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CS Wang & Associate v. Wells Fargo Bank, N.A.

United States District Court, N.D. Illinois, Eastern Division

March 29, 2018

CS WANG & ASSOCIATE, SAT NARAYAN dba EXPRESS HAULING, ROBERT MEYER dba MANGIA NOSH, and TASIR TAYEH dba CHIEF'S MARKET, individually and on behalf of all others similarly situated, Plaintiffs,



         Plaintiffs CS Wang & Associate, Sat Narayan d.b.a. Express Hauling, Robert Meyer d.b.a. Mangia Nosh, and Taysir Tayeh d.b.a. Chief's Market are all small businesses located in California. The Plaintiffs launched this putative class action against a dozen different defendants for alleged violations of the California Invasion of Privacy Act (“CIPA”), Cal. Penal Code § 630 et seq. Their claim is, in essence, that two of the defendant corporations, International Payment Services, LLC (“IPS”) and Ironwood Financial, LLC (“Ironwood”), secretly recorded them during telemarketing calls. (Amended Complaint [88], ¶¶ 106-08.) IPS and Ironwood made these calls in the attempt to sell credit and debit card payment processing services and hardware to the Plaintiffs on behalf of fellow Defendants Wells Fargo Bank, N.A.; First Data Merchant Services LLC; Fifth Third Bank; Vantiv, Inc.; and National Processing Company (“NPC”). (Id. at ¶ 9.)

         Named as additional Defendants in Plaintiffs' lawsuit are the owners of IPS and Ironwood: Brian, Andrew, and Adam Bentley (“the Bentleys”; together with IPS, “the IPS Defendants”); and Dewitt Lovelace and John Lewis, respectively. The Plaintiffs seek to hold the Bentleys personally liable because they allegedly created and implemented “the system of secretly recording telephone calls with sales targets” at IPS despite knowing their actions were illegal. (Id. at ¶ 74.) Plaintiffs seek the same from Lovelace and Lewis because they allegedly “refined and expanded” the program after purchasing IPS's telemarketing operations for Ironwood in 2015. (Id. at ¶¶ 92, 94.)

         Plaintiffs bring this suit on behalf of four putative classes of California businesses, all of which received telemarketing calls from either IPS or Ironwood, but did not sign contracts with them. (Id. at ¶ 109.) The Amended Complaint asserts eighteen counts for relief arising from the Defendants' alleged violations of two provisions of CIPA: Cal. Penal Code §§ 632 and 632.7. Section 632 prohibits the nonconsensual recording of confidential communications transmitted using any variety of telephone. Section 632.7 prohibits the nonconsensual recording of any communications that involve at least one cellular or cordless telephone. Plaintiffs assert that every Defendant violated both of these provisions. (See Am. Compl. ¶¶ 123-290.) Plaintiffs seek to permanently enjoin the Defendants from recording further telephonic communications without consent, and seek damages from each Defendant in the amount of $5, 000 per violation of section 632 or 632.7. (See, e.g., Id. at 27.)

         Defendants have filed a total of five motions to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1), (b)(2), and (b)(6).[1] Each motion raises those defenses unique to its group of Defendants, and adopts any defense shared with the others. Broadly speaking, all Defendants argue that (1) Plaintiffs lack Article III standing to sue for relief under CIPA based on Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), because they did not suffer a concrete injury; (2) CIPA only protects individuals, not businesses, and Plaintiffs therefore lack “statutory standing” to sue; (3) the Section 632 claims fail because “routine business communications” are not “confidential” as a matter of law and because Plaintiffs reasonably expected that their calls would be recorded; and (4) the Section 632.7 claims fail because Plaintiffs failed to allege that the calls were made using the required type of equipment.[2] (See, e.g., Memorandum in Support of Wells Fargo MTD [103] (“Wells Fargo Opening Br.”), 6-7; Memorandum of Law in Support of Ironwood MTD [96] (“Ironwood Opening Br.”), 3-10.)

