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UNITED STATES DISTRICT COURT !_- ..... .... _...... _ :_--_ \] FOR THE EASTERN DISTRICT OF VIRG '_, _" ....... : ......... _ - i---_!i_il
ALEXANDRIA DIVISION !ii" ! _'

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AMERICA ONLINE, INC. Plaintiff, v. CN PRODUCTIONS, and JAY NELSON Defendants. INC., )

Li

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...... L.__J

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) ) ) CIVIL ACTION NO. 98-552-A

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AOL'S REQUEST FOR AN ORDER TO SHOW CAUSE WHY THOSE WHO CONSPIRED WITH JAY NELSON AND CN PRODUCTIONS TO VIOLATE THIS COURT'S PERMANENT INJUNCTION SHOULD NOT BE HELD IN CONTEMPT

LATHAM & WATKINS Everett C. Johnson Jennifer C. Archie Erica P. McFarquhar (VSB #45635) Abid R. Qureshi (VSB #41814) 555 Eleventh Street, N.W., Suite 1000 Washington, D.C. 20004 (202) 637-2200 INTERNET LAW GROUP Jon L. Praed (VSB #40678) 4121 Wilson Boulevard, Suite 101 Arlington, Virginia 22203 (703) 243-8100

TABLE OF CONTENTS Page TABLE OF AUTHORITIES ........................................................................................................................ INTRODUCTION ......................................................................................................................................... FACTUAL SUMMARY - HOW THE CONSPIRACY WORKED ............................................................ I. ii 1 2

THE ILLINOIS CONSPIRATORS WORKED WITH JAY NELSON AND CN PRODUCTIONS TO SEND JUNK E-MAIL TO AOL AFTER THE INJUNCTION WAS ENTERED .................................................................................................... ,......................... 4 A. B. Jay Nelson and the Illinois Conspirators Transmitted Junk E-Mail To AOL and Its Members From Two Secret Locations in Rockford ....................................................... The Illinois Conspirators Tried to Obstruct AOL's Discovery ........................................... 1. 2. Nelson's Friends and Family Lied Under Oath, Pied the Fifth Amendment, and Evaded Service of AOL's Subpoenas ........................................ Jay Nelson's Lead Attomey Appears to Have Knowingly Participated in a Sham Sale of Nelson's Interest in CN Productions ........................................... 4 6 7 l0 12

II.

THE MICHIGAN CONSPIRATORS PROVIDED JAY NELSON WITH THE TECHNICAL EXPERTISE TO SEND JUNK E-MAIL TO AOL ................................................ A. The Michigan Conspirators Worked With Jay Nelson and CN Productions To Send Junk E-Mail to AOL Both Before and After the Permanent Injunction Was Entered .............................................................................................................................. The Michigan Group Created a Web Page Hosting Service To Sponsor Junk EMail Teaser Web Pages for Jay Nelson .............................................................................

12 14 17 19 21 22

B. III.

THE FLORIDA CONSPIRATORS DISGUISED JAY NELSON'S AFFILIATION WITH CN PRODUCTIONS AND THE JUNK E-MAIL SCHEME ............................................ A. B. C. Jay Nelson's Sale of CN Productions to a Mysterious Offshore Company Was a Sham Transaction ................................................................................................................ After the Sham Sale to Exotic, the Florida Conspirators Managed CN Productions ........................................................................................................................ After the Sham Sale, the Florida Conspirators Continued to Funnel Junk E-Mail Income to Jay Nelson ........................................................................................................

IV.

THE CONSPIRATORS SHOULD BE ORDERED TO APPEAR AND SHOW CAUSE WHY THEY SHOULD NOT BE HELD IN CONTEMPT FOR VIOLATING THIS COURT' S INJUNCTION .............................................................................................................. A. B. C. The Conspirators Are All Bound by This Court's Injunction Regardless of Whether They had Notice of the Order .............................................................................

24 24

The Conspirators Had Actual Knowledge of the Court's Iniunction ................................ 26 The Conspirators Violated the Injunction and Should Be Held in Contempt. ................... 27

TABLE OF AUTHORITIES CASES AOL v. John Does 1-100, Civil Action No. 99-1186, E.D. Va. (filed August 6, 1999 ).......................................................... AOL v. LCGM, et al., 46 F. Supp. 2d 444, 1998 U.S. Dist. LEXIS 20144 ..................................................................

15

13, 16

Central States, Southeast and Southwest Areas Health and Welfare Pension Funds v. Transcon Lines, Case No. 90 C 1853, 1995 WL 472705, 3 (N.D. Ill. Aug. 8, 1995) ............................................... Colonial Williamsburg Foundation v. Kittinger Co., 792 F. Supp. 1397 (E.D. Va. 1992), affd 38 F.3d 133 (4th Cir. 1994) .......................................... Cook v. Lauten, 117 N.E.2d 414 (Ill. App. Ct. Ist Dist. 1954) ................................................................................. Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106 (2nd Cir. 1987) ......................................................................................................... Douglas v. First Nat'l Realty Col?p., 543 F.2d 894 (D.C. Cir. 1976) ....................................................................................................... Hotmail Corp. v. VanS Money Pie, Inc., et al., 1998 U.S. Dist. LEXIS 10729, 47 U.S.P.Q.2D (BNA) 1020......................................................... Ex Parte Lennon, 166 U.S. 548 (1897) ....................................................................................................................... McCartne v. Integra Nat'l Bank North, 106 F.3d 506 (3d Cir. 1997) ......................................................................................................... McIntosh v. Detroit Savings Bank et al., 225 N.W. 628 (Mi. 1929) ............................................................................................................... NOW v. Operation Rescue, 747 F. Supp. 772 (D.D.C. 1990) .................................................................................................... NOW v. Terry, 732 F. Supp. 388 (S.D.N.Y. 1990) .........................................................................

25

29

25

25

26

13

28

8-9

25

26

28

Qmega World Travel, Inc. v. Omega Travel, Inc., 710 F. Supp. 169 (E.D. Va. 1989), affd, 905 F.2d 1530 (4th Cir. 1990) ....................................... 27 Quinter v. Volkswagen of America, 676 F.2d 969 (3d Cir. 1982) ...........................................................................................................

28

ii

Regal Knitwear Co. v. NLRB, 324 U.S. 9 (1945) ........................................................................................................................... Roadtechs, Inc. v. MJ Highway Tech., Ltd., 83 F. Supp. 2d 677 (E.D. Va. 2000) ............................................................................................... Shakman v. Democratic Org. of Cook County, 533 F.2d 344 (7th Cir. 1976) .......................................................................................................... Shuffler v. Heritage Bank, 720 F.2d 1141 (9th Cir. 1983) ........................................................................................................ Telco Communications v. An Apple A Day,, 977 F. Supp. 404 (E.D.V.A. 1997) ......................................................................... United States v. Board of Educ., 11 F.3d 668 (7th Cir. 1993) ........................................................................................................... Virginia Dynamics Co. v. Wilfong, et al,, 1990 WL 751352 4 (Va. Cir. Ct. Nov. 9, 1990) ........................................................... Waffenschmidt v. MacKay, 763 F.2d 711 (5 Cir. 1985) ............................................................... STATUTES

25

29

25

27

28

28

25

2...................

28

Bankruptcy Code, 11 U.S.C. 362(a) ..................................... ................................... :................ 8-9 Bankruptcy Code, 11 U.S.C. 523(a) ............................................................................................. Va. Code Ann. 18.2 - 152.1 et seq ............................................................................................... Va. Code Ann. 8.01 - 328.1 ........................................................................................... Fed. R. Civ. Proc. 65(d) ................................................................................... Fed. R. Civ. Proc. 71 .......................................................................................... 9 29

.............. 28 25, 26 27

iii

INTRODUCTION On February 10, 1999, this Court entered a Permanent Injunction barring Defendants Jay Nelson and CN Productions, Inc. - as well as all persons acting in privity with them - from transmitting unsolicited bulk e-mail to AOL and its Members.' Despite the Court Order, Defendants continued for

more than a year to transmit hundreds of millions of junk e-mail messages advertising adult Web sites. As a result of Defendants' refusal to obey the Injunction, this Court held them in civil contempt. Because third parties appeared to be helping Defendants violate the Permanent Injunction, this Court authorized AOL to conduct discovery into the identity of these third parties, and also authorized AOL to return to Court to seek contempt against them. AOL's discovery has uncovered compelling evidence - including sworn testimony from a key person with firsthand knowledge - that suggests Defendants' conduct is part of a complex conspiracy designed to knowingly violate this Court's Injunction. In fact, based on what AOL has

discovered to date, the members of the conspiracy, together with Jay Nelson, have: transmitted over I billion junk e-mail messages to AOL and its Members after the entry of the Injunction; accounted for 25% ofalljunk e-mail complaints about adult Web sites AOL has received during the past two years; generated as much as $8 million in illegal gains; and attempted to conceal their illegal scheme from the courts and AOL by asserting the Fifth Amendment, committing perjury, and obstructing justice.

The members of this conspiracy (the Conspirators) include three core groups: (1) Jay Nelson's friends and family in Rockford, Illinois; (2) Nelson's junk e-mail business associates based in Detroit, Michigan; and (3) a small Florida law firm. that Nelson paid to hide both his assets and his continuing connection with CN Productions. Today, AOL asks this Court to order these Conspirators -

16 individuals and 13 corporate entities in all - to appear and show cause why they should not be held in civil contempt and ordered to pay damages to AOL for their contemptuous conduct.

l See,Memorandum Opinion and Order Entering Injunction and Awarding Damages (Feb. 10, 1999) (Senior Judge Bryan) (attached as Exhibit 1). The Exhibits to this Request for an Order to Show Cause are contained in a binder filed with AOL's Motion. These Exhibits are detailed in the Declaration ofAbid R. Qureshi which is attached hereto as Exhibit A.

FACTUAL

SUMMARY

- HOW THE CONSPIRACY

WORKED

The conspiracy set up by Jay Nelson had two purposes - (1) make money by advertising adult Web sites through junk e-mail; and (2) defeat AOL's efforts to uncover the illegal scheme. Having grossed as much as $8 million, the conspiracy clearly succeeded in making money. Moreover, the conspiracy also nearly succeeded in defeating AOL's discovery efforts. The effort to obstruct AOL's discovery was led by Jay Nelson. For example, Nelson claimed at his deposition that he sold his stock in CN Productions through a sale set up by a small Florida law firm and its principal attorney, Hal Uhrig (who represented both parties to the sales transaction). Nelson testified that the buyer was a Bahamian corporation about which he had no information and whose principals he had never met. Indeed, at his deposition, Nelson claimed that he did not even know whether he had been fully paid for the sale. Jay Nelson was not the only person trying obstruct discovery; the other Conspirators also tried to frustrate AOL's efforts to uncover the illegal scheme. For example, the person who signed the sales documents on behalf of the Bahamian buyer testified that he had no idea who the buyer was, and admitted under oath that he signed the sales documents for one simple reason - he was asked to sign it by his good friend, Hal Uhrig, the solo practitioner who runs the small Florida law firm. These facts (as well as others detailed below) suggest that Jay Nelson' s sale of CN Productions was a sham transaction in which his friends, family, and even attorneys participated. Indeed, nearly every one of the Conspirators has obstructed AOL's discovery. When AOL launched discovery in response to this Court's authorization, witnesses disappeared to avoid being deposed by AOL. Those witnesses AOL was able to depose often suffered unbelievable memory lapses or invoked the Fifth Amendment to avoid answering AOL's questions. The Conspirators also made improper use of offshore bank accounts, shell corporations, and even the attorney-client relationship in an effort to deprive AOL of important information. Despite these and other substantial efforts to impede discovery, AOL finally penetrated the conspiracy when it persuaded William Hull - Jay Nelson's chief computer technician - to testify truthfully. Acting under Nelson's orders, Hull had originally refused to cooperate with AOL, and took the Fifth Amendment numerous times at his deposition. Hull decided to cooperate only after his live-in

girlfriend, Paula Chandler, revealed what she knew about the conspiracy. girlfriend's testimony, Hull decided to cooperate with AOL.

