`
`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 1 of 9
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`
`
`J. DAVID HADDEN (CSB No. 176148)
`dhadden@fenwick.com
`SAINA S. SHAMILOV (CSB No. 215636)
`sshamilov@fenwick.com
`MELANIE L. MAYER (admitted pro hac vice)
`mmayer@fenwick.com
`TODD R. GREGORIAN (CSB No. 236096)
`tgregorian@fenwick.com
`RAVI R. RANGANATH (CSB No. 272981)
`rranganath@fenwick.com
`CHRISTOPHER S. LAVIN (CSB No. 301702)
`clavin@fenwick.com
`FENWICK & WEST LLP
`Silicon Valley Center
`801 California Street
`Mountain View, CA 94041
`Telephone:
`650.988.8500
`Facsimile:
`650.938.5200
`
`Counsel for AMAZON.COM, INC.,
`AMAZON WEB SERVICES, INC., and
`TWITCH INTERACTIVE, INC.
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN JOSE DIVISION
`
`IN RE: PERSONAL WEB TECHNOLOGIES,
`LLC ET AL., PATENT LITIGATION
`
`AMAZON.COM, INC., and AMAZON WEB
`SERVICES, INC.,
`Plaintiffs
`
`v.
`PERSONALWEB TECHNOLOGIES, LLC and
`LEVEL 3 COMMUNICATIONS, LLC,
`Defendants,
`
`PERSONALWEB TECHNOLOGIES, LLC, and
`LEVEL 3 COMMUNICATIONS, LLC,
`
`Plaintiffs,
`
`v.
`
`TWITCH INTERACTIVE, INC.,
`
`Defendant.
`
`Case No.: 5:18-md-02834-BLF
`Case No.: 5:18-cv-00767-BLF
`Case No.: 5:18-cv-05619-BLF
`
`SUPPLEMENTAL BRIEF RE REQUEST
`OF AMAZON.COM, INC., AMAZON
`WEB SERVICES, INC., AND TWITCH
`INTERACTIVE, INC. TO COMPEL
`PRODUCTION OF DOCUMENTS
`THAT THE PERSONALWEB
`INVESTORS HAVE IMPROPERLY
`WITHHELD AS PRIVILEGED
`
`JUDGE: Hon. Susan van Keulen
`
`
`
`
`
`REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED
`
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`CASE NOS. 5:18-md-02834-BLF,
`PRODUCTION OF DOCUMENTS
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 2 of 9
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`Amazon appreciates the opportunity to submit this supplemental brief to address the four
`issues identified by the Court (Dkt. 862). The following additional fact background concerning the
`PersonalWeb investors’ attempt to defraud creditors and later the California Superior Court may
`also assist resolution of the motion.1
`The investors formed PersonalWeb and own nearly all its equity. But they structured their
`investment in PersonalWeb as secured debt to ensure that they would never have to pay any
`unwanted creditors. The scheme worked as follows. The investors never capitalized PersonalWeb
`for its anticipated business. Instead, they paid expenses as they arose, and promptly removed and
`distributed to themselves the proceeds of any litigation settlements. As they did so, they recorded
`these as increases or decreases to the outstanding loan balance. But they did not expect
`“repayment,” as such. Instead, they extended the loan maturity dates so that they would not come
`due. The result is that the investors could keep PersonalWeb perpetually insolvent—unable to pay
`creditors unless they specifically chose to do so. For example, as PersonalWeb began filing 85
`federal lawsuits against Amazon customers,
`
` And during the case, PersonalWeb was paying as much as
`
` to its lawyers, yet Kevin Bermeister testified
`
`
`
`The investors also could at any point use the secured loans to claim priority to whatever
`assets PersonalWeb retained, leaving unsecured creditors with nothing. And that is what happened
`here. As soon as Amazon inquired about securing the judgment, Mr. Murray Markiles, who is
`PersonalWeb’s corporate counsel, but also
` and the managing agent
`for both ECA and Claria, announced
` He then began pressing PersonalWeb and the
`investors to trigger the asset protection scheme. The investors demanded that PersonalWeb
`immediately repay the loans in full even though they were not scheduled to mature for over a year.
`They also colluded with PersonalWeb to modify the secured loan agreements to specify that the
`patent litigations against Amazon were “collateral” securing their loans. Then in California
`
`1 These facts are set forth with their supporting evidence in Amazon’s state court filings provided
`as Exs. 1 and 2. These documents are subject to ongoing sealing proceedings at the Superior Court,
`but Amazon will as needed file a public version consistent with the Superior Court ruling on sealing.
