motor Co., Inc., 148 F.R.D. 25. *34 (D.N.H. 1993). Despite initially giving Ms. Borodkin the benefit of the doubt, at no time did either Mr. Magedson or undersigned counsel suggest that she could continue prosecuting the case with impunity. Very much to the contrary, in the May 11, 2010 letter attached to Xcentrics original Complaint as Exhibit E which Ms. Borodkin cites as evidence of her innocence, undersigned counsel further explained that Xcentric intended to sue Mr. Mobrez and Ms. Llaneras for malicious prosecution, and as to Mr. Blackert and Ms. Borodkin, the letter explained we will not hesitate to include claims against either or both of you individually if you continue to prosecute any claims in this case which you know are factually untrue or if the evidence demonstrates that you brought this case knowing that the allegations contained in it were factually untrue. Affidavit of David S. Gingras (Gingras Aff.) at 28 (empahsis in original). Unfortunately, Ms. Borodkin disregarded this warning and continued to pursue each claim in the case knowing that the claims had no merit. As such, even if she was not initially aware that her clients extortion claims were false as she now proclaims, she 6

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

may still liable for malicious prosecution based on her wrongful continuation of the case after becoming aware that one or more claims lacked probable cause. See Sycamore Ridge Apartments, LLC v. Naumann, 157 Cal.App.4th 1385, 1406, 69 Cal.Rptr.3d 561, 579 (Cal. 4th Dist. 2007) (holding one may be held liable for malicious prosecution for continuing to prosecute an action after discovering that the action lacks probable cause.) (emphasis added) (citing Zamos v. Stroud, 32 Cal.4th 958, 973, 87 P.3d 802 (Cal. 2004)); see also Citi-Wide Preferred Couriers, Inc. v. Golden Eagle Ins. Co., 114 Cal.App.4th 906, 914, 8 Cal.Rptr.3d 199 (Cal. 2nd Dist. 2004) (explaining the rule is that a malicious prosecution suit may be maintained where only one of several claims in the prior action lacked probable cause ... .) Thus, even if Ms. Borodkin was correct and even if Mr. Magedson and undersigned counsel had made statements early on which admitted that she was not aware that Mr. Mobrez and Ms. Llaneras had lied, this would not excuse her continued participation in the case after that fact was revealed to her by virtue of her clients own testimony. See Sycamore Ridge Apartments, 157 Cal.App.4th at 140506, 69 Cal.Rptr.3d at 57778 (explaining that when attorneys own client makes admissions showing the underlying claims are groundless, attorney may be liable for malicious prosecution based on continuation of the action without probable cause); Zamos v. Stroud, 32 Cal.4th 958, 96970, 87 P.3d 802, 810, 12 Cal.Rptr.3d 54 (Cal. 2004) (explaining that when former plaintiff contradicts her own prior testimony and makes it clear that claims at issue are groundless, plaintiffs counsel may face liability for malicious prosecution by refusing to dismiss the action or withdraw; Because an attorney will be liable only for the damages incurred from the time the attorney reasonably should have caused the dismissal of the lawsuit after learning it has no merit, an attorney can avoid liability by promptly causing the dismissal of, or withdrawing as attorney in, the lawsuit.) For these reasons, Ms. Borodkins argument that Xcentrics Complaint lacks evidentiary support due to the alleged admissions of Mr. Magedson and counsel does not support her request for Rule 11 sanctions. 7

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c. This Action Was Not Brought For An Improper Purpose As a final point, on pages 1415 of her motion, Ms. Borodkin claims that this action was brought for an improper purpose; i.e., to force her to provide harmful information about one of Xcentrics adversaries. comments. First, the sole basis for Ms. Borodkins argument are a series of emails in which a variety of settlement proposals were discussed. It is axiomatic that statements made during the course of settlement negotiations are inadmissible[], Coogan v. Avnet, Inc., 2005 WL 2789311, *2 (D.Ariz. 2005) (quoting In Re Golden Plan of Cal., 39 B.R. 551, 554 (Bkrtcy.E.D.Cal. 1984) and cannot be offered to prove liability for or invalidity of the claim or its amount. Fed. R. Evid. 408 (emphasis added). Here, Ms. Borodkin seeks to use settlement discussions to prove that Xcentrics claims against her are invalid because Xcentric offered to compromise its claims in exchange for information and money rather than for money alone. This is precisely the type of use prohibited by Rule 408. Second, Ms. Borodkins argument is highly disingenuous because the idea of reaching a non-monetary resolution of this case did not originate with Xcentric; the idea was first raised by Ms. Borodkin herself. This point is discussed at length in 3144 of the affidavit of counsel submitted herewith and is clearly documented in the written exchanges between the parties. Ms. Borodkin cannot argue in good faith that Xcentric commenced this action to pressure her into providing information about a third party when that proposal was first made by Ms. Borodkin herself. d. Xcentric Is Entitled To Attorneys Fees For This Response As explained above, Ms. Borodkins Rule 11 motion is without merit and was filed without any valid basis. Indeed, for more than a year Ms. Borodkin has been harassing Xcentric and causing it to needlessly spend time reviewing and responding to several variations of her proposed motion. This vexatious conduct would support an award of sanctions under 28 U.S.C. 1927. 8 This argument requires two brief

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

However, rather than bringing a cross-motion for sanctions against Ms. Borodkin, assuming her Rule 11 motion is denied, Xcentric simply requests an award of fees pursuant to Fed. R. Civ. P. 11(c)(2) which provides: If warranted, the court may award to the prevailing party the reasonable expenses, including attorneys fees, incurred ... [in addressing a Rule 11 motion]. (empahsis added). Such an award is appropriate here to deter Ms. Borodkin from filing more groundless motions in beyond those she has already filed in this matter. II. be denied. RESPECTFULLY SUBMITTED October 31, 2012. GINGRAS LAW OFFICE, PLLC /S/ David S. Gingras David S. Gingras Attorney for Plaintiff/Counterdefendant Xcentric Ventures, LLC CONCLUSION For the reasons stated above, Ms. Borodkins Motion for Rule 11 Sanctions should

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GINGRAS LAW OFFICE, PLLC 3941 E. CHANDLER BLVD., #106-243 PHOENIX, ARIZONA 85048

CERTIFICATE OF SERVICE I hereby certify that on October 31, 2012 I electronically transmitted the attached document to the Clerks Office using the CM/ECF System for filing, and for transmittal of a Notice of Electronic Filing to the following: John S. Craiger, Esq. David E. Funkhouser III, Esq. Krystal M. Aspey, Esq. Quarles & Brady LLP One Renaissance Square Two North Central Avenue Phoenix, Arizona 85004-2391 Attorney for Defendant Lisa J. Borodkin Raymond Mobrez Iliana Llaneras PO BOX 3663 Santa Monica, CA 90408 Defendants Pro Se And a courtesy copy of the foregoing delivered to: HONORABLE G. MURRAY SNOW United States District Court Sandra Day OConnor U.S. Courthouse, Suite 622 401 West Washington Street, SPC 80 Phoenix, AZ 85003-215 /s/David S. Gingras

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