When confronted with his

Hull's detailed description of the bulk e-mail conspiracy is corroborated by hundreds of pages of documents that AOL has obtained from dozens of third parties, the sworn testimony of Paula Chandler, and the deposition testimony of one other individual who was actively involved in the illegal bulk e-mail business and tangentially involved in this conspiracy. following: Jay Nelson, with the help of his friends and family in Rockford, Illinois, hacked into AOL e-mail accounts and used those accounts to send bulk e-mail advertising adult Web sites to AOL and its Members after the Injunction was entered; Nelson's business associates in Detroit, Michigan (two of whom had already been sued by AOL in 1998 for sending junk e-mail advertising their own adult Web sites) provided Nelson with bulk e-mailing expertise and helped Nelson obtain Interact connectivity long after the Injunction was entered; American Barristers, a small Florida law firm specializing in offshore business organizations and asset protection, set up a sham sale of Nelson's stock in CN Productions, and helped launder the income generated by Nelson's illegal conduct; Nelson and his co-Conspirators used fictitious names, stolen AOL e-mail accounts, and secret "spare shops" to facilitate their bulk e-mailing. These individuals also relied on shell corporate identities, offshore businesses, and even their own lawyers in an attempt to conceal their identities and their illegal conduct from this Court and AOL; and Nelson ordered William Hull, Paula Chandler (Hull's girlfriend), and other friends and family members - including his uncle and his daughter's husband to evade service of AOL's subpoenas, plead the Fifth Amendment, and lie during questioning by AOL's attorneys. ' Collectively, this evidence reveals the

The evidence establishing these facts is detailed in three sections that follow. Each section addresses a group of Conspirators based on their general geographic location - Rockford, Illinois; Detroit, Michigan; and Miami, Florida. 2 Because the evidence AOL has uncovered strongly suggests these Conspirators knowingly violated the February 10, 1999 Injunction, AOL respectfully asks this Court to issue an Order directing each of them to appear and show cause why they should not be held in contempt and ordered to

2 The conspiracy is illustrated graphically in the attached Exhibit 2 which describes the role played by the Illinois, Michigan, and Florida Conspirators in the junk e-mail scheme.

compensate done business

AOL for the injuries caused by their illegal conduct. under thirteen corporate

Because

these individuals

have also entities

names, AOL also asks this Court to order these corporate

to appear and show cause)

The role played by each

Conspirator is described

in

detail in Sections I

through1IIbelow,startingwithJay Nelson'sfriendsand familyin Rockford,Illinois.

I. THE ILLINOIS CONSPIRATORS WORKED WITH JAY NELSON AND CN PRODUCTIONS TO SEND JUNK E-MAIL TO AOL AFTER THE INJUNCTION WAS ENTERED

Jay Nelson's Productions

friends

and relatives

in Rockford,

Illinois worked include:

with him and CN

to violate the Injunction.

These Illinois Conspirators

John Nelson

John Nelson was lead counsel for Jay Nelson and CN Productions in their litigation with AOL. In December 1998, John Nelson witnessed his client Jay Nelson sign the sham agreement memorializing the sale of CN Productions to an offshore company. After @e sham sale, Attorney Nelson continued to represent both Jay Nelson and CN Productions, ana appears to have misled AOL about who was responsible for transmitting junk e-mail in vi61ation of the Injunction. Pam, Jay Nelson's wife, laundered money for her husband. She received several thousands of dollars from a shell company set up by the Florida Conspirators. After the Injunction was entered, Wicksell, Young, and Warshowsky sent junk e-mail to AOL at Nelson's direction. RolfWicksell is Jay Nelson's uncle and worked as a manager for the adult Web site operation, both before and after the sham sale of CN Produclaons. _cott Young is married to Nelson s daughter and also worked as a manager for CN Productions. Warshowsky was the husband of Pam Nelson s late cousin. Jay Nelson used Net Services' corporate identity to obtain utilities and other services for his secret spam headquarters in Rockford, Illinois. Nelson also used Net Services name to launder money generated by his illegal scheme. Net _ervices was incorporatea oy tcotr Wicksell.

Pam Nelson

Rolf Wieksell Scott Young Joe Warshowsky

Net Services, Inc.

A.

Jay Nelson and the nfinois Conspirators Transmitted Junk E-Mail AOL and Its Members From Two Secret Locations in Rockford Long before AOL filed this litigation,

To

Jay Nelson and the Illinois Conspirators

took great

steps to hide their illegal conduct. Rockford, Illinois, and with William

Nelson rented an abandoned

school house at 2222 East State Street, twenty computers at this location.

Hull's help, set-up approximately

In conversations

with his friends and family, Nelson referred

to the abandoned

school house as his "Spam

3 For ease of reference, each of the individual Conspirators is listed, according to geographical location, on the attached Exhibit 3. The corporate Conspirators are also listed on Exhibit 3 according to the geographic location of the individual member of the conspiracy whose name is most closely linked to that entity.

Shop." Nelson, together with his relatives Rolf Wicksell (his uncle), Scott Young (his son-in-law), and Joe Warshowsky (his wife's cousin), sent junk e-mail advertising CN Productions' (including www.pamsplayhouse.com) adult Web sites

from the computers located at the Spam Shop. In an attempt to

disguise his affiliation with the Spam Shop, Nelson obtained utilities and paid for other services for this property using the corporate name "Net Services. ''4 Rolf Wicksell, Scott Young, and Joe Warshowsky continued to transmit junk e-mail to AOL after they learned that AOL had filed suit against CN Productions and Nelson. In fact, they continued their illegal transmissions after Defendants were declared in default, after the Permanent Injunction was entered, and even after Jay Nelson and CN Productions were held in civil contempt for violating the Injunction. 5 During the summer of 1999 (months after this Court entered its Permanent Injunction), Nelson and the Illinois Conspirators became increasingly afraid that AOL would uncover their illegal enterprise. Motivated by this fear, they moved their secret Spam Shop from 2222 East State Street to a different location. Jay Nelson directed this move. Using the alias "Art Fudge" he rented a house at 1622 Latham Street in Rockford, Illinois. Nelson moved the computer equipment from 2222 East State Street to the Latham Street Spam Shop, and together with Wicksell, Young, and Warshowsky, continued to transmit junk e-mail to AOL from this new location. 6 Working out of his own house, Jay Nelson harvested stolen AOL Member screen names and passwords and forwarded them to Wicksell, Young, and Warshowsky at the Latham Street Spam Shop. William Hull, who maintained the computer equipment at this location, personally observed

4 See Affidavit of William K. Hull, I, 6 (attached as Exhibit 4) [hereinafter Hull Affidavit]. Net Services is an Illinois corporation created by Nelson's uncle, Rolf Wicksell. See Net Services Corporate Records (indicating that Wicksell is the incorporator for Net Services) (attached as Exhibit 5). 5 Se.eHull Affidavit, 6, 12(attached as Exhibit 4). 6 See id., 7, 13(attached as Exhibit 4). One of the Florida Conspirators' shell corporations (Trustee Accounting Services, Inc.) paid the rent for Jay Nelson's Latham Street Spam Shop, while another (Data Manage, Inc.) paid for lawn services on the property. See Trustee Accounting Services Rent Check for 1622 Latham Street (evidencing payment from the Florida Conspirators to Barbara Carlson, the owner of 1622Latham Street) (attached as Exhibit 6); Property Deed for 1622 Latham Street (indicating that Barbara Carlson is the owner of 1622Latham Street) (attached as Exhibit 7); and Data Manage Check to Lawn Pro (detailing payment from Florida Conspirators to lawn service company for services performed at 1622 Latham Street) (attached as Exhibit 8).

Wicksell, Young, and Warshowsky use the stolen AOL account information to gain illegal access to AOL's network and transmit junk e-mail to AOL and its Members. 7 The Illinois Conspirators were paid for their junk e-mailing services by sham corporations which the Florida Conspirators controlled. For example, Pam Nelson, Jay Nelson's wife, received several thousands of dollars in checks from Trustee Accounting Services, Inc. s Similarly, Net Services, the Illinois corporation created by RolfWicksell, received money from Trustee Accounting.

Bank records reveal that, from March through December 1999, Trustee Accounting paid Net Services approximately $150,000.9 Rolf Wicksell, Scott Young, and Joe conspiracy.
Warshowsky

also received money from the

Jay Nelson gave each of these individuals pre-paid debit cards funded with money _om a

Bahamian bank account. Nelson gave William Hull a similar debit card, and after pre-paying approximately $15,000 on the card, authorized Hull to draw cash advances at his discretion to supplement his salary. Shortly before Jay Nelson's January 2000 deposition, Nelson also instructed his son-in-law, Scott Young, to make cash withdrawals of several thousand dollars per day from his debit card. _ As detailed below, Young appears to have used this cash to leave his home in Rockford, Illinois, thereby avoiding service of AOL's deposition subpoena. B. The nlinois Conspirators Tried to Obstruct AOL's Discovery In addition to violating the Permanent Injunction, the Illinois Conspirators obstructed Court-authorized discovery. During the three month discovery period approved by this Court, many of the Illinois Conspirators suffered memory lapses or asserted the Fifth Amendment to avoid hard questions. Other Conspirators, following Jay Nelson's explicit orders, went into hiding or lied under oath

7 See Hull Affidavit, 15-16 (attached as Exhibit 4). s See Transfers To/From the Florida Shell Corporations (detailing Trustee Accounting Services payments to Pam Nelson) (attached as Exhibit 9). Trustee Accounting Services is a Delaware shell corporation created by the Florida Conspirators. See Trustee Accounting Corporate Records (attached as Exhibit 10). These checks were all signed by Kim Reinhart, a corporate officer of Trustee Accounting and several of the other shell corporations created by the Florida Conspirators. Reinhart, as well as Florida Conspirators Hal Uhfig and Byron Hatcher, are all authorized to receive mail at the same Florida private mail box which served as the mailing address for many of the shell corporations they created and controlled. Se..._ee Mail Boxes, Etc. Subpoena Response (detailing that Reinhart, Hatcher, and Uhrig are authorized to receive mail at private mail box 2290 at 2520 S.W. 22naStreet, Miami, FL 33145) (attached as Exhibit 11). 9 See Transfers To/From the Florida Shell Corporations (detailing Trustee Accounting Services payments to Net Services) (attached as Exhibit 9). 10 See Hull Affidavit, 9,12 (attached as Exhibit 4). 6

to prevent AOL from discovering the conspiracy. In fact, as detailed below, even the lead attorney representing Jay Nelson and CN Productions appears to have participated in efforts to block discovery. 1. Nelson's Friends and Family Lied Under Oath, Pied the Fifth Amendment, and Evaded Service of AOL's Subpoenas

Defendant Jay Nelson led the effort to block AOL's discovery by lying during his deposition, asserting the Fifth Amendment, and by threatening his co-Conspirators into lying about their illegal scheme. Nelson gave false testimony during his Court-ordered deposition on January 14, 2000. He lied about his violations of the Injunction by claiming that he never transmitted junk e-mail to AOL after the Court entered its February 10thOrder. n Nelson also lied about his involvement with CN Productions by testifying that he had no financial interest in, or control over, the adult Web site company after he sold his stock in December 1998. n In addition to testifying falsely during his deposition, Nelson refused, on Fifth Amendment grounds, to answer nearly fifty different questions about the conspiracy. _3 Nelson also instructed his friends and family to follow his example and conceal the conspiracy. As detailed below, Nelson demanded his co-Conspirators lie under oath, exploit the Fifth