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`CASE NOS. 5:18-md-02834-BLF,
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 3 of 9
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`Superior Court they filed to place PersonalWeb in receivership for their benefit and obtain a
`preliminary injunction that prevented any other creditor from collecting. In their filings, they
`presented themselves as arms’ length creditors, concealing from the Superior Court the fact that
`they already own and control PersonalWeb (and thus had no legitimate need for a receiver to
`manage the estate for them), and that PersonalWeb had a legitimate $5.4 million creditor in
`Amazon.
`Several additional facts concerning PersonalWeb’s operation and Stubbs’ representation of
`it are important here. PersonalWeb’s day-to-day operations including its litigations were managed
`primarily by Kevin Bermeister, the CEO of BDE and director of Monto, Anthony Neumann, BDE’s
`sole employee, and occasionally Mr. Markiles—i.e., not PersonalWeb’s President Michael Weiss,
` Of these three, only Mr. Bermeister claimed a role
`at PersonalWeb, but that was expressly as a “non-executive” board member without management
`responsibility. When the Court entered judgment against PersonalWeb, these individuals stepped
`back and allowed Mr. Weiss to deal with Mr. Gersh concerning PersonalWeb’s part in the judgment
`avoidance scheme,2 while they switched sides and worked to retain separate counsel to make the
`repayment demand and sue PersonalWeb. (Exs. 3, 4; Dkt. 860-7; Dkt. 725 (Hearing Tr. (1/20/22))
`at 7:12-21; Dkt. 860-8.) The investors therefore continued to contact Mr. Gersh after being told of
`the separate counsel requirement. And the investors’ new counsel at Frandzel included Mr. Gersh
`on communications expressly as counsel for PersonalWeb, until being told on April 22, 2021, that
`Mr. Gersh could have no further involvement on post-judgment matters. (Ex. 5.) Still, both before
`and after this communication the Frandzel attorneys copied Mr. Gersh on the draft documents for
`the litigation against PersonalWeb. (See, e.g., Dkt. 860-2 (Investors’ Privilege Log), Nos. 256-
`257, 265, 268-269, 274, 278-280, 284, 286-289, 291-292, 297-299, 302, 306, 308, 314-315, 317,
`319-320, 328, 638-39.)
`
`
`2 (See Exs. 6 (Mr. Weiss sending Mr. Gersh pledge and security agreements), 7 (Mr. Weiss sending
`Mr. Gersh revolving secured promissory note and secured notes), 8 (Mr. Weiss sending Mr. Gersh
`UCC assignment for a secured note, specifying:
`
` 9 (Mr. Weiss sending Mr. Gersh
`revolving promissory note, secured note, and signature pages).)
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`2
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 4 of 9
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`
`
`ARGUMENT
`1.
`There was no dual representation.
`The Court stated that it is interested in authority that addresses the waiver of privilege where
`the communication arguably undermining the privilege is with counsel who is engaged in dual
`representation. Amazon showed in the joint statement that Mr. Gersh did not personally represent
`the investors with respect to the secured loans or the plan to sue PersonalWeb, as shown by his
`statements to that effect. (See Dkt. 860-7; Dkt. 725 (Hearing Tr. (1/20/22)) at 7:12-21; Dkt. 860-
`8.) Amazon thus understands the Court’s question as assuming an imputed attorney-client
`relationship, arising either from Stubbs’ former work for the investors, or the investors’ beliefs
`about Mr. Gersh’s role.
`The problem for the investors is that, even assuming there existed any basis in fact for that
`claim (none has been shown), such a “representation terminates when it becomes clear to all parties
`that the clients’ legal interests have diverged too much to justify using common attorneys.” In re
`Teleglobe Commc’ns Corp., 493 F.3d 345, 362 (3d Cir. 2007). In other words, if Mr. Gersh was
`simply violating his ethical duties to both clients without their knowledge, that would not vitiate
`the privilege. Id. at 368. But if the investors were aware, that would not—a client’s awareness and
`disclosure to an unnecessary party still waives the privilege. Continental Cas. Co. v. St. Paul
`Surplus Lines Ins. Co., 265 F.R.D. 510, 526 (E.D. Cal. 2010). (The investors cannot as a matter of
`law consent to a conflicted dual representation concerning a lawsuit against PersonalWeb. See
`Restatement (Third) of the Law Governing Lawyers, § 122, cmt. g(iii) (Am. L. Inst. 2023) (“When
`clients are aligned directly against each other in the same litigation, the institutional interest in
`vigorous development of each client’s position renders the conflict nonconsentable. The rule
`applies even if the parties themselves believe that the common interests are more significant in the
`matter than the interests dividing them.”) (citation omitted).)