         Beyond these common objections, Lovelace and Lewis and the IPS Defendants also object to the court's exercise of personal jurisdiction over them, as they claim that Plaintiffs have failed to establish those Defendants' minimum contacts with the State of Illinois. (Memorandum in Support of IPS Defs. MTD [110] (“IPS Defs. Opening Br.”), 11-15; Memorandum of Law in Support of Lovelace MTD [99] (“Lovelace Opening Br.”), 3-6.) Lovelace and Lewis argue only that the court lacks personal jurisdiction over them as individuals independent from their ownership of Ironwood. The IPS Defendants, for their part, assert that neither the Bentleys as individuals nor IPS as a company are subject to personal jurisdiction in Illinois. (IPS Defs. Opening Br. 11-15; Reply Memorandum in Support of IPS Defs. MTD [128] (“IPS Defs. Reply Br.”), 18-21.) Finally, the majority of the Defendants-all but Ironwood and the IPS Defendants-argue that the Amended Complaint does not allege facts sufficient to hold them legally accountable for any secret recordings allegedly made by Ironwood and IPS. These Defendants, on behalf of both IPS and the Bentleys as individuals (see Renewed Motion to Dismiss all Causes of Action against the IPS Defendants [109] (“IPS Defs. MTD”)).

         Defendants claim that the Plaintiffs' “threadbare and conclusory allegations” of control over (or ratification of) Ironwood and IPS's activities do not state a plausible claim for relief against them under CIPA. (Lovelace Opening Br. 2, 7-9. See also Wells Fargo Opening Br. 8-12; Memorandum of Law in Support of Fifth Third MTD [107] (“Fifth Third Opening Br.”), 3-5.)

         In addition to their motions to dismiss, Lovelace and Lewis and the IPS Defendants have each filed identical Motions for Rule 11 Sanctions against Plaintiffs' counsel, the Cherry Firm. (Motion for Rule 11 Sanctions [119] (“Lovelace Sanctions Mot.”); Motion for Sanctions [129] (“IPS Defs. Sanctions Mot.”).) The Sanctions Motions, which rely on the same set of facts and largely overlap, assert that this lawsuit is based on “patently false allegations” derived from a disgruntled former employee of IPS and Ironwood, James Tibor. (Lovelace Sanctions Mot. ¶ 2.) Those Defendants request that the court sanction Plaintiffs' counsel by dismissing all claims against Lovelace and Lewis and the IPS Defendants, and by ordering Plaintiffs' counsel to pay attorneys' fees.

         For the reasons stated below, the court denies all of the Defendants' Motions to Dismiss [94, 97, 102, 105, 109]. The court also denies the Defendants' Motions for Rule 11 Sanctions [119, 129] without prejudice, pending further discovery.


         1. The Telemarketing Scheme and Alleged Secret Recordings

         Plaintiffs are all partnerships or sole-proprietorships located in Northern California. In order to accept payment by customers using VISA or Mastercard credit and debit cards, businesses like Plaintiffs must have a relationship with a bank that is a member of the VISA and Mastercard systems. (Am. Compl. ¶ 37.) These banks (called acquiring banks, or “acquirers”) process all of the credit and debit card transactions at a given business (or “merchant”) in exchange for a percentage fee of each transaction. (Id. at 37-38.) According to Plaintiffs, “[a]cquiring merchants is big business” and acquiring banks will often compete with each other for merchants so that they can process more transactions and earn more money in processing fees. (Id. at ¶ 39.) Defendants Wells Fargo and Fifth Third are some such acquiring banks.