Amendment privilege, and disregard federal court subpoenas. For instance, Nelson pressured William Hull and his girlfriend, Paula Chandler, to lie to AOL's attomeys, telling them they "would all be in trouble" if they did not lie. 14 When AOL scheduled Hull's deposition, Nelson made sure that Hull followed his instructions by shadowing him the entire time. Nelson not only paid for William Hull' s flight to Washington, D.C. (the site of the deposition) but also accompanied him on the trip. Nelson also paid for Hull's accommodations in Washington, D.C. In fact, the two men stayed together in the same room at a hotel in Washington. 15 During the deposition, Nelson sat at the same table as Hull and watched him as he answered AOL's questions. _6Indeed, even the fees for William Hull's attorney were paid for

H Compare Nelson Deposition Transcript, at 233.-34(January 14, 2000) (attached as Exhibit 12) with Hull Affidavit, 5 (attached as Exhibit 4). 12 CompareNelson Deposition Transcript, at 47, 94, 225-26 (January 14, 2000) (attached as Exhibit 12) with Hull Affidavit, 19-22 (attached as Exhibit 4). t3 See Nelson Deposition Transcript, at 224-25,229, 233,235-36, 241-45,251-53,265,285-88,311-12, 317, 32728, 330, 332-37, 343-44, and 351-52. (January 14, 2000) (attached as Exhibit 12). 14 Is
16

See Hull Affidavit, 24 (attached as Exhibit 4).

Se.__ee Hull Deposition Transcript, at 149-50 (January 13, 2000) (attached as Exhibit 13). Se._.._e Hull Deposition Transcript, Cover Page (January 13, 2000) (listing Jay Nelson and his attorney as attendees at Hull's Deposition) (attached as Exhibit 13).

by Jay Nelson) v As a result of Nelson's intimidation and control, Hull asserted the Fifth Amendment approximately 25 times during his deposition. 18 Nelson similarly ins_ucted his relatives to frustrate AOL's discovery by directing them to evade service of AOL's subpoenas. For example, Nelson actually instructed Rolf Wicksell, Scott Young, and Dawn Young (Jay Nelson's daughter and Scott Young's wife) to "take a vacation" and leave Rockford, Illinois until the discovery cut-off date set by the Court had passed. 19 Scott and Dawn Young followed Nelson's instructions and left Rockford to stay in a hotel in Florida. 2 Rolf Wicksell also left Rockford to avoid service of AOL's subpoena. When AOL deposed Wicksell's roommate of over seven years to inquire about Wicksell's whereabouts, the roommate claimed to have absolutely no information. 21 Throughout the discovery period, AOL continued its efforts to locate Wicksell but was unable to find him. 22 Nelson continues to disregard and abuse the judicial process even after the discovery period expired. On March 30, 2000, seeking to avoid the approximately $1.9 million judgment this Court levied against him, Nelson filed for Chapter 7 Bankruptcy. 23 AOL filed an adversarial proceeding against Jay 17 See id..__, at 307-08 (January 13, 2000) (attached as Exhibit 13). Jay Nelson testified that, when he informed Florida Conspirator Byron Hatcher that William Hull was "in jeopardy and needs counsel," Hatcher wired money to Hull's attorney. See Nelson Deposition Transcript, at 82-85. (January 14, 2000) (attached as Exhibit 12). 18 See.Hull Deposition Transcript, at 234-37, 244-45, 247-254, 258-59, 263,274, 282-84, and 328-29 (January 13, 2000) (attached as Exhibit 13). 19 See Hull Affidavit, 23 (attached as Exhibit 4). 20 See id. (attached as Exhibit 4). 2t See Deposition of Steve Smith, p. 14, 17 (Feb. 17, 2000) (attached as Exhibit 14). 22 See Affidavit of Wicksell Process Server (attached as Exhibit 15). When Wicksell finally returned to Rockford at the end of the discovery period, AOL examined him in connection with a collections proceeding it filed against CN Productions. At that proceeding, Wicksell lied under oath and provided false information regarding Net Services, the Spam Shop, and his participation in thejunk e-mail conspiracy. Moreover, Wicksell denied having any involvement with Net Services, the Illinois corporation he created. Se.___ee Net Services' Corporate Records (attached as Exhibit 5). Moreover, Wicksell could not explain what the company did. See Wicksell Examination Transcript, pp. 30-31 (July 19, 2000) (attached as Exhibit 16). While acknowledging that Net Services maintained computer equipment at 2222 East State Street in Rockford, Illinois, Wicksell claimed that he did not know how these computers were used. See id____., pp. 10-11(July 19, 2000) (attached as Exhibit 16) and Hull Affidavit, 6 (attached as Exhibit 4). Similarly, Wicksell acknowledged that computer equipment was kept at the 1622Latham Street Spare Shop, but refused to explain how this equipment was used. Se...__e Wicksell Examination Transcript, pp. 12-13 (July 19, 2000) (attached as Exhibit 16). 23 Se_._e Voluntary Petition for Chapter 7 Bankruptcy (filed March 30, 2000) (attached as Exhibit 17). Because AOL is mindful of the automatic stay provisions of the Bankruptcy Code, 11 U.S.C. 362(a), it is not, in this Motion, pursuing any action against Jay Nelson. The automatic stay provisions of the Bankruptcy Code do not, however, prevent AOL from seeking an Order to Show Cause against others (including Nelson's relatives, associates, and attorneys) who were bound by this Court's Injunction. See, _ McCartney v. Integra Nat'l Bank North, 106 F.3d 506, 509 (3d Cir. 1997) (explaining that "it is universally acknowledged that an automatic stay of proceedings accorded by 362 may not

Nelson in Bankruptcy Court to ensure that his debts to AOL were not discharged.

On May 2, 2001, the

Bankruptcy Court issued a Judgement Order holding that AOL's claims against Jay Nelson (both the $1.9 million judgment awarded in February 1999 and the unliquidated contempt damages) were non-dischargeable pursuant to sections 523(a)(2)(a) and 523(a)(6) of the Bankruptcy code. During the bankruptcy proceeding (which is still pending), Nelson is continuing his pattern of obstructing legitimate discovery of his post-Injunction activities by answering falsely or by asserting the Fifth Amendment in response to questions about his assets and the sale of CN Productions. 24 Nelson, with the help of the same Florida law firm that arranged the sham sale of CN Productions, is trying to frustrate AOL's bankruptcy discovery by claiming that certain information about his assets is subject to the attorney-client privilege or is entitled to Fifth Amendment protection. For example, although Nelson has testified that Hal Uhrig and Byron Hatcher of American Barristers provided him with a credit card with no apparent credit limit and for which he never pays any monthly billsY Nelson has refused to answer any of the Trustee's questions regarding this credit card. 26 Before the Trustee could subpoena American Barristers to discover information about the credit card and other assets belonging to Nelson, affidavits executed by both Uhrig and Hatcher were delivered to the doorstep of Nelson's bankruptcy attorney. 27 Without contacting either Uhrig or Hatcher and without investigating why these individuals were submitting affidavits, Nelson's bankruptcy attorney filed both affidavits with the Bankruptcy Court in an effort to stop the Trustee from issuing the subpoena s . Although American Barristers has now partially responded to the Trustee's subpoena, it has failed to produce several records, including any that pertain to the mysterious credit card Hal Uhrig and Byron Hatcher provided to Jay Nelson. 28

be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the debtor") (citing cases). 24 2s 2_ Se_.._ee Transcript of First Meeting of Creditors, at 15-16, 54 (June 6, 2000) (attached as Exhibit 18). Se__._ee Nelson Examination Transcript, at 160-63 (March 24, 2000) (attached as Exhibit 19). Se....._e Transcript of First Meeting of Creditors, at 15-16, 46-47 (June 6, 2000) (attached as Exhibit 18).

27 Se.._ee Affidavit of Hal Uhrig (Sept. 6, 2000) (attached as Exhibit 20) and Affidavit of Byron Hatcher (Sept. 4, 2000) (attached as Exhibit 21). In these affidavits, Uhrig and Hatcher sought to pre-empt the Bankruptcy Trustee's discovery by claiming they had no information about Nelson's assets and that even if they did, they would refuse to disclose such information because it was protected by the attorney-client privilege. 28 See Select Documents from American Barristers' Response to Subpoena (undated) (attached as Exhibit 22). Although Hal Uhrig also received a subpoena from the Trustee, he claims that he, in his individual capacity, has no responsive records. The Trustee was unable to locate and serve Byron Hatcher. Because American Barristers' response

2.

Jay Nelson's Lead Attorney Appears to Have Knowingly Participated in a Sham Sale of Nelson's Interest in CN Productions

Attorney John Nelson is an Illinois lawyer practicing in Jay Nelson's hometown of Rockford, Illinois. Attorney Nelson entered his pro hac appearance in this Court on behalf of both Jay Nelson and CN Productions at the beginning of this lawsuit in early 1998, and continued to represent both Defendants until he withdrew in November 1999.29 AOL has included Attorney Nelson in this motion because he knowingly participated in Jay Nelson's sale of CN Productions, yet conducted himself thereafter as if the sale never occurred. Indeed, Attorney Nelson's conduct after the sale strongly suggests he knew the sale was a sham. There is no doubt that Attorney Nelson knew that Defendant Jay Nelson purportedly sold all of his interest in CN Productions to a Bahamian purchaser in December 1998. Jay Nelson signed the sales documents in Attorney Nelson s law offices.
, 30

Moreover, Jay Nelson's signatures on the sales

documents were witnessed by one of Attorney Nelson's colleagues. 31 Most importantly, the sale documents were notarized twice by Attorney Nelson himself. 32 The manner in which Attorney Nelson continued to represent both Jay Nelson and CN Productions after December 1998 suggests that he knew the sale was a sham. In correspondence with AOL and in filings with the Court, Attorney Nelson failed to acknowledge any division of interest between Jay Nelson and CN Productions. In fact, after the sale, Attorney Nelson appears to have continued to look

exclusively to Jay Nelson as his only client contact for CN Productions. The clearest sign of Attorney Nelson's failure to treat his clients as separate and distinct legal personalities appears in a letter that he sent to AOL in February 1999. 33 In this letter - written less than two months after the purported sale of CN Productions - Attorney Nelson responds to AOL' s accusations that Defendants Jay Nelson and CN Productions were violating the Injunction. In preparing his response, Attorney

to the subpoena is materially deficient, AOL is working with the Trustee to file a Motion to Compel in Bankruptcy Court for the Middle District of Florida. 29 Se.eAttorney Nelson's Motion to Withdraw (filed November 15, 1999) (attached as Exhibit 23) and Order Granting Attorney Nelson's Motion to Withdraw (entered November 19, 1999) (attached as Exhibit 23A). 30 Se...__ee Nelson Deposition Transcript, at 303-04 (attached as Exhibit 12). 31 Se_.__e id.__., at 303-04 (attached as Exhibit 12). 32 Se._Agreement _e for Sale & Purchase, at 8-9 (attached as Exhibit 24). 33 Se_.__ee John M. Nelson's (Defendants' Counsel) Letter to Jon L. Praed (AOL Counsel) (Feb. 22, 1999)(attached as Exhibit 25); and Jon L. Praed's Letter to John M. Nelson (Feb. 19, 1999) (attached as Exhibit 26). 10