`Here, the investors knew that Mr. Gersh and Stubbs represented PersonalWeb, because their
`owners and managers (Bermeister, Neumann, Markiles) had personally dealt with him while
`running PersonalWeb’s litigations for years. The investors apparently received instruction that they
`
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`PRODUCTION OF DOCUMENTS
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 5 of 9
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`
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`needed to secure separate counsel from Stubbs, and then promptly did so. (Exs. 3, 4.)3
`
`
`
` (See Ex. 10.) Mr. Markiles is an
`attorney with knowledge of the conflicts rules, as are the Frandzel attorneys who the investors
`ultimately hired. Nevertheless, the investors continued deliberately to include Mr. Gersh in their
`communications concerning their claims against his client. (See, e.g., Dkt. 860-2 at Entry Nos.
`153, 160, 168, 562, 576, 585.)
`2.
`The investors waived the work product protection.
`The Court noted that the investors raised a separate argument concerning work product,
`suggesting that a disclosure of the materials to Mr. Gersh was not the equivalent of disclosure to
`PersonalWeb itself. That is not correct. Work product is governed by the similar waiver rules as
`attorney-client privilege, e.g., Great Am. Assur. Co. v. Liberty Surplus Ins. Co., 669 F. Supp. 2d
`1084, 1092 (N.D. Cal. 2009), and there is no exception to waiver for disclosures to an adverse
`attorney rather than an adverse party. Specifically, “the voluntary disclosure of attorney work
`product to an adversary or a conduit to an adversary waives work-product protection for that
`material.” United States v. Deloitte LLP, 610 F.3d 129, 140 (D.C. Cir. 2010) (emphasis supplied).
`Just as a disclosure to an adverse party is inherently inconsistent with our adversary system, see
`Hartford Fire Ins. Co. v. Garvey, 109 F.R.D. 323, 328 (N.D. Cal. 1985), so too, is a disclosure to
`an adverse party’s attorney.
`3.
`There was no common interest.
`Next, PersonalWeb and the investors did not share a common legal interest in the investors’
`plan to demand loan repayment and file suit against PersonalWeb.
`“[T]he ‘common interest’ or ‘joint defense’ rule is an exception to ordinary waiver rules
`designed to allow attorneys for different clients pursuing a common legal strategy to communicate
`with each other.” In re Pac. Pictures Corp., 679 F.3d 1121, 1129 (9th Cir. 2012). It applies when
`(1) the communication is made by separate parties during a matter of common interest; (2) the
`
`3 To the extent that there is any doubt about this, or any of the other factual or legal contentions in
`Amazon’s brief, Amazon respectfully requests that the Court review the disputed withheld
`documents in camera to ascertain whether their contents reflect a lack of privilege or a waiver.
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`CASE NOS. 5:18-md-02834-BLF,
`4
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 6 of 9
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`communication is meant to further that effort; and (3) the privilege has not been waived. United
`States v. Bergonzi, 216 F.R.D. 487, 495 (N.D. Cal. 2003). Additionally, to assert common interest
`with respect to a lawsuit, there must be “an on-going and joint effort to set up a common defense
`strategy for the common interest exception [to waiver of the privilege] to apply.” Regents of Univ.
`of Cal. v. Affvmetrix, Inc., 326 F.R.D. 275, 279 (S.D. Cal. 2018). The common interest doctrine is
`“narrowly construed to avoid creating an entirely new privilege.” Wellons v. PNS Stores, Inc., 2020
`WL 12834156, at *2 (S.D. Cal. Jan. 31, 2020) (internal quotations omitted).
`Here, the common interest exception does not apply to the communications between Mr.
