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e360 Insight, LLC v. Spamhaus Project

June 11, 2010

E360 INSIGHT, LLC, AN ILLINOIS LIMITED LIABILITY COMPANY, AND DAVID LINHARDT, AN INDIVIDUAL, PLAINTIFFS,
v.
THE SPAMHAUS PROJECT, A COMPANY LIMITED BY GUARANTEE AND ORGANIZED UNDER THE LAWS OF ENGLAND, A/K/A THE SPAMHAUS PROJECT, LTD., DEFENDANT.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge

MEMORANDUM OPINION

This case arises out of a dispute between e360 Insight LLC ("e360") and David Linhardt on one side and The Spamhaus Project Ltd. ("Spamhaus") on the other. e360 is an email marketing company founded by Linhardt; Spamhaus is a volunteer spam watchdog organization based in the United Kingdom. In March 2010, a bench trial was held on issues of appropriate damages to be awarded to Linhardt and e360 on their claims of tortious interference with contractual relations, tortious interference with prospective economic advantage, and defamation.

BACKGROUND

e360 operated from March 2003 until January 2008. It was formed by Linhardt as a company that would provide analytic processes and marketing services to customers, including email marketing. The components of e360's operations consisted of computer equipment, Internet connectivity, customers, and an inventory of email addresses. e360 did not own the vast majority of the lists of email addresses to which it sent marketing materials; instead, they were leased or licensed from third parties.

Until 2005, Linhardt was e360's only employee; he used contractors to assist him with e360 work until he began hiring employees in 2005. e360 obtained customers through Linhardt's contacts made before e360 was formed, new contacts made at trade shows, and networking. Most of the clientele came through the latter two avenues.

Linhardt initially owned e360. Eventually, he formed another entity called Maverick Direct Marketing, of which he was the sole owner. Maverick in turn owned e360 as well as nine other unique companies. One of the Maverick-owned companies, called BargainDepot, bought and sold consumer goods such as hats, handbags, and sunglasses via its website, accessible via the URL www.bargaindepot.net.

Beginning in 2006, Spamhaus listed e360 and Linhardt as being involved in transmitting unsolicited email, colloquially referred to as "spam." Internet service providers who accessed Spamhaus's lists used this information to block email messages sent from domains associated with Linhardt or e360 before they ever appeared in a user's email inbox. The resulting reduced capability of e360 and Linhardt to engage in email marketing led them to seek legal remedies against Spamhaus in this suit. In the complaint, e360 and Linhardt allege tortious interference with contractual relations, tortious interference with prospective economic advantage, and defamation by Spamhaus. Spamhaus initially answered the complaint, but at the first court appearance, it withdrew both its counsel and its answer despite being warned that its chosen course of action would result in entry of default.

Default judgment was entered on September 13, 2006. In support of his request for damages, Linhardt filed an affidavit stating that because of Spamhaus's actions, he and e360 had lost active and pending contracts with three customers: SmartBargains, Vendare Media, and OptinBig. Def. Ex. 3 ¶ 32. According to the affidavit, the revenue lost as a result of the cancellation of the contracts with these three clients totaled $2,465,000. Id. Linhardt went on to state that he and e360 had also lost opportunities to obtain future work with prospective customers such as NetBlue, Cogent, Habeas, and Yipes. Id. ¶ 33. Linhardt placed the lost value to e360's business from these stymied relationships at $9,250,000. Combining this figure to the aforementioned $2,465,000 produced a final claim for damages of $11,715,000, and that amount was awarded without challenge.

After collection procedures commenced, Spamhaus elected to rejoin the suit and filed an appeal and a motion to vacate the default judgment. The latter was denied shortly thereafter and the former proceeded before the Seventh Circuit, which rejected Spamhaus's challenges to personal jurisdiction and propriety of service and affirmed liability. e360 Insight v. The Spamhaus Project, 500 F.3d 594, 602 (7th Cir. 2007). With regard to damages, however, the Court of Appeals stated that "a more extensive inquiry [was required] into the damages to which e360 is entitled." Id. at 603.

The parties then engaged in discovery as to damages. Linhardt and e360 were slow to provide information requested by Spamhaus. Several deadlines were missed without explanation, and eventually a court order commanded disclosure by a date certain. The date came and went without compliance, and Spamhaus requested dismissal of the case as a sanction. A month later, when Linhardt and e360 supplied the requested information, they claimed that the proper amount of damages was in excess of $135 million, rather than the $11.7 million that had been stated earlier. Because of the extremely tardy provision of these new numbers, any amounts stated in the discovery responses in excess of $11.7 million were stricken.

Commencing on March 16, 2010, a bench trial was held as to the amount of damages to which Linhardt and e360 are entitled as a result of Spamhaus's conduct. On the eve of trial, Linhardt produced additional documentation, designated at Plaintiffs' Exhibit 5(a), in support of a damage amount of $122,271,346. By the time the evidence phase of the trial was completed three days later, Plaintiffs shifted the number again, this time to $30 million. In view of e360's termination of operations in the interim, injunctive relief was no longer a relevant consideration.

Taking into account all admissible evidence proffered at trial, we now consider what amount of damages Plaintiffs are due.

DISCUSSION

I. Motion to Strike Plaintiffs' ...


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