Nelson appears to have consulted only with Jay Nelson (and no other representative for CN Productions). 34 Surprisingly, however, Attorney Nelson never mentions the single most important fact which could help insulate his client Jay Nelson from contempt liability - his December 1998 sale of CN Productions. In a March 1999 Motion for Reconsideration Attorney Nelson filed with this Court, he again failed to mention the sale of CN Productions. In fact, not only did Attorney Nelson fail to tell the Court that

Jay Nelson had sold his interest in CN Productions, but he also filed his Motion on behalf of both Defendants when his only apparent client contact was with Defendant Jay Nelson. 35 The filing of this motion on behalf of both Defendants after apparently having client contact with only Jay Nelson is an implicit admission that Attorney Nelson knew that Jay Nelson continued to control CN Productions after the sale. Because these facts suggest that Attorney John Nelson knew that the December 1998 sale of CN Productions was a sham transaction, this Court should require him to appear and explain his participation in the sale and his subsequent work on behalf of Jay Nelson and CN Productions. AOL recognizes the serious nature of these allegations. In seeking this Order against

Attorney Nelson, AOL makes no conclusions about the facts outlined above. Rather, AOL merely asks this Court to order Attorney Nelson to appear and explain his conduct? 6 To summarize, the Illinois Conspirators are intimately related to Jay Nelson, CN Productions, and the illegal junk e-mailing scheme. These relatives and friends of Jay Nelson knew about AOL's litigation, knew about the Court's Permanent Injunction, and knew about AOL's contempt investigation. Despite this knowledge, the Illinois Conspirators continued to send junk e-mail to AOL and continued to cover-up the scheme. Such knowing violations of the Injunction by individuals closely connected to Jay Nelson and CN Productions constitute contempt. At a minimum, the Illinois Conspirators should be ordered to appear before this Court to explain their conduct.

34 Jay Nelson has testified that Attorney Nelson's letter was written on his behalf and has admitted that he talked with Attorney Nelson about AOL's accusations. See Nelson Deposition Transcript, at 273-282 (attached as Exhibit 12). Indeed, it appears that Attorney Nelson saw no distinction between the identity of his two clients as he consistently used the singular noun "client," or the singular, masculine pronoun "he" in his letter when referring to his clients. Se_..__e John M. Nelson's (Defendants' Counsel) Letter to Jon L. Praed (AOL Counsel) (Feb. 22, 1999) (attached as Exhibit 25) 35 Indeed, during his deposition, Defendant Jay Nelson testified that Attorney Nelson did not represent CN Productions after the December 1998 sale. See Nelson Deposition Transcript, at 282 (attached as Exhibit 12). 36 Even after withdrawing as counsel for Jay Nelson and CN Productions, Attorney Nelson has continued to represent other participants in the conspiracy. Attorney Nelson has represented both Pam Nelson and RolfWicksell in connection with supplemental collections proceedings against CN Productions. 11

II.

THE MICHIGANCONSPIRATORS PROVIDED JAY NELSONWITH THETECHNICAL EXPERTISE TO SENDJUNKE-MAIL TO AOL The Michigan Conspirators helped Jay Nelson and the Illinois Conspirators violate the

Injunction by providing them with junk e-mailing expertise. The Michigan Conspirators, two of whom were Defendants in a 1998 junk e-mail case filed by AOL, also sponsored Nelson's junk e-mail teaser Web pages. The Michigan Conspirators include:

Francis Sharrak James Drakos

Sharrak, a named Defendant in a 1998junk e-mail suit, masterminded the Michigan Conspirator's scheme to create freestation.com- an Interact hosting service which sponsored junk e-mail teaser Web pages. These teaser Web pages were linked to the junk e-mail advertisementssent to AOL by the Illinois Conspirators. Drakos, also a named Defendant in AOL's 1998junk e-mail case, helped Sharrak create and maintain freestation.com. Gappy,using the alias "Robert Johnson," worked with Jay Nelson and Francis Sharrak to send junk e-mail on behalf of adult Web site owners. Manolakas, Sharrak, Ruzgis, and Shady all worked on freestation.com and helped sponsor junk e-mail teaser Web pages. Manolakas, together with Francis Sharrak and James Drakos, created Obacom, Inc. to disguise ownership of freestation.com. The Florida Conspirators paid over $30,000 to a mortgage company on behalf of Manolakas. Michael Shar_ak transmitted junk e-mail containing links to the freestation.con_oaser Web pages. Ruzgis and Shady provided technical expertise to maintain the junk e-mail teaser Web pages on freestation.com. Shady also provided Interact connectivity for CN Productions' Web site. Obaeom - a Michigan corPoration created by Francis Sharrak, James Drakos, and Michael Manolakas - controlled the freestation.com Web hosting service and tried to disguise the individual Michigan Conspirators' involvement with the junk e-mail scheme.

Ziad Gappy

Michael Manolakas Michael Lame Sharrak Daniel Ruzgis Robert Shady

Obacom, Inc.

A.

The Michigan Conspirators Worked With Jay Nelson and CN Productions To Send Junk E-Mail to AOL Both Before and After the Permanent Injunction Was Entered: While the Michigan Conspirators violated this Court's Injunction by helping Nelson transmit

junk e-mail to AOL after February 10, 1999, their involvement in Nelson's junk e-mail conspiracy actually pre-dates this litigation. Michigan Conspirators Francis Sharrak and Ziad Gappy are long-time friends and business associates of Jay Nelson who worked with him to send junk e-mail to AOL as early as 1997.37 Together with James Drakos, Sharrak and Gappy owned and operated the adult Web site company LCGM, Inc. (Live Centerfold Girls and More). Based in the Detroit area, LCGM (like CN Productions) promoted its adult Web sites through illegal e-mail advertisements sent to AOL and its Members. In October of 1997 (two months before AOL filed suit against the LCGM Defendants and almost six months before AOL filed suit

37

Se...._e

Hull Affidavit, 26 (attached as Exhibit 4). 12

against the CN Production Defendants), Jay Nelson and William Hull (CN Productions' technical expert) flew to Michigan to meet with Sharrak and Gappyfl Later that month, Sharrak and Gappy traveled to CN

Productions' headquarters in Rockford, Illinois to meet with Nelson and Hull. 39 Soon after these meetings, AOL began receiving junk e-mail messages which contained ads for two different adult Web sites - one Web site owned by the LCGM Defendants and the other owned by the CN Productions Defendants. 4 Jay Nelson continued to work with the Michigan Conspirators even after AOL filed suit against the LCGM Defendants in January 1998.41 During this time, Francis Sharrak and Ziad Gappy continued to provide him with junk e-mailing advice and tips. 42 In April 1998, when AOL filed this litigation, Nelson and the Michigan Conspirators worked together on how to best defend against AOL's suits. Both sets of Defendants repeatedly failed to comply with AOL's discovery requests and both were severely sanctioned by the Court. Both sets of Defendants also hired the same Florida lawyer to defend them in the final stages of their cases - Hal Uhrig of American Barristers. 43 Having already established a business relationship with Jay Nelson, the Michigan Conspirators continued to work with him to send junk e-mail after the February 10t_Injunction was entered. According to Nelson's former employee William Hull, Nelson spoke with Francis Sharrak and Ziad Gappy at least twice a month to discuss technical tips and expertise regarding the transmission of junk e-mail. The three men also discussed sending junk e-mail to AOL on behalf of adult Web sites owned by others. After contacting the owners of other adult Web sites, Nelson, Sharrak, and Gappy started sending junk e-mail to

3s The airline tickets for this trip were paid for by LCGM. Se...__e LCGM American Express Statements (October 1997) (attached as Exhibit 27). 39 Se_...ee LCGM American Express Statements (October 1997)(attached as Exhibit 27). 4o Se__..ee Junk E-Mail Messages Containing Advertisements for LCGM's and CN Productions' adult Web Sites (attached as Exhibit 28). 41 Se_..ee AOL v. LCGM, et al., 46 F. Supp. 2d 444, 1998U.S. Dist. LEXIS 20144. Other Intemet service providers also filed suit against LCGM for its transmission ofjunk e-mail. See, e_g_,Hotmail Corp. v. VanS Money Pie, Inc., et al., 1998U.S. Dist. LEXIS 10729, 47 U.S.P.Q.2D (BNA) 1020 (preliminary injunction entered April 16, 1"998). 42 See Hull Affidavit, 26 (attached as Exhibit 4). 43 See LCGM Deposition Transcript, Cover Page, (July 20, 1998) (listing Hal Uhrig as Counsel for the LCGM Defendants) (attached as Exhibit 29), At his January 2000 deposition, Nelson claimed that he selected Hal Uhrig as his attorney after searching on the Intemet for lawyers specializing in asset protection services. After reviewing his deposition, Nelson changed his testimony to indicate that he selected Uhrig based on Francis Sharrak's recommendation. See Deposition of Jay Nelson, pp. 16, 18, 67 (January 14, 2000) (attached as Exhibit 12) and Errata and Verification Sheet in re Transcript of Jay David Nelson (March 9, 2000) (attached as Exhibit 30). 13

AOL advertising these other adult Web sites. The profits from this illegal advertising business were split between Sharrak, Gappy, and Nelson. 44 Hull's testimony is corroborated by information AOL has obtained from Quixotic, Inc. - a company which owned some of the adult Web sites on whose behalf Sharrak, Gappy, and Nelson transmitted junk e-mail. As detailed in Section III

below, Quixotic admits paying almost $1

million to a Bahamian bank account held in the name of one of the shell corporations (Dahabeeyah, Inc.) created by the Florida Conspirators .45 Quixotic made these payments for the benefit of an "advertiser" known to them only as "Robert Johnson. ''46 In addition to helping Jay Nelson send junk e-mail to AOL, the Michigan Conspirators also provided Intemet connectivity for CN Productions' adult Web sites. In October 1999, one of these adult Web sites (www.pamsplayhouse.com) lost Internet connectivity because of complaints regarding junk e-mail. were thus unable to

Customers who purchased monthly or lifetime subscriptions to www.pamsplayhouse.com view the adult content they purchased.

Recognizing that the income stream being generated by these

customers would be lost unless the adult Web site's Internet connection was restored, the Michigan Conspirators arranged Internet connectivity for www.pamsplayhouse.com. Hull revealed that Robert Shady,

a Michigan Conspirator who operates a Web hosting company (Innovative Data Services), provided this connectivity when other reputable companies refused. 47 Shady has already corroborated Hull's testimony by producing documents which show that his company provided this Internet connectivity. 48 B. The Michigan Group Created a Web Page Hosting Service To Sponsor Junk E-Mail Teaser Web Pages for Jay Nelson In addition to providing Nelson and CN Productions with junk e-mailing expertise and Intemet connectivity, the Michigan Conspirators also sponsored the teaser Web pages advertised in the junk e-mails transmitted by Nelson and the Illinois Conspirators. As detailed below, the Michigan Conspirators owned and operated their own Web page hosting service - operating under the domain name freestation.com -to sponsor Nelson's junk e-mail. 44 45 46
47

See Hull Affidavit, 26, 27 (attached as Exhibit 4). See Section III.C, infra. Robert Johnson is an alias used by Michigan conspirator Ziad Gappy. See Section II.B, infra.
Se.._e

Hull Affidavit, 10, 11 (attached as Exhibit 4). 48 Se_._e Innovative Data Services Subpoena Response (revealing that Innovative Data Service provided Intemet connectivity for a Web site purportedly owned by Global Intemet, Ltd. in the Bahamas and operated by Florida Conspirator Keith Mizelle) (attached as Exhibit 31). 14

In fact, as AOL learned while conducting Michigan Conspirators used freestation.com to sponsor

discovery

in another

anti-spam

lawsuit, the

other junk e-mail

and to disguise a massive junk ewho were were that

mail operation. transmitting concealing sponsored discovery,

In August

1999, AOL filed suit against unknown

John Doe Defendants

millions

of junk e-mail messages to avoid detection,

to AOL and its Members. 49 Because AOL sought discovery

these Defendants

their identities

from the Web page hosting In connection

services with this

the teaser Web pages advertised AOL deposed a Witness

in junk e-mail AOL was receiving: a Web page hosting

who not only operated This Witness

service, but also worked Conspirators were operating

closely with the Michigan

Conspirators.

testified

that the Michigan below: Conspirators

a massive junk e-mail operation:

1 His testimony refused

is summarized

When this Witness service for junk e-mail, they enlisted

to allow the Michigan

to use his Web page hosting

his help in creating

their own Internet

domains to sponsor junk e-mail domains to post teaser Web

teaser Web pages, s2 Using the alias "Alan," Francis pages which he and his associates Johnson," met with potential advertised

Sharrak used these Intemet

through junk e-mail: 3 Ziad Gappy, using the alias "Robert for a fee, their Web sites through junk e-mail at scheme, Daniel Ruzgis, a technical expert,

clients and offered to advertise,

these domains:

4 When these clients agreed to this advertising

would create teaser Web pages (containing

hidden links to the advertised

Web site) and post them on the

49

See AOL v. John Does 1-100, Civil Action No. 99-I 186, E.D. Va. (filed August 6, 1999).