`Gersh and the investors because PersonalWeb and investors do not share a common legal interest,
`nor were the communications in furtherance of any recognized interest. A common interest cannot
`possibly exist between PersonalWeb and the investors in a lawsuit against PersonalWeb because
`they are adverse and have separate legal interests. The fact that Amazon was a “common enemy”
`is not a recognized legal interest. Nor is the fact that PersonalWeb wanted to lose the lawsuit
`against the investors and put forth no defense. This is because a “shared desire to see the same
`outcome in a legal matter is insufficient to bring a communication between two parties within this
`exception.” In re Pac. Pictures Corp., 679 F.3d at 1129; Affymetrix, 326 F.R.D. at 279. Again,
`here investors merely continued to copy Mr. Gersh on their communications about how to demand
`repayment from PersonalWeb and file suit against it, even after being told to retain separate counsel,
`and even after separate counsel was retained. (See, e.g., Dkt. 860-2 at Entry Nos. 153, 160, 168,
`562, 576, 585.)
`The closest analogue is Crosby v. California Physicians’ Service, 2020 WL 2510651, at *4
`(C.D. Cal. Feb. 26, 2020), where the court held that a desire to see the same outcome such that the
`defendants would have to pay the non-party medical provider for services to the plaintiff is
`insufficient to establish protection under the common-interest doctrine.
`Finally, to the extent there was any “common interest” at all, it was specifically to work
`together to defraud PersonalWeb’s creditors and the Superior Court. There is no privilege at all if
`“the attorney’s services were sought or obtained to enable or aid anyone to commit or plan to
`commit a crime or a fraud.” BP Alaska Exploration, Inc. v. Super. Ct., 199 Cal. App. 3d 1240,
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
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`Case 5:18-md-02834-BLF Document 864 Filed 04/08/23 Page 7 of 9
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`1267 (1988) (internal quotations omitted); In re Grand Jury Investigation, 810 F.3d 1110, 1113
`(9th Cir. 2016). This exception vitiates both attorney-client and work product protections. In re
`Nat’l Mortg. Equity Corp. Mortg. Pool Certificates Litig., 116 F.R.D. 297, 301 (9th Cir. 1987).
`The crime fraud exception applies to schemes to defraud creditors, United States v. Jacobs,
`117 F.3d 82, 99 (2d Cir. 1997), abrogated on other grounds by Loughrin v. United States, 573 U.S.
`351 (2014), as well as frauds perpetrated on the court. See In re Napster Inc. Copyright Litig., 479
`F.3d 1078 (9th Cir. 2007), abrogated on other grounds by Mohawk Indus., Inc. v. Carpenter, 558
`U.S. 100 (2009). Here, Amazon has made out a prima facie case of both, and the investors’
`privilege log reflects on its face that the challenged communications were made to further the fraud.
`As discussed above, PersonalWeb was run day to day by the investors, and was in fact insolvent
`without its investors agreeing to pay its expenses on an ongoing basis. Its entire point was to
`defraud potential creditors by presenting PersonalWeb as legitimate entity, when in reality it was
`an empty shell that would allow the investors to use the secured loans to zero out any liabilities to
`real creditors. The investors took the fraud one step further by filing at the Superior Court a
`complaint and motions presenting themselves only as arms’ length creditors, without disclosing
`that they both owned PersonalWeb, but also controlled it, and were thus themselves responsible for
`the supposed “nonpayment” that they were complaining about. That was further compounded by
`their failure to disclose that Amazon was a judgment creditor of PersonalWeb, and that the investors
`had modified their loan agreements and sought the receivership specifically to defeat enforcement
`of the Court’s judgment. Fraud on the court rests on whether the conduct “harmed the integrity of
`the judicial process.” United States v. Sierra Pac. Indus., Inc., 862 F.3d 1157, 1167 (9th Cir. 2017).
`The California Court of Appeal has already recognized that investors’ conduct has done so:
`[T]he record before us supports Amazon’s allegations that respondents
`colluded to pursue the underlying action to preclude Amazon from
`collecting on its judgment against PersonalWeb. Specifically, the record
`supports Amazon’s theory that respondents used the case to quickly funnel
`all of PersonalWeb’s assets into a receivership following Amazon’s victory
`in the MDL. By doing so, respondents insulated all of PersonalWeb’s
`assets, including additional money loaned to PersonalWeb to fund further
`patent litigation against Amazon and its affiliates, from Amazon’s judgment
`while still ensuring PersonalWeb’s beneficial owners maintained control
`over the PersonalWeb assets.
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`* * * *
`We agree with Amazon that respondents’ collusion is ‘likely to result in
`injustice.’ … If allowed to use the collection action as intended,
`PersonalWeb avoids the consequences of its improper litigation conduct in
`the MDL by not having to pay Amazon its attorneys’ fees and costs as
`ordered. Further, PersonalWeb will be able to continue pursuing further
`patent litigation against Amazon’s customers, and require Amazon to
`continue defending against that litigation while depriving Amazon of the
`ability to obtain meaningful relief for PersonalWeb’s future use of
`unreasonable litigation tactics.
