Russell v. Railey

• Decision Date: 09 April 2012
• Docket Number: Civil Action No. DKC 08-2468
• Parties: CHRISTOPHER M. RUSSELL, et al. v. KRISTA RAILEY, et al.
• Court: U.S. District Court — District of Maryland

CHRISTOPHER M. RUSSELL, et al.

v.KRISTA RAILEY, et al.

Civil Action No. DKC 08-2468

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

Date: April 9, 2012

MEMORANDUM OPINION

Presently pending and ready for review in this defamation case is the "motion for a default judgment, summary judgment and a permanent injunction" filed by Plaintiffs Christopher M. Russell, Ryan Hill, Global Direct Sales, LLC, and Penobscot Indian Nation. (ECF No. 109). The issues have been briefed, and the court now rules, no hearing deemed necessary. Local Rule 105.6. For the following reasons, the motion will be denied.

I. Background

A. Factual Background

The complaint alleges the following facts, unless otherwise noted. Plaintiff Penobscot Indian Nation ("PIN") is a federally-recognized Native American Government located in Maine. It created the Grant America Program ("GAP"), which is a national program that "provides low to moderate-income homebuyers with a down payment grant to be used towards the purchase of a home." (ECF No. 1 ¶ 1). Plaintiff Global DirectSales, LLC ("Global Direct"), a Maryland limited liability company with its principal place of business in Maryland, entered into an agreement with PIN whereby Global Direct would "develop, organize and operate" GAP.

GAP works as follows: From a pool of funds,¹ PIN provides grants to low- to moderate-income homebuyers and first-time homebuyers to be used towards down payments. Prior to closing, the grant is wired to the settlement agent. At closing, the seller is charged an enrollment fee for enrolling their home in the program. The enrollment fee replenishes the grant fund pool and "any excess is the property of PIN." (Id. ¶ 25). The seller must certify that the sale price has not been increased to offset the seller's contribution to GAP. According to the complaint, GAP meets the current policies of the United States Department of Housing and Urban Development ("HUD") pertaining to the source of gift funds for a borrower's required cash investment to obtain insured mortgage financing. (Id. ¶ 29).

Defendant Implode-Explode Heavy Industries, Inc. ("IEHI"), and Defendant Krowne Concepts, Inc. ("Krowne Concepts"), own and operate a website called "ml-implode.com" ("the Website"). The "mission" of the Website is "transparency, education andaccountability." (Id. 1 48).² As principals of IEHI and Krowne Concepts, Aaron Krowne and Justin Owings control the content of the Website. As of 2007, the Website had a core daily audience of about 100,000 visitors.

In June 2008, on behalf of the corporate Defendants, Lorena Leggett began soliciting Plaintiffs via telephone and email to advertise on the Website. After several months, Plaintiffs finally advised the corporate Defendants that they would not advertise on the Website. On September 15, 2008, shortly after Plaintiffs advised the corporate Defendants that they would not be advertising, the corporate Defendants published an "untrue and defamatory" article regarding Plaintiffs ("the Article") on the Website. (Id. ¶ 36). Among other statements, the Article, written by Defendant Krista Railey, calls GAP a "scam," links Plaintiffs Christopher Russell and Ryan Hill to another "seller-funded down payment scam," suggests GAP is not HUD-approved, describes the seller contributions as "concessions," and accuses PIN of laundering down payments for a fee. (Id. ¶ 37). On September 18, 2008, the corporate Defendants began to solicit other websites to republish the Article.

B. Procedural Background

On September 19, 2008, PIN, Global Direct, Mr. Russell, and Mr. Hill filed a complaint in this court based on diversity jurisdiction asserting four causes of action against seven total defendants. (ECF No. 1). The following claims are advanced: (1) defamation; (2) libel; (3) unfair business practice; and (4) injunctive relief. Plaintiffs sought a preliminary injunction to halt publication of the Article (ECF No. 11), but the court denied their motion (ECF No. 28). Defendants filed an answer on November 18, 2008. (ECF No. 29).

Three of the original defendants, Aaron Krowne, Justin Owings, and Lorenna Leggett, were then dismissed for lack of personal jurisdiction. (ECF Nos. 48, 49). A fourth defendant, Streamline Marketing, Inc. ("Streamline"), was dismissed without prejudice. (ECF Nos. 85, 86).³ On July 12, 2010, the court denied the remaining Defendants' special motion to dismiss pursuant to Maryland's "anti-SLAPP" statute,⁴ Md. Code Ann., Cts. & Jud. Proc. § 5-807, which, in certain circumstances, protects a party's First Amendment rights when reporting on matters within the authority of a government body. (ECF Nos. 92, 93).