50 Junk e-mailers rely on teaser Web pages to camouflage their identity and the identity of the advertised adult Web sites. Although junk e-mailers may post teaser Web pages on reputable "free-of-charge" Web page hosting services, they recognize that these reputable services do not tolerate junk e-mari. Accordingly, junk e-mailers try to use small Web page hosting services who approve of and profit from junk e-mail but who, because of their pro-spam views, survive on the fringes of the Internet community. Such Web page hosting services are generously compensated by junk e-mailers for sponsoring junk e-mail teaser Web pages. However, because sponsorship of junk e-mail generates a tremendous amount of complaints from the Interact community, these Web page hosting services mn the constant risk of losing their Intemet connectivity. 51 The Witness AOL deposed expressed concern that he and his family would be harmed or harassed by Francis Sharrak and other individuals regarding whom he testified. In fact, during his deposition, the Witness cited instances in which Sharrak purportedly held individuals "hostage" to prevent them testifying about the Michigan Conspirator's bulk e-mail operations. See Sealed Deposition, pp. 213-14 (September 8, 2000) (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). Accordingly, the Witnesses' deposition was fried under seal pursuant to a May 18, 2001 Court Order issued by Magistrate Judge Buchanan. 52 Se.e.Sealed Deposition, pp. 92-98, 109-11, 115 (September 8, 2000) (attached as Exhibit 32 - Fried Under Seal Pursuant to Court Order). 53 54 See id., pp. 94-97 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). See id., pp. 107, 117-18, 122, 146 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order).

15

II

#1

Michigan

Conspirator's

Internet

domains, ss Michael Lame Sharrak

not only sent out junk e-mail containing a team of"kids" who sent out junk e-

links to the teaser Web pages created by Ruzgis, but also supervised mail messages on behalf of the Michigan Sharrak paid the Witness Conspirators. approximately 56

$50,000 for his services

in creating

the Interact

domains. 57 To ensure that no one could trace these payments, Witness received through Federal Express. ss However,

they were made in cash and mailed to the payments were in cash. The Witness also

not all of Sharrak's

a wire transfer

from a Florida bank account Conspirators their relationship

held by Trustee

Accounting

Services. s9 service used

When the Michigan (freestation.com), freestation.com they terminated

learned how to create their own Web page hosting with the Witness. 6 The Michigan Conspirators

to host junk e-mail teaser Web pages for various

adult Web sites, including

CN Productions'

adult Web site www.pamsplayhouse.com. service dominated the junk e-mail scene. The Michigan violation of this Court's Conspirators'

61 For several months during the recent past, this Web page hosting

sponsorship

of Jay Nelson's

teaser Web pages constitutes effort to avoid liability for these

February

10, 1999 Injunction. 62 In an apparent

s5 s6 s7 ss

Se...__e id..___., pp. 95-96 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). Se._.._e id...._, pp. 108-09, 116-19, 122 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). Se._._e id.___., pp. 94-95, 170-77 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). Se...._e id...._ p.., 75 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order).

59 Se.___ee id...__., pp. 275-76 (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). See also Witness Subpoena Response Evidencing Payment from Trustee Accounting (attached as Exhibit 33 - Filed Under Seal Pursuant to Court Order ). Trustee Accounting Services (which also made payments to Jay Nelson, Pare Nelson, and Net Services) is controlled by the Florida Conspirators. Se....ee n. 8, supra. 60 Se..._e id.___., pp. 97-100, 105 (Sept. 8, 2000) (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order). According to the Intemet's domain name registration database, freestation.com is registered to a company called Esade, Ltd. located at 5976 20 th Street, Post Office Box 143, Vero Beach, FL 32966. See Network Solutions Record for freestation.com (attached as Exhibit 34). Florida Conspirator Kim Reinhart is associated with Esade. She is the only person authorized to receive mail at Esade's private mail box address. See Esade Post Office Box Record (attached as Exhibit 35). 61 See Junk E-Mail Message and Teaser Web Page for www.pamsplayhouse.com Freestation.com Intemet Connectivity Record (attached as Exhibit 38). (attached as Exhibit 36) and

62 Arguably, the Michigan Conspirators are also in violation of an Injunction entered in the LCGM case. This Court's Summary Judgment Memorandum Opinion in that case explicitly stated that "AOL is entitled to injunctive relief preventing defendants from further distributing unsolicited bulk e-mail messages to AOL members. Defendants are further enjoined from using 'aol.com' to send and distribute e-mail messages and from using the AOL network for the purpose of harvesting the addresses of AOL members. Defendants are to terminate any AOL membership." Se..._e Memorandum Opinion and Order Entering Summary Judgment, at 20 in AOL v. LCGM, et al., 46 F. Supp. 2d 444, 1998 U.S. Dist. LEXIS 20144 (issued November 9, 1998) (Judge Lee) (attached as Exhibit 37). While the LCGM Defendants may argue they cannot be held in contempt for violating their own Injunction because the specific terms of the Injunction

16

violations, Francis Sharrak and the others in the Michigan group tried to camouflage their connection with freestation.eom by hiding behind the corporate identity Obacom, Inc. Obacom, a Michigan corporation, provided freestation.com with Internet connectivity. 63 Francis Sharrak and Michael Manolakas incorporated the company while James Drakos served as the corporation's registered agent. 64 Manolakas appears to have been paid by the Florida Conspirators for his role in the conspiracy. 65 Daniel Ruzgis, Robert Shady, and Ziad Gappy acted as corporate officers and employees of Obacom when dealing with Internet Service Providers on connectivity issues. 66 As detailed above, the Michigan Conspirators worked with Nelson and CN Productions before this suit was filed and continued to work with them after the Injunction was entered. The Michigan Conspirators knowingly violated the Injunction by: (i) sending, separately and together with Nelson, junk email advertising adult Web sites to AOL and its Members; (ii) providing an Intemet connection for CN Productions' adult Web site when other companies refused to do so because of junk e-mail complaints; and (iii) creating and maintaining a Web hosting service used by Nelson and the Illinois Conspirators to send junk e-mail to AOL. Accordingly, AOL requests that this Court order the Michigan Conspirators to appear and show cause why they should not be held in contempt. HI. THEFLORIDACONSPIRATORS DISGUISEDJAYNELSON'S AFFILIATION WITH CN PRODUCTIONS AND THE JUNKE-MAIL SCHEME The Florida Conspirators include:

Hal Uhrig American Barristers

Uhrig received approximately $60,000 from an adult Web site owner on whose behalf Nelson and the other Conspirators transmitted junk e-mail. Uhrig is the principal attorney,wlm. American Barristers - the Florida law firm Nelson retained to defend tiim in this liuga.tmn, provide him with asset protection services, and arrange a sham sale of his adult Web sate company CN Productions.

were contained in the Court's Memorandum Opinion (and not the Order Entering Summary Judgment), they will be hard pressed to claim that they did not know their conduct was illegal. In any case, because the Michigan Conspirators were working with Jay Nelson, it is clear their conduct was barred by the CN Productions' Injunction. 43 Se._ee Freestation.com Intemet Connectivity Record (attached as Exhibit 38). 64 Se_.._e Obacom Corporate Records (attached as Exhibit 39). 62 See Transfers To/From the Florida Shell Corporations (evidencing payments from Dahabeeyah, Inc., one of the Florida Conspirators' shell corporations, to Emigrant Mortgage Co. on behalf of Michael Manolakas) (attached as Exhibit 9). 66 See Sprint and UUNet Subpoena Response (attached as Exhibit 40) (evidencing that Ruzgis, Shady, and Gappy claimed to be either corporate officers or employees of Obacom). 17

Byron Hatcher

Hatcher, a paralegal with American Barristers, arranged the sale of CN Productions _d managed the adult Web site operation after the Injunction was entered. Nelson thoug t Hatclier to be the one person ,;vho could stop the transmission otjunlc e-mail to AUL. Reinhart works with Hatcher and Uhrig and is an officer of several of the shell corporations used to disguise Nelson's affiliation with CN Productions and the junk e-mailing scheme. Mizelle is a friend of Hal Uhrig who signed the Stock Purchase Agreement on behalf of Exotic, the offshore corporation which purportedly purchased CN Productions from Jay Nelson. Mizelle acknowledged that he regularly signed documents whose legal significance he did not understand simply because his friend Hal Uhrig asked him to sign.

Kim Reinhart

Keitb Mizelle

These individuals

are associated

with various shell corporations

involved

in Nelson's

junk e-mail scheme:

Exotic, Ltd. Data Manage, Inc.

Both Exotic, Ltd. and Data Manage were used to disguise Jay Nelson's affiliation with his adult Web site company CN Productions. Exotic, Ltd. is the offshore corporation which allegedly purchased CN Productions from Jay Nelson. After the sale, Nelson and the Florida Conspirators used Data Manage's corporate identity to run the adult Web site. 67

Trustee Accounting, Inc. Universal Documents, Inc. Dahabeeyah, Inc. Universal Asset Institute

The Florida Conspirators used these four shell corporatitons, as well as Data Manage, to funnel money to Jay Nelson and the other Conspirators.

Esade, Ltd. Global Internet, Ltd. Total Internet, Ltd. Heifetz, Inc.

According to the Intemet domain name registration service, these four companies controlled the Interact domain names associated with junk e-mail sent by the Conspirators.

As detailed below, these Florida Conspirators signed the Agreement Reinhart are corporate for Sale & Purchase officers

are all connected

to one another.

Keith Mizelle

on behalf of Exotic.69 Hal Uhrig, Byron Hatcher, of, Data Manage, Trustee Accounting, transferred

and Kim

with, or members

Universal large sums of money

Documents,

Dahabeeyah,

and Heifetz. 7 Moreover,

the Florida Conspirators

67 Data Manage is a Delaware corporation created by Hal Uhrig. Se...._e American Incorporators Subpoena Response (attached as Exhibit 41). 68
69

Se_.._ee Transfers To/From the Florida Shell Corporations (attached as Exhibit 9). Se..._e Agreement for Sale & Purchase (attached as Exhibit 24).