         Other parties participate in the card processing market as well. Acquiring banks often work with outside technology firms (“third party processing agents, ” or “processing TPAs”) to help manage the enormous volume of data that comes with processing billions of card transactions nationwide. (Id. at ¶ 42.) Processing TPAs also make and sell the hardware-like PIN pads-used to facilitate card transactions. (Id. at ¶ 47.) Throughout the time period relevant to this lawsuit, Defendant First Data worked with Wells Fargo as a processing TPA. Defendants Vantiv and NPC had the same arrangement with Fifth Third. (Id. at ¶¶ 44-46.) Acquiring banks also farm out their sales and marketing functions to “third party sales agents” (“sales TPAs”), who then solicit merchants on behalf of an acquiring bank in exchange for a cut of the bank's processing fees. (Id. at ¶¶ 40, 41). Among other sales tactics, employees at sales TPAs make telemarketing calls to merchants in an attempt to sell credit and debit card processing services and hardware for an acquiring bank and affiliated processing TPA. (Id. at ¶¶ 48, 49.)

         Defendant IPS is a Nevada corporation that once operated telemarketing call centers in Chicago and Naperville, Illinois. (Id. at ¶ 26.) IPS is owned and controlled by Defendants Brian, Adam, and Andrew Bentley-all residents of Utah. (Id. at ¶¶ 3, 16, 28-30.) At various times, IPS served as a sales TPA for all of the Defendants mentioned above and made telemarketing calls on their behalf. From 2011 to 2014, IPS was employed by Wells Fargo and First Data to market their processing services and hardware from the Chicago call center. (Id. at ¶¶ 53, 57.) In the course of its arrangement with Wells Fargo, IPS's employees made thousands of telemarketing calls to California businesses every day, including to Plaintiffs. (Id. at ¶ 5.) Plaintiffs allege that “IPS surreptitiously recorded each and every one of these phone calls and stored the recordings on a cloud-based system accessible from the internet.” (Id. at ¶¶ 6, 68- 70.) IPS employees, Plaintiffs claim, “never made any disclosure of any kind to recipients of its calls that the calls were recorded.” (Id. at ¶ 69.) As a result, the Plaintiffs and other call recipients were unaware that their communications were being recorded-and therefore did not consent. (Id.)

         According to Plaintiffs, IPS's telemarketers were required to follow a set script on all of their calls: they would introduce themselves and IPS the same way, describe the products and services on offer, and tell call recipients that IPS was “with Wells Fargo.” (Id. at ¶ 60.) These scripts apparently did not include a request for permission to record the call, or even an acknowledgement that the call would be recorded. (Id. at ¶ 69.) Plaintiffs allege that Wells Fargo reviewed and approved the contents of IPS's sales script. (Id. at ¶ 61.) IPS also utilized “Caller ID Spoofing”: the practice of masking a caller's true phone number and instead displaying a local phone number. (Id. at ¶ 64.) Plaintiff characterizes “Caller ID Spoofing” as “a widely practiced strategy in the telemarketing industry that tricks business owners into believing they are receiving a phone call from a local customer instead of an out of state sales call.” (Id. at ¶ 65.) “Because of this practice, Plaintiffs and class members had no idea they were receiving a telemarketing call until recording had already begun.” (Id. at ¶ 66.)

         Plaintiffs also claim that, as “the topic of the call was business-related, ” a merchant that received a call from IPS would reasonably have expected that the call would remain confidential: “a business's method of processing credit and debit card transactions is by its nature sensitive and confidential.” (Id. at ¶¶ 5, 62.) Given that the purpose of the sales calls was to sell merchants processing services and hardware, Plaintiffs allege that IPS's representatives would ask business owners “to disclose their business's monthly or annual credit and debit card sales volume.” (Id. at ¶ 66.) That information, Plaintiffs note, “is sensitive and confidential and of significant value to that owner's competitors, vendors, and commercial real estate lenders.” (Id.) Plaintiffs assert that the practice of Caller ID Spoofing also played a role in generating an expectation of privacy on the part of a merchant answering a telemarketing call. (Id. at ¶ 63.)