On April 27, 2011, and May 9, 2011, counsel for IEHI and Krowne Concepts filed motions to withdraw as attorneys (ECF Nos. 98, 101), which the court granted on May 31, 2011 (ECF No. 104). In its letter-order granting the withdrawal, the court informed IEHI and Krowne Concepts that they must be represented by new counsel; otherwise, they would be subject to default. (Id.). When IEHI and Krowne Concepts failed to respond appropriately within the requisite time period, their default was entered. (ECF No. 107).

On September 28, 2011, Plaintiffs filed the pending motion. (ECF No. 109). Defendants have not opposed it.⁵

II. Default Judgment

Plaintiffs first move for default judgment on all counts as to IEHI and Krowne Concepts. (ECF No. 109-8, at 7). Despite the styling of their motion, however, Plaintiffs do not actually seek default judgment. Rather, they seek only a determination of the issue of liability upon default, as they specifically refrain from seeking a determination of damages on the current record. (See id. at 1, 7). They seek a hearing on damages after default.

A. Defendants' Liability on Default

When considering a motion for default judgment, the court takes all well-pleaded factual allegations in the complaint as true. Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001). A default, however, is not "treated as an absolute confession by the defendant of his liability and of the plaintiff's right to recover," and the defendant is not held to "admit conclusions of law." Id. (citation omitted); see also 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2688, at 60-61 (3d ed. 1998) ("[L]iability is not deemed established simply because of the default, and the court, in its discretion, may require some proof of the facts that must be established in order to determine liability." (footnotes omitted)). For that reason, the court must evaluate whether Plaintiffs have alleged a legitimate cause of action before awarding default judgment in their favor. Wright et al., supra, § 2688, at 63.

In the Fourth Circuit, several recent district court opinions analyzing default judgments have applied the United States Supreme Court's opinions in Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), when determining whether allegations within the complaint are "well-pleaded." E.g. , Balt. Line Handling Co. v. Brophy, 771 F.Supp.2d 531, 544 (D.Md. 2011); Bogopa Serv. Corp.v. Shulga, No. 3:08cv365, 2009 WL 1628881, at *1-2 (W.D.N.C. June 10, 2009). Using the principles articulated in Iqbal and Twombly, those cases have concluded that where a complaint offers only "labels and conclusions" or "naked assertion[s] devoid of further factual enhancement," the allegations therein are not well-pleaded and, even on default judgment, relief should be denied. See Balt. Line Handling Co. , 771 F.Supp.2d at 544 (internal quotation marks omitted) ("The record lacks any specific allegations of fact that 'show' why those conclusions are warranted.").

1. Defamation and Libel (Counts One and Two)

As an initial matter, Counts One and Two are duplicative of each other. Indeed, libel is simply a "branch[]" of the tort of defamation. Lake Shore Investors v. Rite Aid Corp. , 67 Md.App. 743, 752 (1986); see also Adam v. Wells Fargo Bank, N.A. , No. ELH-09-2387, 2011 WL 3841547, at *16 n.23 (D.Md. Aug. 26, 2011) ("The tort of defamation includes both libel (written defamation) and slander (oral defamation)."). Moreover, there are no separate facts alleged in support of either count to suggest that they were intended to cover different conduct by the Defendants. Counts One and Two will thus be analyzed as asserting a single cause of action.

To state a claim for defamation in Maryland,⁶ a plaintiff must plead the following four elements: "(1) that the defendant made a defamatory statement to a third person, (2) that the statement was false, (3) that the defendant was legally at fault in making the statement, and (4) that the plaintiff thereby suffered harm." Offen v. Brenner, 402 Md. 191, 198 (2007).

As to the first element, "[a] defamatory statement is one which tends to expose a person to public scorn, hatred, contempt or ridicule, thereby discouraging others in the community from having a good opinion of, or associating with, that person." Id. at 198-99 (internal quotations omitted). More specifically, a defamatory statement is defamatory per se "[w]here the words themselves impute the defamatory character . . . , no innuendo — no allegation or proof of extrinsic facts — is necessary." See Indep. Newspapers, Inc. v. Brodie, 407 Md. 415, 441 (2009).⁷ For example, "[a] statement which disparages the business reputation of a plaintiff is one of the categories traditionally considered to be defamation per se." S. Volkswagen, Inc. v. Centrix Fin.,LLC, 357 F.Supp.2d 837, 843 (D.Md. 2005). Statements imputing criminal behavior have also been found to be defamatory per se. See Shapiro v. Massengill, 105 Md.App. 743, 775 (1995) (noting that statements that the plaintiff was "evasive, secretive, dishonest, dishonorable, and perhaps even a criminal" were defamatory per se); see also S. Volkswagen, 357 F.Supp.2d at 842-43 (holding that it was defamatory per se for the...