Thompson v. Paul

Citation657 F.Supp.2d 1113
Decision Date30 June 2009
Docket NumberNo. CV 05-990-PHX-MHM.,CV 05-990-PHX-MHM.
PartiesPamela THOMPSON, an individual, and as guardian of Gabriella Thompson, Matthew Thompson, Marcus Thompson, Michael Thompson, and the Thompson Group, P.C., an Arizona professional corporation, Plaintiffs, v. George PAUL and Karen Paul, husband and wife; Tom Morgan, an individual; Scott Dewald and Deborah Jamieson, husband and wife; Lewis and Roca LLP, an Arizona Limited Liability Partnership; Capitol Detective Agency, Inc., an Arizona corporation; Does through 100, inclusive, Defendants.
CourtU.S. District Court — District of Arizona

James M. Laganke, James M. Laganke PLLC, Phoenix, AZ, for Plaintiffs.

H. Michael Clyde, Perkins Coie Brown & Bain PA, Phoenix, AZ, for George Paul, Karen Paul, Tom Morgan, Scott Dewald, Deborah Jamieson, Lewis & Roca LLP.

Paul F. Eckstein, Todd Robert Kerr, Perkins Coie Brown & Bain PA, Phoenix, AZ, for Lewis & Roca LLP.

David S. Rosenthal, Gregory Alan Rosenthal, Rosenthal Law Offices, Phoenix, AZ, for Capitol Detective Agency, Inc.


MARY H. MURGUIA, District Judge.

Currently before the Court is Defendant Capitol Detective Agency, Inc.'s Motion to Dismiss (Dkt. # 104), and Defendants Lewis and Roca LLP, George Paul, Tom Morgan, and Scott Dewald's (and their respective spouses) Motion to Dismiss (Dkt. # 105). Also before the Court are Plaintiffs' Motion for Reconsideration (Dkt. # 118) and Motion for Leave to File a Second Amended Complaint (Dkt. # 119). After reviewing the pleadings and hearing oral argument on May 20, 2009, the Court issues the following order.


From January 2001 through May 2002, Plaintiff Pamela Thompson ("Thompson") worked as the Chief Financial Officer, Secretary, and Treasurer of YP.Net, Inc. (intermittently referred to as "YP"), a publicly traded company. (First Amended Complaint ("FAC") ¶¶ 12, (Dkt. # 92)). In or around April 2002, Defendant George Paul ("Paul"), an attorney from the Arizona law firm Lewis and Roca LLP ("L & R"), who represented YP.Net and Angelo Tullo ("Tullo"), the Chief Executive Officer of YP.Net, told Thompson that "we have been having you followed," and he "showed [Thompson] and two other witnesses a picture of her parked car." (FAC ¶¶ 18, 91). The L & R attorneys had hired Defendant Capitol Detective Agency, Inc. ("CDA") to follow Thompson and her children. (FAC ¶ 94). Thompson then resigned from YP.Net in May 2002 "because of questionable accounting and auditing practices at the company. More specifically, . . . because of the refusal of YP.Net, its officers and directors, and its professionals to make proper disclosures to the Securities and Exchange Commission." (Id.). "When Thompson resigned from YP, she forwarded her resignation from YP to the SEC Enforcement Division because of her concerns about the conduct at YP." (FAC ¶ 13).

YP.Net immediately filed a civil suit against Thompson in an attempt to protect Tullo, who was then subject to criminal investigation by several federal agencies. (FAC ¶¶ 14, 23). In particular, the lawsuit allegedly "was initiated against Thompson as a form of harassment to keep her from cooperating with [American Business Funding Corp. ("ABF")] in adversary proceeding . . . in Bankruptcy Court, to keep her from cooperating with the defendants in the sham litigation that Tullo filed against ABF's officers and directors (a total of sixteen separate lawsuits), and to keep [her] from cooperating with federal and state law enforcement officials." (FAC ¶ 21). Thompson filed counterclaims in September 2003. (Id.).

In or around June 2000, while representing Commercial Finance Services, Inc. ("CFS"), "an alter ego of YP, where YP funds were used to fund CFS ventures," the L & R attorneys became aware "that Tullo was a target of a criminal investigation with several federal law enforcement agencies." (FAC ¶ 16). Tullo's "criminal matters were never disclosed in any Securities and Exchange Commission filings." (FAC ¶ 19). During the pendency of the litigation between Thompson and YP.Net, Defendant Paul "denied any and all knowledge of a criminal investigation including up through April of 2004 when the Lewis and Roca Defendants withdrew from their representation based on their claim that they had a conflict of interest." (FAC ¶ 30).