         IPS stored its recordings in a cloud-based system provided by Veracity Networks, LLC. Veracity is not named as a defendant in Plaintiffs' suit. Plaintiffs allege that other IPS employees would use the recordings to confirm that merchants had agreed to in-person follow-up meetings with IPS sales representatives and as “tools to learn more about potential sales targets and tailor their sales presentation with that information.” (Id. at ¶¶ 71, 72.) “The recordings were not used to improve customer service or train customer service personnel.” (Id. at ¶ 73.)

         Plaintiffs allege that the Bentleys devised and implemented the scheme of secretly recording phone calls during meetings that occurred in IPS's Chicago call center around the time they opened in it in 2011. (Id. at ¶ 74.) The Bentleys also were the ones who engaged Veracity to provide the technology services necessary to store the recordings. (Id. at ¶ 76.) They visited the Chicago call intermittently after 2011. During these visits, and during further telephonic meetings, an IPS employee “repeatedly cautioned Andrew Bentley . . . that the IPS practice of secretly recording telephone calls to California businesses was illegal, ” but Bentley ignored those warning and continued the practice of recording calls unabated. (Id. at ¶ 75.)

         IPS moved its Illinois operations from Chicago to Naperville sometime in 2014. (Id. at ¶ 74.) During this changeover, the Bentleys returned to Illinois and implemented the same recording scheme that had existed in the Chicago call center. (Id. at ¶ 74.) Later in 2014, IPS discontinued its relationship with Wells Fargo and First Data, and began making telemarketing calls for Fifth Third and its processor TPAs, Vantiv and NPC. (Id. at ¶¶ 85, 86). According to Plaintiffs,

IPS's telemarketing, sales, and customer service practices on behalf of Fifth Third, Vantiv, and NPC were identical in all respects to those it undertook on behalf of Wells Fargo and First Data and described above and incorporated here. IPS specifically continued its practice of surreptitiously recording confidential communications with Plaintiffs and class members. Fifth Third had actual knowledge that IPS call scripts stated that IPS was “with Fifth Third” because Fifth Third was provided with call scripts containing that language for approval, which Fifth Third did approve and ratify the use of.

(Id. at ¶ 89.)

         In 2015, IPS sold all of its telemarketing operations to Ironwood, a Mississippi corporation headquartered in Salt Lake City, Utah. (Id. at ¶¶ 27, 92.) The work performed at the Naperville call center continued uninterrupted despite this change in control. (Id. at. ¶ 93.) “Key IPS personnel, including telemarketers and field representatives, immediately joined Ironwood and continued their work on behalf of Fifth Third, Vantiv, and NPC.” (Id.) Ironwood's sales practices again “were identical in all material respects to those carried out by IPS.” (Id. at ¶ 102.) Ironwood's owners, Lovelace and Lewis, traveled from their homes in Mississippi to visit the Naperville site. Lovelace and Lewis, Plaintiffs allege, received and ignored warnings that the secret recording practices were illegal. (Id. at 94.) The two owners also “refined and expanded” the call-recording program by replacing Veracity's cloud storage system with an enhanced cloud storage and customer management system provided by Integrated Reporting is Simple, LLC (“IRIS”). (Id. at ¶ 96.) Like Veracity, IRIS is not party to this lawsuit. Overall, Plaintiffs clarify that despite the changes in ownership and clients served, “the course of conduct carried out by the respective acquiring banks, sales TPAs, and processor TPAs was identical in all material respects and the factual allegations made against one of them . . . apply equally to other Defendants in each category.” (Id. at ¶ 103.)