70 Hal Uhrig and Byron Hatcher are "Members" of Universal Documents. Se..._ee Mail Boxes, Etc. Subpoena Response Listing Uhrig and Hatcher as Member of Universal Documents (attached as Exhibit 11). Byron Hatcher is Data Manage's Corporate Secretary. See Data Manage Corporate Records (attached as Exhibit 42). Kim Reiahart is a Corporate Officer of Trustee Accounting, Dahabeeyah, and Heifetz; a bookkeeper for Data Manage; and an authorized signatory on the bank accounts for all four corporations. See Trustee Accounting Corporate Records (attached as Exhibit 10); Dahabeeyah Corporate Records (attached as Exhibit 43); Heifetz Corporate Records (attached as Exhibit 44); and Data Manage

18

71

to one another, Jay Nelson, and the other participants in the conspiracy.

In addition, many of the Florida business

Conspirators share a common mailing address that appears frequently in the Florida Conspirators' dealings:
Suite 2290

2520 S.W. 22ndStreet Miami, Florida 33145

This mailing address is not an office suite, but is actually a rented private mail box at which Hal Uhrig, Byron Hatcher, and Kim Reinhart are all authorized to receive mad.
72

These facts, together with others documented

below, suggest that the Florida Conspirators are all connected to one another, as well as the other members of the junk e-mail scheme. A. Jay Nelson's Sale of CN Productions to Exotic_ Ltd. Was a Sham Transaction In an Agreement for Sale & Purchase executed in December of 1998, Jay Nelson claims he sold all of his interest in CN Productions to Exotic, Ltd. - an offshore corporation whose principals are unknown. 73 The transaction was arranged by Hal Uhrig and Byron Hatcher of American Barristers who
75

represented both parties to the sale. TM Nelson claimed to know nothing about Exotic or any of its principals. Despite Nelson's professed ignorance regarding the mysterious offshore corporation, AOL has learned critical facts which suggest that the Florida Conspirators control Exotic. The only person identified with Exotic on the Agreement for Sale & Purchase is Keith Mizelle, a friend of Hal Uhrig. Mizelle signed the Agreement on behalf of Exotic but claims to have no affiliation with the company. In fact, Mizelle claimed in his deposition that he does not even remember signing the Agreement However, Mizelle does acknowledge that, if he did in fact sign the Agreement, he would have done so at Hal Uhrig's request Indeed, Mizelle acknowledged that he regularly signed documents whose legal significance he did not understand simply because Hal Uhrig asked him to sign. 76

Corporate Records (attached as Exhibit 42). She is also an authorized signatory on Universal Documents' bank account and a "Member" of that corporation. Se_._.ge Universal Documents Corporate Records (attached as Exhibit 45). 7x Se..___ee Summary of Transfers from Florida Shell Corporations (attached as Exhibit 9). 72
73
74

Se_.__ee Mail Boxes, Etc. Subpoena Response (attached as Ex. 11). Se._..ee Agreement for Sale & Purchase (attached as Exhibit 24). Se.__e Nelson Deposition Transcript, pp. 24-27 (January 14, 2000) (attached as Exhibit 12). Se___e id____., p. 23 (January 14, 2000) (attached as Exhibit 12). Se._e Mizelle Deposition Transcript, pp. 48-52, 70-72 (March 13, 2000) (attached as Exhibit 46). 19

75
76

Mizelle's association with Exotic extends beyond his signature on the Stock Purchase Agreement. After the sale, Mizelle, with Byron Hatcher's help, transferred ownership of the domain on the Internet's domain name registration service out of CN

name www.pamsplayhouse.com

Productions' name. 77 Moreover, Mizelle is designated as the administrative contact for this adult Web site. 78 Furthermore, although he denied knowing or ever meeting Jay Nelson, 79Mizelle transmitted facsimile messages to Jay Nelson in December 1999, and received a facsimile message from Jay Nelson's attorney in January 2000. 80 Hal Uhrig and Byron Hatcher have similar connections to Exotic. At Nelson's request, Hatcher located Exotic to "purchase" CN Productions' stock. Nelson transferred his shares in CN

Productions to Exotic by mailing them to Byron Hatcher at the Florida Conspirator's rented private mail box in Miami. Hal Uhrig represented Exotic, as well as Jay Nelson, in this transaction. 81 The Florida Conspirators' participation in the sham sales transaction with Exotic is most clearly evidenced by their apparent role in engineering a money-laundering affiliation with CN Productions. scheme to disguise Jay Nelson's

Shortly before the December 1998 sale to Exotic, Jay Nelson wired

approximately $20,000 to Byron Hatcher. Nelson testified these funds were sent to Hatcher to purchase an interest in an offshore limited liability company. Although Nelson claims to have no information whatsoever regarding his investment in this "unknown" offshore company, he conceded that, through this limited liability company, he may continue to hold an interest in CN Productions or Exotic. 82 The mysterious circumstances

77 Se_.._e Domain Name Transfer for www.pamsplayhouse.com (attached as Exhibit 47); see also Domain Name Transfers for other CN Productions' adult Web sites (attached as Exhibit 48). 78 Se..._e InterNIC registrations for www.pamsplayhouse.com (attached as Exhibit 49). 79 See Mizelle Deposition Transcript, pp. 26-27 (March 13, 2000) (attached as Exhibit 46). 80 Mizelle used l-Fax,an Interact messaging service (which listed the Florida Conspirator's rented private mail box in Miami, Florida as Mizelle's mailing address), to transmit two facsimile messages (one on December 1, 1999 and the other on December 6, 1999) to Jay Nelson at 815-399-9476 and to receive a facsimile (on January 11, 2000) from Joseph P. Drennan at 703-535-1922. Se_.._e JFax Subpoena Response (attached as Exhibit 50). Jay Nelson acknowledged that he receives facsimile messages at 815-399-9476. See Nelson Deposition Transcript, p. 212 (January 14, 2000) (attached as Exhibit 12). Joseph P. Drennan is one of Jay Nelson's attorneys and he listed 703-535-1922 as his office fax number in at least one filing with this Court. See Praecipe and Notice of Substitution of Counsel Filed by Joesph P. Drennan (listing Drennan's Facsimile Number as 703-535-1922) (attached as Exhibit 51). 8_ Se_.ee Nelson Deposition Transcript, pp. 17-18, 24-26, 46-47 (January 14, 2000) (attached as Exhibit 12). 82 See id....:., pp. 31-37, 57-62, 101-04 (January 14, 2000) (attached as Exhibit 12). 20

surrounding this unknown limited liability company suggest that Nelson paid Hatcher $20,000 so that he could maintain a financial stake in CN Productions after the purported sale. This conclusion is bolstered by evidence of payments the Florida Conspirators made to Nelson at the same time he "purchased" an interest in an "unknown" offshore company. In the months preceding the sale to Exotic, Hal Uhrig and Trustee Accounting together transferred approximately $72,000 (the exact purchase price specified in the Agreement for Sale & Purchase) to CN Productions. s3 Jay Nelson could not explain why these funds were sent to his company prior to the sales transaction, s4 However, the timing and amount of the wire-transfers, coupled with Nelson's apparent purchase of an offshore company, suggest that Nelson paid the Florida Conspirators to arrange a sham sales transaction so that he could publicly claim that he had rid himself of his interest in CN Productions. Privately, however, Nelson would continue to retain an interest in the adult Web site company and, through the Florida Conspirators' scheme, continue to profit from junk e-mail promoting CN Productions' B. money-laundering

adult Web sites.

After the Sham Sale to Exotic, the Florida Conspirators Managed CN Productions As part of the charade to disguise Nelson's involvement with CN Productions after the sham

sales, the Florida Conspirators managed CN Productions through a variety of shell corporate identities. For instance, the Conspirators used Data Manage - a Delaware corporation for which Byron Hatcher is Corporate Secretary and Kim Reinhart is a corporate officer - to manage the daily operations of the adult Web site. After the sale to Exotic, CN Productions' employees began receiving paychecks drawn from Data Manage's bank account, s5 These checks were signed by Kim Reinhart and were sent to the employees of the adult Web site company by Byron Hatcher. s6 The name "Data Manage" also replaced the name "CN Productions" on the mail box and store-front sign in Rockford. 87

s3 From August through December 1998, in nine separate wire transfers, Hal Uhrig and Trustee Accounting Services transmitted a total of $72,694 to CN Productions' bank account in Rockford, Illinois. See Wire Transfers from Hal Uhrig and Trustee Accounting to CN Productions (attached as Exhibit 52). These transfers appear to have been directed by Jay Nelson through an off-shore trust created for him by American Barristers. See American Barristers' Response to Subpoena (undated) (attached as Exhibit 22). s4 ss ..See Nelson Examination Transcript, pp. 86-91 (March 24, 2000) (attached as Exhibit 19). See Wicksell Examination Transcript, pp. 22-23 (July 19, 2000) (attached as Exhibit 16)

s_ See Select Data Manage Checks to Rolf Wicksell (various dates) (evidencing that Data Manage checks were signed by Kim Reinhart) (attached as Exhibit 53) and Wicksell Examination Transcript, p. 35 (July 19, 2000) (attached as Exhibit 16). s7 See Deposition of Steve Smith, pp. 86-87 (Feb. 17, 2000) (attached as Exhibit 14). 21

Byron Hatcher played a critical role in controlling Data Manage and running CN Productions. ss Indeed, during his deposition, Jay Nelson acknowledged Hatcher's role after the purported sale to Exotic and characterized Hatcher as the only person who could stop the transmission of

www.pamsplayhouse.eom junk e-mail afterthe Injunctionwas entered.89Hatcher,togetherwithKeith

Mizelle, changed the Internet domain name registration for www.pamsplayhouse.com Productions' adult Web sites. 9 The Florida Conspirators also operated another adult Web site which, for a time, prominently appeared in junk e-mail to AOL. In a two-month period following the entry of the Injunction, AOL received almost 61,000 Member complaints regarding junk e-mail for the adult Web site www.livedesire.com. 9_ According to the Internet domain name registration service, this adult Web site is registered to Heifetz 92- a Delaware shell corporation for which Kim Reinhart is a corporate officer. 93 C. After the Sham Sale, the Florida Conspirators Continued to Funnel Junk E-Mail Income to Jay Nelson The Florida Conspirators engineered a financial scheme to funnel junk e-mail income to Jay Nelson. Shortly after the sham sale to Exotic, Jay Nelson began receiving bi-monthly checks of $2,500 from Trustee Accounting Services. 94 These checks were signed by Kim Reinhart (the corporate secretary for Trustee Accounting) and listed the rented private mail box in Miami as the mailing address for Trustee Accounting. The Florida Conspirators also provided Nelson with a mysterious credit card bearing his name and the name Universal Asset Institute. 95 The payments from Trustee Accounting and and other CN

88

See Hull Deposition Transcript, pp. 205-06 (January 13, 2000) (attached as Exhibit 13).

89 See Deposition of Jay Nelson, pp. 247-48 (January 14, 2000) (attached as Exhibit 12). 9o See Domain Name Transfer for www.pamsplayhouse.com (attached as Exhibit 47) and Domain Name Transfers for other CN Productions' adult Web sites (attached as Exhibit 48). Prior to the sale to Exotic, these adult Web sites were registered to CN Productions; after the sale, these sites were registered to "Global Interact, Ltd." and "Total Intemet, Ltd." Compare InterNIC Registrations for www.pamsplayhouse.com before Permanent Injunction was entered (Exhibit 54) with InterNIC Registrations for www.pamsplayhouse.com after Permanent Injunction was entered (Exhibit 49). 91 55). 92 93 94 See Sample E-Mail Message and Junk E-Mail Teaser Web Page for www.livedesire.com (attached as Exhibit See InterNIC Domain Name registration for www.livedesire.com (attached as Exhibit 56). See Heifetz Corporate Records (attached as Exhibit 44). See Nelson Deposition Transcript, pp. 12-13, 55 (January 14, 2000) (attached as Exhibit 12).