Between April or May 2002, and February 2004, the L & R attorneys, by and through CDA employees, "stalked and harassed" Thompson and her children. (FAC ¶¶ 90-105). Specifically, on May 28, 2002, Thompson "was physically assaulted at the Phoenix City Grill. . . . [T]he Lewis and Roca Defendants hired these individuals." (FAC ¶ 95). Then, on August 26, 2002, "a man in a white vehicle approached Thompson's daughter on her way home from school and harassed her about her laptop computer," (FAC ¶ 96); in September 2002, "a man sat in a white four-door car in front of Thompson's house for several hours on three separate occasions" (id. ¶ 98); in November 2002, "a man sat in a white four-door car in front of Thompson's house for several hours" (id. ¶ 99); in December 2002, "a man sat in a blue SUV in front of Thompson's house for several hours" (id. ¶ 100).

On April 26, 2003, Randy Papetti, an L & R attorney, allegedly confirmed that the L & R attorneys were having Thompson and her children followed. (FAC ¶ 92). Also, in September 2003, the L & R attorneys allegedly "sent a drunken process server to Thompson's house who assaulted one of her triplet sons by grabbing him." (FAC ¶ 103). And finally, in February 2004, "a man in a blue SUV followed Thompson's children home from the school bus stop, . . . . attempted to walk around to the back of the house and then came to the front door and banged on it at 9:30 p.m. The man . . . followed the children home from school several times that month and would sit in front of Thompson's house for hours on end." (FAC ¶ 104). Moreover, Plaintiff alleges that Defendant Tom Morgan, an L & R attorney, repeatedly referred to her children as "tar babies" throughout this time period. (FAC ¶ 27).

On April 22, 2004, Thompson and YP. Net "entered into a settlement memorandum" to resolve YP.Net's civil suit against Thompson, whereby Thompson was to receive 255,000 shares of common stock in YP.Net. (Id. ¶¶ 32-33, 39). At that time, Defendant Paul again acknowledged that the L & R attorneys had Thompson followed. (FAC ¶ 93). In addition, Thompson "made it clear to all parties including the Lewis and Roca Defendants that she intended to sell the stock she received in the settlement as soon as possible." (FAC ¶ 35). The settlement was to be executed on April 26, 2004. (FAC ¶ 32).

In part, Thompson entered into the settlement agreement "based upon" the "representations by the Lewis and Roca Defendants" that "[t]here in fact was no criminal investigation targeted at the CEO of YP, Angelo Tullo." (FAC ¶¶ 32, 33, 43, 45). Thompson "had no knowledge of the status of any pending investigation of Tullo or even if there was an investigation of Tullo at that time." (FAC ¶ 32). Yet by April 22, 2004, the L & R attorneys allegedly knew "there was a criminal investigation involving Angelo Tullo" and that "it was foreseeable that if Tullo was indicted the stock price of YP would be affected dramatically." (FAC ¶¶ 34, 42, 44). Thus, the L & R attorneys allegedly made their false representations "with knowledge of their falsity and knowingly omitted or failed to disclose facts needed to cause their representations and communications to be accurate and truthful." (FAC ¶ 44).

"Moments before the final settlement documents in the YP litigation could be executed, the Lewis and Roca Defendants withdrew from the YP litigation due to an undisclosed conflict that they had purportedly just discovered." (FAC ¶ 36). Because of the last minute withdrawal, "YP had to retain new counsel" and postpone the execution of the settlement. (FAC ¶ 37). "The settlement was ultimately finalized on May 24, 2004," (Id.).

"[T]hree days later, on May 27, 2004, Tullo was indicted on 29 counts of fraud, conspiracy, money laundering, and orchestrating a ponzi scheme." (FAC ¶ 38). "As a result of Tullo's indictment," the value of YP.Net's common stock that Thompson received under the settlement, which had been "valued at more than one million dollars" at the time of the settlement, "plummeted in value from more than $5.00 per share to less than $1.00 per share." (FAC ¶¶ 39, 43).


On April 1, 2005, Plaintiffs filed a complaint against the law firm of Lewis & Roca LLP, three individual partners in the firm (the "L & R attorneys"), two spouses of those partners (collectively "the L & R Defendants"), and the Capitol Detective Agency ("CDA"), alleging claims for: 1) violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 ("the Section 10(b) claim"); 2) abuse of process; 3) wrongful institution of civil proceedings; 4) fraudulent misrepresentation; 5) negligent misrepresentation; 6) third party professional negligence; 7) tortious interference with contractual relations; 8) intentional infliction of emotional distress ("IIED"); and 9) negligent infliction of emotional distress ("NIED") (collectively "the state law claims"). (Compl. ¶¶ 46-131 (Dkt. #1)). Defendant CDA was named only in Counts Eight (IIED) and Nine (NIED).

On June 6, 2005, the L & R Defendants moved to dismiss all of the claims in Plaintiffs' complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). (Dkt. # 11). The Court granted in part and denied in part the L & R Defendants' Motion to Dismiss on December 5, 2005, 402 F.Supp.2d 1110 (D.Ariz.2005). (Dkt. # 33). The Court dismissed with prejudice Plaintiffs' Section 10(b) claim and related state law claims for fraudulent and negligent misrepresentation, and third party professional negligence, as well as the claim for tortious interference with contractual relations; any amendment would have...

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