         2. Other Defendants' Alleged Control over IPS and Ironwood's Activities

         Plaintiffs allege that the details of the relationship between IPS and Ironwood and their acquiring banks and processor TPAs establish that those other Defendants both knew about and approved of the practice of recording phone calls. For example, before starting its sales work for Wells Fargo in 2011, IPS entered into a “Marketing Agreement” with Wells Fargo and First Data which outlined the relationship between the parties. This Marketing Agreement stated “that IPS would act as an agent of both Wells Fargo and First Data when soliciting merchants.” (Id. at ¶ 58.) IPS, and later Ironwood, entered into a virtually identical contract with Fifth Third, Vantiv, and NPC. (Id. at ¶¶ 88, 92.) IPS and Ironwood's relationships with these two acquiring banks were further governed by rules promulgated by VISA and Mastercard. VISA's rules, for example, required Wells Fargo and Fifth Third to provide sales training and education, provide policies and procedures for complying with industry-related laws, and regularly review the call centers' solicitation materials and practices. (Id. at ¶¶ 51, 92.) To facilitate compliance, as well as to supervise the marketing work at IPS and Ironwood, Plaintiffs allege, the processor TPA-Defendants (First Data, Vantiv, and NPC) employed sales representatives who were assigned to the call centers. (Id. at ¶¶ 55, 56.) These representatives were tasked with supervising the telemarketing work and ensuring compliance with the VISA rules and applicable laws. (Id.) Finally, and as previously stated, the standard telemarketing “script” also included a disclosure by the caller that they were “with” either Wells Fargo or Fifth Third. (Id. at ¶¶ 60, 97.). These scripts were allegedly reviewed and approved by the two banks. (Id. at ¶¶ 61, 98.)

         Plaintiffs allege that Defendants First Data, Vantiv, and NPC (the processor TPAs) had an additional reason to know of the existence of the secret recordings: they actually listened to them. (Id. at ¶¶ 78-83, 90-91, 99-100.) When a merchant agreed to purchase hardware through IPS or Ironwood, the processor TPA-Defendants would ordinarily call the merchants directly to confirm the sale, but they would also often request the call recordings to confirm the sales. (Id. at ¶¶ 79, 80.) IPS personnel assured the three organizations that “all calls to merchants were recorded and available to be requested.” (Id. at ¶ 81.) Because the recordings never included disclosure by the telemarketers or consent by the merchants, Plaintiffs assert, First Data, Vantiv, and NPC had actual knowledge that the calls were secretly recorded. (Id. at ¶¶ 81, 90, 99.) Thus, Plaintiffs allege, First Data, Vantiv, and NPC “benefitted from and ratified IPS's practice” of making secret recordings of the telemarketing calls. (Id. at ¶¶ 82, 90, 100.) Finally, IPS and Ironwood's websites and marketing materials disclosed their affiliation with the various processor TPAs, and “prominently featured” those organizations' logos. (Id. at ¶¶ 84, 91, 101.) The same was true for the processor TPAs' marketing material and websites with respect to IPS and Ironwood. (Id.)

         3. The “Whistleblower”

         Plaintiffs assert that information at the core of the Amended Complaint comes from an alleged whistleblower: a former employee of IPS and, later, Ironwood who was fired after he “repeatedly cautioned” Defendants the Bentleys, Lovelace, and Lewis that their marketing activities violated California law. (Id. at ¶¶ 74, 94-95, 104.) This whistleblower later contacted Plaintiffs' counsel, Myron M. Cherry & Associates, LLC (“the Cherry Firm”), with “detailed information regarding the pattern of secretly recording phone calls” the Defendants made to California businesses. (Id. at ¶ 104.) The named Plaintiffs were unaware of any secret recordings until after they talked to the Cherry Firm. (Id.)

         The Defendants' Motions for Rule 11 Sanctions tell a very different story. They claim that the Plaintiffs' unnamed whistleblower, identified by Defendants as James Tibor, was not fired in retaliation for a failure to keep quiet about secret recordings, but in response to the results of a criminal background check. (Lovelace Sanctions Mot. ¶ 2.) After Ironwood purchased IPS's Illinois assets in 2015, it chose to retain Tibor as the General Manager of its Naperville call center. (Id. at ¶ 9.) Then, on June 14, 2016, as Ironwood was beginning its relationship with data storage-provider IRIS, the Human Resources department decided to run criminal background checks on the management team who had “access to personal information . . . contained in IRIS.” (Nobbs Decl., Ex. 2 to Lovelace Sanctions Mot. [121], ¶ 4) (internal citation and quotations omitted). Tibor consented to the background check, but declined the opportunity to disclose any potential issues to Human Resources in advance. (Id. at ¶¶ 4-5.)