95 See Examination of Jay Nelson, pp. 158-163 (March 24, 2000) (attached as Exhibit i 9). As detailed earlier in Section I.B.1, Nelson explained that the mysterious credit card was given to him by Byron Hatcher and that all 22

the mysterious Productions continued

credit card appear to bolster the conclusion money funneled

that Nelson retained

an interest in CN shell corporations,

and, through

to him by the Florida Conspirators' www.pamsplayhouse.com.

to profit from junk e-mail which promoted

In additionto funnelingCNProductions'incometo JayNelson,the FloridaConspirators

collected the junk e-mail income Nelson based in Houston, and others derived from other adult Web site owners. Quixotic, Inc.

- a company

Texas whose adult Web sites were advertised more than $1 million for the transmission discovery

in junk e-mail messages of junk e-mail. AOL

sent to

AOL - paid the Florida Conspirators uncovered

this critical fact while conducting

in the John Doe litigation. contained the distinct

During discovery Account Number who advertise

in that
552. 96

case, AOL learned

that several of the Quixotic junk e-mails

Explaining Quixotic revealed

that it assigns unique account numbers 552 was registered

to individuals

on its behalf,

that Account Number

to an individual

using the names "Dahabeeyah" Number 552 had three telephone Quixotic

and "Robert Johnson. ''97 Quixotic numbers

also revealed

that the holder of Account

- all of which are connected

to Nelson and his co-Conspirators.98

Most importantly,

statements for this credit card were sent to American Barristers at the rented private mail box in Miami. Although Nelson made purchases using the credit card, he never paid the credit card bill. 96 Se...__ee Quixotic Sample E-Mail Message (containing references to Quixotic WebMaster Account 552 and hidden links to teaser Web pages) (attached as Exhibit 57). Quixotic pays advertisers to promote its adult Interact Web sites. Each advertiser working for Quixotic is assigned a unique account number so that Quixotic can monitor the amount of Interact traffic generated by (and the amount of income due to) a particular advertiser. Se._...ee Quixotic Subpoena Response (attached as Exhibit 58). Dahabeeyah is one of the shell Delaware corporations. See Dehabeeyah Corporate Records (attached as Exhibit 43). Robert Johnson is an alias used by Ziad Gappy - a Michigan conspirator. Se.....ee Sealed Deposition, pp. 107, 117-18, 122, 146 (September 8, 2000) (attached as Exhibit 32 - Filed Under Seal Pursuant to Court Order).
97

98 The three telephone numbers the holder of Account Number 552 provided to Quixotic are 888-905-0667 (a Pager Number), 305-609-5857 (a Cell Phone Number), and 530-884-4773 (a JFax Number). Se...._ee Quixotic Subpoena Response (attached as Exhibit 58). The Pager Number refers to an electronic beeper that was purchased, in cash, from a store-front in Detroit, Michigan. See Pager Company Subpoena Response (attached as Exhibit 59). The Michigan Conspirators called the pager during late 1998. Se_._ Pager Telephone Records (attached as Exhibit 60). The Cell Phone Number refers to a Sprint cellular telephone registered to Heifetz. Se....._e Sprint Cellular Subpoena Response (attached as Exhibit 61). The telephone bills for the Cell Phone Number were sent to the rented private mail box in Miami and were paid for by check and credit card. See id. (attached as Exhibit 61). The checks used to pay the telephone bill were drawn upon Dahabeeyah's bank account and were signed by Kim Reinlaart. See id. (attached as Exhibit 61). The Florida and Michigan Conspirators, as well as Jay Nelson, received calls from the Cell Phone Number. Se_..__e Cell Phone Records (attached as Exhibit 62). The JFax Number refers to a telephone number provided by an electronic messaging service. An individual using the name "Gordon Richards" registered the JFax Number and provided JFax the Cell Phone Number as his home telephone number. See ]-Fax Subpoena Response (attached as Exhibit 63).

23

revealed that it paid Account Number 552 more than $1 million for sending junk e-mail advertisements. 99 This junk e-mail income was wired to Hal U/wig and the other Conspirators. 1 As detailed above, the Florida Conspirators were in privity with Jay Nelson and CN Productions, and assisted these contemnors in transmitting junk e-mail to AOL. Through their actions, the Florida Conspirators facilitated violations of this Court' s February 10, 1999 Permanent Injunction. Accordingly, this Court should require them to appear personally and show cause why they should not be held in contempt. IV. THE CONSPIRATORS SHOULDBE ORDERED TO APPEARAND SHOWCAUSE WHY THEY SHOULD NOT BE HELD IN CONTEMPT FORVIOLATINGTHIS COURT'S INJUNCTION Based on the facts detailed above, the Conspirators violated this Court's Order prohibiting Defendants Jay Nelson and CN Productions, as well "their agents, assignees and those in privity with them" from directly or indirectly transmitting or facilitating the transmission of junk e-mail to AOL and its Members. Pursuant to Federal Rule of Civil Procedure 65(d), the Illinois, Michigan, and Florida Conspirators are all bound by this Court's Permanent Injunction because of their active and unique involvement in Jay Nelson's junk e-mail scheme. Because these individuals (together with the entities they control and operate) knowingly violated the Injunction, this Court should order them to appear personally and explain why they should not be held in contempt. A. The Conspirators Are All Bound by This Court's Injunction By its express terms, Senior Judge Bryan's February 10thInjunction binds not only Jay Nelson and CN Productions, but also the Defendants' agents, assignees and all those in privity with them. 11 Judge Bryan's Order is consistent with Federal Rule of Civil Procedure 65(d) which provides that an injunction binds "the parties to the action, their officers, agents, servants, employees, and attorneys,"

99

Se_..._e Quixotic Subpoena Response (attached as Exhibit 58). too In December 1998, Quixotic wired $60,000 to a client-trust account held by Hal Uhrig of American Barristers. See Wells Fargo Subpoena Response Regarding Quixotic Bank Account (attached as Exhibit 64). (attached as Exhibit 64). From February through August 1999, Quixotic wired approximately $920,000 to Account Number 544703599, Sub Account 5682 at the Royal Bank of Scotland (Nassau) Ltd. See Quixotic Subpoena Response (attached as Exhibit 58). This bank account number was used by Jay Nelson. Se_...ee Affidavit of Paula Chandler, 23-24 (attached as Exhibit 65). In August 1999, Quixotic wired $95,000 to an offshore account held by Dahabeeyah at Barclays Bank PLC in the Bahamas. S.e_e Quixotic Subpoena Response (attached as Exhibit 58). ,01 See Memorandum Opinion and Order Entering Injunction (February 10, 1999) (Senior Judge Bryan) (attached as Exhibit 1). 24

regardless

of whether

such officers,

agents, servants,

employees, because

and attorneys

have received

actual notice of

the injunction. identified

12 The injunction

binds these non-parties

they are in privity with the defendants, 3

in interest with them, represented

by them, or subject to their control)

All the Conspiratorsin this casehave suchan intimaterelationshipwith the Defendantsthat

they are bound by the Injunction bound because they worked the Illinois Conspirators Michigan Conspirators formed regardless of whether they had actual notice. and its apparent The Illinois Conspirators Data Manage. are Thus,

for Defendant

CN Productions as described

successor,

are "employees" because

in Rule 65(d). agents.

The Court's

Injunction

also binds the

they acted as Nelson's

As described

above, the Michigan

Conspirators site owners.

a partnership

with Nelson to advertise Conspirators

through junk e-mail on behalf of other adult Web but they also split
TM the

Not only did the Michigan

fulfill the purpose of the partnership, Because partners for binding

the illegal-advertising Michigan Conspirators

scheme profits with Nelson. meet the Rule 65(d) standards attorneys

are agents for one another, defendants.

non-party

The Florida standards of Rule

Conspirators

- the Defendants'

together with their agents - also meet the explicit

65(d) and are bound by the Court's

Injunction.

102 Fed. R. Civ. Proc. 65(d); Regal Knitwear Co. v. NLRB, 324 U.S. 9, 14 (1945); Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106, 109-10 (2ndCir. 1987) (reasoning that because of the close relationship between the named party and its officers and employees, actual notice of the injunction is not required to bind the officers and agents: "Rule 65(d) provides that an order granting an injunction 'is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.' This second clause is not without ambiguity, but we think the absence of a comma between 'them' and 'who' and the repetition of the word 'upon' indicate that officers, agents, servants, employees and attorneys need not 'receive actual notice.., by personal service or otherwise' of the injunction."); see also Shakman v. Democratic Org. of Cook County, 533 F.2d 344, 351 (7th Cir. 1976) (explaining that Federal Rule of Civil Procedure 65(d) requires only "persons in active concert or participation" with parties, officers, agents, servants, employees, and attorneys to have actual notice of an injunction); Central States, Southeast and Southwest Areas Health and Welfare Pension Funds v. Transcon Lines, Case No. 90 C 1853, 1995 WL 472705, *3 (N.D. Ill. Aug. 8, 1995) ("on its face, Rule 65(d) does not require any notice to [an officer, agent or employee of a party to a court order]") (unpublished opinion attached as Exhibit 66). 103 Regal Knitwear Co., 324 U.S. at 14 (explaining that Rule 65(d) takes its language from the "common-law doctrine that a decree of injunction not only binds the parties defendant but also those identified with them in interest, in 'privity' with them, represented by them or subject to their control"). In Regal Knitwear Co., the Supreme Court explained that the breadth of Rule 65(d) was designed to prevent the litigant from "nullify[ing] a decree by carrying out prohibited acts through aiders and abettors" who "were not parties to the original proceeding." Id. In accordance with this rationale, federal courts routinely and consistently enforce injunctions constraining non-parties who are closely affiliated with party litigants. 104 See, e.g., Virginia Dynamics Co. v. Wilfong, et al., 1990 WL 751352, *4 (Va. Cir. Ct. Nov. 9, 1990) (citing Klotz v. Klotz, 202 Va. 393 (1961)) ("Each partner stands in a fiduciary relationship to... the other partners."); Cook v. Lauten, 117 N.E.2d 414, 415 (II1. App. Ct. 1stDist. 1954) (citing Schumaun-Heink v. Folsom et al., 159 N.E. 250, 253 (Ill. 1927)) (Each partner acts "as a prinicipal in his own behalf and as agent for his copartner."); Mclntosh v. Detroit Say. Bank et al., 225 N.W. 628, 629 (Mi. 1929) ("Each partner is the agent of his copartners.").

25

B.