`
`Brilliant Digital Ent., Inc. v. PersonalWeb Techs., LLC, No. B317580, slip op. at 13-14 (Cal. Ct.
`App. Oct. 3, 2022).
`This Court has recognized that “PersonalWeb appears to be thwarting Amazon’s legitimate
`interest in collecting its judgment,” and that its manipulation of its counsel of record, “along with
`the chameleon-like efforts of Personal Web to use this time to make itself judgment proof, amount
`to a concerted effort to thwart collection of the judgment ordered by this Court.” (Dkt. 694 at 3-4.)
`The investors’ fraud prevents them from claiming privilege over their communications made to
`carry it out.
`4.
`The investors waived privilege over subject matter.
`The investors have waived subject matter privilege over documents concerning the loan
`transactions, avoiding the Court’s judgment, and seeking the receivership because they have
`produced communications on these subjects involving PersonalWeb representatives (i.e.,
`PersonalWeb and its counsel).
`The voluntary disclosure of a privileged communication to a third party waives the privilege
`over that communication and all others on the same subject. United States v. Sanmina Corp., 968
`F.3d 1107, 1117 (9th Cir. 2020); Weil v. Inv./Indicators, Rsch. & Mgmt., Inc., 647 F.2d 18, 24 (9th
`Cir. 1981); Staley v. Gilead Scis., Inc., 2022 WL 1836820, at *2 (N.D. Cal. June 3, 2022). Amazon
`provided in the joint submission two examples from investors’ production of Mr. Weiss
`communicating with Mr. Gersh concerning the loan transactions. (Dkts. 859-4, 859-5.) Mr. Weiss
`further provided the pledge and security agreements and UCC agreements underlying the loan
`transactions to Mr. Gersh. (See, e.g., Exs. 6 (BDE-00023095), 8 (BDE-00023313).) After these
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`communications, Mr. Gersh discussed with the investors’ litigation counsel and principals the draft
`complaint seeking the receivership against PersonalWeb, a related UCC search, and other litigation
`documents such as a proposed stipulation for “Appointment of Receiver and Preliminary
`Injunction…,” and the declaration that PersonalWeb President Michael Weiss submitted on behalf
`of PersonalWeb. (E.g., Dkt. 860-2 (Investors’ Privilege Log), Nos. 279, 284, 317, 328, 638-39.)
`The investors also produced communications between PersonalWeb representative Mr. Neumann
`and Mr. Gersh concerning the loan transactions. (See, e.g., Exs. 11 (BDE-00064425); 12 (BDE-
`00064642).) They also produced communications showing PersonalWeb representative Mr.
`Markiles expressing concern among the PersonalWeb principals about the judgment and, after
`Amazon asks about the posting of an appellate bond,
` before setting in
`motion the asset protection scheme. (Exs. 13 (BDE-00064104), 14 (BDE-00064438).) The
`investors produced PersonalWeb communications concerning avoiding the Court’s judgment and
`seeking the receivership, such as Mr. Richards advising Frandzel of the plan to establish the
`receivership. (Exs. 15 (FRBC-00001619), 16 (FRBC-00001621).). And investors also produced
`Frandzel’s communications with PersonalWeb representatives on these subjects. (Ex. 17 (FRBC-
`0002100), 18 (FRBC-00002160), 19 (MONTO-00004132).) By producing these documents, the
`investors have waived subject matter privilege.
`
`CONCLUSION
`For all these reasons, the Court should order production of the communications because
`there is no privilege, but even if there were, the investors have waived privilege.
`
`
`Dated: April 7, 2023
`
`Respectfully submitted,
`
`FENWICK & WEST LLP
`
`
`By: /s/ Todd R. Gregorian
`TODD R. GREGORIAN (CSB No. 236096)
`
`Attorney for AMAZON.COM, INC.,
`AMAZON WEB SERVICES, INC., and
`TWITCH INTERACTIVE, INC.
`
`SUPPLEMENTAL BRIEF RE REQUEST TO COMPEL
`PRODUCTION OF DOCUMENTS
`
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`8
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`CASE NOS. 5:18-md-02834-BLF,
`5:18-cv-00767-BLF, and
`5:18-cv-05619-BLF
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`ATTORNEYS AT LAW
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`FENWICK & WEST LLP
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