         The results of the background check were troubling. Defendants learned that James Tibor had a lengthy criminal history for offenses of dishonesty. These offenses included three Illinois state convictions for forgery and one for “theft by deception greater than $100, 000, ” all dating back to 2003. (County Criminal Court Check, Ex. 2.C to Lovelace Sanctions Mot. 81- 85.) In addition, the background check disclosed a federal indictment for five counts of mail and wire fraud. Tibor had pleaded guilty to one count of wire fraud on February 24, 2009, and was sentenced to 77 months imprisonment to run consecutively with the 52-month state sentence he was already serving. (U.S. District Court Judgment, Ex. 4 to Lovelace Sanctions Mot. 160-61.)

         Ironwood informed Tibor of the results of his background check on June 20, 2016; Ironwood fired Tibor shortly thereafter, on June 23, 2016. (Nobbs Decl. ¶ 7.)

         Tibor's shadow over the present case, Defendants allege, arose the day he was fired. On June 23, Tibor sent an e-mail to Ironwood HR Manager Richard Nobbs, [3] stating:

I am alerting that Ironwood is engaging in illegal activity. They record 14, 000-18, 000 calls a day without the knowledge and consent of the other party. I've reported this to the old owners [the Bentleys] and repeatedly reported it to the new ones [Lovelace and Lewis]. After refusing to engage in this illegal activity, I was threatened to be fired if I persisted in my objections. Please help me stop this illegal activity.

(E-mail from James Tibor to Richard Nobbs of 6/23/16, Ex. 2.D to Lovelace Sanctions Mot. [121], 87.) The Bentleys, Lovelace, Lewis, and Nobbs all deny that Tibor “ever raised an issue about the appropriateness or legality of recording calls” before this e-mail. (Lovelace Sanctions Mot. ¶ 15; see also Memorandum in Support of IPS Defs. Sanctions Mot. [130] (“IPS Defs. Supp. Sanctions Memo”), 5-9.)

         Within a month, Tibor had hired an attorney to pursue a retaliatory discharge claim against Ironwood. On July 13, 2016, Tibor's attorney, Antoinette Choate of Choate Herschman LLC, sent a letter to Ironwood outlining Tibor's claims and stating that Tibor had raised his concerns on no less than nine occasions between April 2014 and June 2016. (Letter from Antoinette Choate to Jon Turner of 7/13/16, Ex. 6.A to Lovelace Sanctions Mot. 170-72.) The letter did not mention the background check. Instead, Choate asserted that Tibor's termination was the result of an “immediate[ ] retaliation” for his persistent whistleblowing, and for which Ironwood “failed to offer any reason.” (Id. at 171.) On August 29, Choate sent Ironwood another letter, this time including a draft complaint asserting claims for common law retaliatory discharge and violations of the Illinois Whistleblower Act, 740 ILCS 174 et seq., and the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (Letter from Antoinette Choate to Stephen Carmody of 8/29/16, Ex. 6.B to Lovelace Sanctions Mot. 175-90.) The draft complaint included print-outs of e-mails from Tibor's tenure with IPS and Ironwood in which he purportedly warned that Defendants were recording phone calls without consent and received dismissive responses from Defendants. (Exs. 6.B.1-4 to Lovelace Sanctions Mot. 192-201.) In one of the e-mails, for example, Andrew Bentley responded to a message from Tibor by saying: “Recordings? Not an issue, we can record whatever we want on this kind of call and we do not need to alert anyone about it.” (E-mail from Andrew Bentley to James Tibor of 6/20/15, Ex. 6.B.1 to Lovelace Sanctions Mot. 192) In another, Dewitt Lovelace answered Tibor's request to inform call recipients that they were being recorded with a blunt “No. Do not tell them we are recording this or any other conversation.” (E-mail from Dewitt Lovelace to James Tibor of 10/12/15, Ex. 6.B.2 to Lovelace Sanctions Mot. 197.)