The Conspirators Had Actual Knowledge of the Court's Iniunction Rule 65(d) provides that in addition to binding employees, agents, and attorneys of a

defendant, an injunction binds anyone who is "in active concert or participation with" the defendant and "who receives actual notice of the order by personal service or otherwise. ''_5 This actual notice may be demonstrated by circumstantial evidence. 16 In this case, overwhelming evidence suggests not only that the Conspirators were closely related to Jay Nelson and CN Productions, but also that they Conspirators knew of this Court's Order prohibiting the transmission of junk e-mail. Defendant CN Productions and its apparent successor, Data Manage, employed many of the Illinois Conspirators. Additionally, all of the individual Illinois Conspirators

are related to Defendant Jay Nelson either through familial connections or through the attomey-client relationship. These individuals knew about AOL's lawsuit against the Defendants and knew that the

Defendants were in default. 17Because of these intimate relationships with the Defendants and their knowledge of AOL's lawsuit, this Court may infer that the Illinois Conspirators had actual notice of the Injunction. Similarly, the Michigan Conspirators had actual notice of this Court's February 10th Injunction. As detailed above, these individuals worked with Jay Nelson and CN Productions before AOL filed this litigation and continued to work with them long after the Injunction was entered. During this time, some of the Michigan Conspirators were themselves made Defendants to a junk e-mailing lawsuit filed by AOL and, as a result, were themselves arguably enjoined from transmitting junk e-mail to AOL. In their litigation, these Michigan Conspirators retained the same Florida lawyer (Hal Uhrig) who later represented Nelson and CN Productions. For more than three years, throughout this litigation and the LCGM case, the

Michigan Conspirators acted in concert with Nelson by sponsoring his teaser Web pages on their freestafion.com Web page hosting service, sharing their bulk e-mailing expertise with him, and splitting profits from their bulk e-mailing activities. This long and close business relationship in the very activity

105

Fed. R. Civ. Proc. 65(d)

106 See, e.g., NOW v. Operation Rescue, 747 F. Supp. 772, 779 (D.D.C. 1990) ("In proving notice, it is not necessary to show formal service of the order on the non-party."); see also Douglass v. First Nat'l Realty Corp., 543 F.2d 894, 897 (D.C. Cir. 1976) (explaining that actual notice may be inferred from circumstantial evidence). zo7 See Hull Affidavit, 17(attached as Exhibit 4). 26

prohibited by this Court's Injunction strongly supports the inference that the Michigan Conspirators had actual notice of the Injunction. The Florida Conspirators, consisting primarily of Nelson's attorneys, clearly had actual notice of the Injunction by virtue of their agency relationship with the Defendants. These individuals not only

defended Nelson and CN Productions in the underlying litigation against AOL, but also arranged for the sham sale of Nelson's adult Web site company. The Florida Conspirators are also intimately involved with the entity that purportedly purchased CN Productions' Indeed, the Florida Conspirators' stock and with it, the constraints of this Court's Injunction.

extensive involvement in this matter, coupled with their intimate financial

connections to the Illinois and Michigan Conspirators, is persuasive evidence that they not only had actual notice of the Injunction, but also actually tried to help Nelson circumvent it.18 C. The Conspirators Violated the Injunction and Should Be Held in Contempt Non-parties bound by a judicial decree may be held in contempt for disobedience. _9The authority to hold non-parties in contempt arises, in part, from "the long recognized, inherent jurisdiction of federal courts to protect and enforce their orders and judgments. ''11 Accordingly, "[a]nyone who takes steps deliberately to thwart the enforcement of a judicial decree can be hauled into court and dealt with summarily even though he is not named in the decree, or acting in concert with someone that is, or violating any source

10s Indeed, the evasive tactics employed by all of the Conspirators to conceal their illegal scheme and to frustrate AOL's contempt investigation further suggest actual knowledge of the Injunction. The Conspirators attempted to camouflage their identities and their involvement in the junk e-mail scheme - through the use of aliases, false testimony, private mail boxes, shell corporations, offshore bank accounts, sham transactions, teaser Web pages, and stolen e-mail accounts - precisely because they knew their actions were illegal and violated this Court's Order. 109 See Fed. R. Civ. Proc. 71 ("[W]hen obedience to an order may be lawfully enforced against a person who is not a party, that person is liable to the same process for enforcing obedience to the order as if a party."). 110 Omega World Travel, Inc. v. Omega Travel, Inc., 710 F. Supp. 169, 170 (E.D. Va. 1989) (citing Riggs v. Johnson County, 73 U.S. (6 Wall.) 166, 187 (1867)), a_f'.d,905 F.2d 1530 (4thCir. 1990); see a..lso Shuffler v. Heritage Bank, 720 F.2d 1141, 1149(9thCir. 1983) (indicating that a court has the inherent power to hold "any person" in contempt for willfully disobeying a court order).

27

of legal obligations personal jurisdiction

other than the decree itself. ''1H Consistent over an out-of-state upon Federal non-party

with this principle,

courts may exercise of an Injunction.H2 to enforce its

who knowingly

assists in the violation authority

Relying

Rule of Civil Procedure in contempt

71 and its inherent

Orders, this Court should hold the Conspirators Injunction. As detailed below, the Conspirators' law: (i) the Conspirators

for violating

the February

10 th Permanent delineated (ii) the

conduct satisfies

the four elements knowledge

of contempt

under Virginia

had actual or constructive

of the Injunction;

111 United States v. Board of Educ., 11 F.3d 668, 673 (7th Cir. 1993); see also Ex Parte Lennon, 166 U.S. 548 (1897) (holding that a person who knowingly assists a Defendant in violating an Injunction subjects himself to civil as well as criminal contempt even though he was not named or served with process in the suit in which the injunction was issued or even served with a copy of the Injunction); Quinter v. Volkswagen of America, 676 F.2d 969, 972 (3d Cir. 1982) (upholding a f'mding of contempt against an expert witness "legally identified" with a party and the party's attorney). H2 Se..__ee, e.__.,Waffenschmidt v. MacKay, 763 F.2d 711,716 (5th Cir. 1985) (holding that a district court may exercise personal jurisdiction over a non-party who knowingly assists in the violation of an order but otherwise has no contacts with the forum because the exercise of "such jurisdiction is necessary to the proper enforcement and supervision of a court's injunction authority and offends no precept of due process"); se_._ee also, NOW v. Terry, 732 F. Supp. 388 (S.D.N.Y. 1990). In this case, as in Waffenschmidt, the Court's authority to exercise personal jurisdiction over the Conspirators arises from (1) the Court's inherent power to enforce its orders, and (2) traditional in personam jurisdiction analysis. First, this Court's power to enforce its injunctions against non-parties would be rendered useless if that power only extended to non-parties who resided within the Court's territory for service of process: "The nationwide scope of an injunction carries with it the concomitant power of the court to reach out to non-parties who knowingly violate its orders." Waffenschmidt, 736 F.2d at 717. The Conspirators' actions in this case are emblematic of how out-of-state individuals and entities work with defendants to frustrate a judicial order. Because the Conspirators knowingly participated in Nelson's junk e-mail scheme, they equally knowingly subjected themselves to this Court's jurisdiction. Second, this Court can exercise traditional in personam jurisdiction over the Conspirators even if (for the sake of argument) their sole contact with this forum arises from their participation in the conspiracy to violate the Injunction. Virginia's long arm statute provides, in pertinent part, that personal jurisdiction exists over a person who, either directly or through an agent, causes torfious injury by an act or omission in the Commonwealth. See Va. Code Ann. 8.01328. l(A)(3). The statute further provides that use of a computer network located in the Commonwealth constitutes an act in the Commonwealth. Se._._e Va. Code Ann. 8.01-328.1 (B). Because each of the Conspirators either transmitted or facilitated the transmission of junk e-mail to AOL's proprietary network in Virginia in violation of the Injunction, the exercise of jurisdiction is appropriate. See, e.g., Telco Communications v. An Apple A Day, 977 F. Supp. 404 (E.D. Va. 1997). Moreover, in this case as in Waffenschmidt, this Court's exercise of personal jurisdiction over the Conspirators does not offend traditional notions of fair play and substantial justice. By knowingly assisting Nelson to send junk email to AOL in violation of the Injunction, the Conspirators could reasonably anticipate that they would have to justify their conduct to a Court in this forum. The inconvenience to the Conspirators of having to defend themselves in a distant forum is balanced against the greater burden on the judicial system in having to conduct duplicitous proceedings in Illinois, Michigan, and Florida. Courts in these jurisdictions cannot benefit from this Court's intimate familiarity with this case. Finally, this Court has a special interest in adjudicating this matter because courts in other jurisdictions "could not assert as strong an interest in ensuring that the issuing court's injunction was enforced." Waffenschmidb 736 F.2d at 722 (relying on McGee v. International Life Insurance Co., 355 U.S. 220 (1957)).

28

Injunction was in AOL's 'favor'; (iii) the Conspirators, by their conduct, violated the terms of the Injunction, and had knowledge of such violations; and (iv) AOL suffered harm as a result of their violations. H3 First, as explained in Section IV.B above, the Conspirators had notice of this Court's Injunctions and thus knew (or had reason to know) that it prohibited the direct or indirect transmission of junk e-mail to AOL and its Members.
TM

Second, the Injunction entered by this Court is in AOL's 'favor' as it

explicitly prohibits the enjoined individuals from engaging in activities that injure AOL and its Members. Determining that monetary damages alone would not compensate AOL for the injuries it had suffered, the Court entered the Injunction to protect AOL from further damage by Defendants and those working with them. Accordingly, the Injunction inures to AOL's benefit. Third, the Conspirators have - since February 1999 -repeatedly violated the Injunction. In particular, the Conspirators have disobeyed this Court by

accessing AOL Member accounts; using AOL's computers and computer networks; and by transmitting junk e-mail to AOL and its Members. Finally, the Conspirators' violations of the Injunction have harmed AOL. This Court has already determined that junk e-mail transmissions injure AOL. 11s The damages inflicted by the Conspirators include not only increased hardware processing costs, but also injuries to AOL's reputation and impairment of its goodwill among Members. Indeed, the Virginia legislature has determined that victims of junk e-mail are entitled to receive $10 per recipient or $25,000
per

day. H6

Accordingly, AOL respectfully requests that the individual and corporate Conspirators appear personally and explain why they should not be held in contempt. AOL also requests an opportunity to conduct discovery by issuing third-party subpoenas duces tecum and by taking depositions (including

t t3 See, e.g, Colonial Williamsburg Foundation v. Kittinger Co., 792 F. Supp. 1397, 1405-06 (E.D. Va. 1992) (citing Omega World Travel, Inc. v. Omega Travel, Inc., 710 F. Supp 169, 170 (E.D. Va. 1989)), aff'd 38 F.3d 133(4th Cir. 1994). 1_4 If, in opposition to this Motion, any of the Conspirators submit affidavits disputing whether they had actual notice of the Injunction or knowledge of its prohibitions, AOL is entitled to test these Affidavits by deposing the affiants. In Roadtechs, Inc. v. MJ Highway Tech., Ltd., 83 F. Supp. 2d 677, 681-82 (E.D. Va. 2000), the Court allowed a party who moved for an order to show cause to depose individuals who submitted sworn statements in opposition to the motion. The Court noted that the moving party was entitled to "determine the truth of the assertions made in the affidavits." 83 F. Supp. 2d at 681-82. Accordingly, as part of the relief requested in this Motion, AOL seeks an opportunity to depose any affiant who submits a sworn statement in opposition. it5 Se._..ee Memorandum Opinion and Order Entering Injunction, at 2-4 (February 10, 1999) (Senior Judge Bryan) (attached as Exhibit 1). 116 See Va. Code Ann. 18.2- 152.1 et seq. (Michie 1999) (as amended by 1999Va. Acts Ch. 905 (HB 1714)) (effective date was July 1, 1999)). 29

depositions of any individual or entity that submits testimony in opposition to this Motion))17 May 24, 2001 Respectfully submitted,, _

L,__ & WATKINS t / Everett C. Johnson Jennifer C. Archie Erica P. McFarquhar (VSB #45635) Abid R. Qureshi (VSB #41814) 555 Eleventh Street, N.W., Suite 1000 Washington, D.C. 20004-1304 (202) 637-2200 INTERNET LAW GROUP Jon L. Praed (VSB #40678) 4121 Wilson Boulevard, Suite 101 Arlington, Virginia 22203 (703) 243-8100

117 AOL plans to present evidence of the precise volume of junk e-mail transmitted by the Conspirators once they have appeared to show cause.

30