         On September 16, 2016, Ironwood finally responded to Tibor's threatened retaliatory discharge suit. In an e-mail message to Choate, Sean Allen, Ironwood's outside IT manager, informed Attorney Choate that the e-mails provided to her by Tibor had been altered. (E-mail from Sean Allen to Antoinette Choate of 9/16/16, Ex. 7.F to Lovelace Sanctions Mot. 251-52.) Allen reported that he had discovered that all of the incriminating e-mails had been written (or overwritten) on June 23, 2016-Tibor's last day in the office. In each, Tibor had altered the text of existing messages to include manufactured references to nonconsensual call recording. (Id.) The actual e-mails, Allen had discovered in his investigation of Ironwood's server, regarded non-controversial topics like employee scheduling. (Id.) In one particularly egregious fabrication, Tibor had rewritten an e-mail from April 26, 2016, in which he simply provided Lewis with directions to the Naperville call center. In its altered form, Tibor's message read:

I continue to have concerns about process of not providing some level of alert, notice, etc. to the business owners we are calling that we are recording their conversation. I believe that we may be in violation of a few local or even state regulations if we don't notify them or have some kind of tone that they recognize as a recording. Is this something we can start incorporating in our pitch perhaps?

(Lovelace Sanctions Mot. 8) (comparing Ex. 1.A.3 to Ex. 7.D.) Lewis had responded to the original (overwritten) e-mail innocuously: “Roger[, ] thanks Jim. Did computers make it?” (Id.) In its altered form, the purported response was: “There is no need for any notice do not make any modifications.” (Id.)

         After Allen's e-mail, Ironwood never heard from Choate again, and the threatened retaliatory discharge lawsuit was never filed. (Lovelace Decl., Ex. 1 to Lovelace Sanctions Mot. 5-6.)

         Tibor's involvement with this proceeding was not made apparent until the Plaintiffs amended their original complaint. Even there, Tibor is not mentioned by name. In a hearing on March 15, 2017, just after the Plaintiffs filed the Amended Complaint, Defendants' counsel first raised the issue of Tibor's impact on the case and alluded to the facts described above. (Transcript of Proceedings on 3/15/17, Ex. 8 to IPS Defs. Supp. Sanctions Memo [130-8] (“3/15/17 Hearing Tr.”), 6:16-8:16.) Plaintiffs' counsel, Jacie Zolna, admitted that Tibor was the original source of their information, but downplayed the matter. Zolna observed that because Plaintiffs had engaged in due diligence, “[i]t doesn't matter what a former employee may have done in his past or threatened lawsuits or anything like that.” (Id. at 10:1-21.)

         Lovelace and Lewis responded immediately, sending a letter to the Cherry Firm repeating their objections to the use of “the untrustworthy allegations and forged documents of James Tibor” and requesting that the Plaintiffs further amend their complaint to exclude any references to Tibor. (Letter from James Figliulo to Jacie Zolna of 4/7/17, Ex. 9 to Lovelace Sanctions Mot. 342.) This letter also satisfied Rule 11(c)(2)'s 21-day notice window before parties may properly move for sanctions. Counsel for the IPS Defendants sent a nearly identical letter on April 26, 2017, the same day Plaintiffs filed their Responsive brief. (Letter from Jess Krannich to Jacia Zolna of 4/26/17, Ex. 9 to IPS Defs. Supp. Sanctions Memo [130-9].) Zolna responded to each letter stating:

The draft Rule 11 motion you attached to your letter relies primarily on a series of emails you claim were fraudulent. You then make the unsupported leap that we relied on those documents to support the allegations of our Amended Complaint. You are wrong. We do not, and have never, relied ...

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