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Klayman v. Judicial Watch

January 17, 2007

LARRY KLAYMAN, ET AL., PLAINTIFFS,
v.
JUDICIAL WATCH, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

Plaintiffs, Larry Klayman and Louise Benson, brought this action against Defendants -- Judicial Watch, Inc. (hereinafter "Judicial Watch"), a non-profit public interest government watchdog organization; Thomas J. Fitton, President of Judicial Watchof Judicial Watch; and Christopher J. Farrell, a Director of Judicial Watch -- alleging fraudulent misrepresentation, breach of contract, unjust enrichment, violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A) and (B), violation of Florida Statute § 540.08, and defamation. Presently before the Court are a number of motions, including: (1) the motion to dismiss Counts One, Two, Three, Four, Five, Six, and Nine of Plaintiffs' Second Amended Complaint brought by Defendants Judicial Watch and Fitton; (2) Plaintiffs' motion for leave to file a sur-reply regarding the motion to dismiss brought by Defendants Judicial Watch and Fitton; (3) the separate motion to dismiss the Second Amended Complaint brought by Defendants Orfanedes and Farrell; (4) the motion to strike portions of Plaintiffs' Second Amended Complaint brought by Defendants Judicial Watch and Fitton; and (5) the motion to sever the claims of Plaintiff Benson from those of Plaintiff Klayman, brought by Defendants Judicial Watch and Fitton.

Upon a searching consideration of the filings currently before the Court on these motions, the attached exhibits, and the relevant statutes and case law, with respect to the motion to dismiss Plaintiffs' Second Amended Complaint brought by Defendants Judicial Watch and Fitton, the Court shall (1) dismiss without prejudice Counts One, Two, and Three of Plaintiffs' Second Amended Complaint for lack of subject matter jurisdiction; (2) deny the motion to dismiss as to Counts Four, Five, and Six; (3) as to Count Nine of Plaintiffs' Second Amended Complaint, grant-in-part the motion to dismiss brought by Defendants Judicial Watch and Fitton insofar as it relates to allegedly defamatory statements made in Judicial Watch Form 990 tax returns and allegedly doctored press quotations posted on the Judicial Watch website; and (4) as to Count Nine of Plaintiffs' Second Amended Complaint, deny-in-part the motion to dismiss brought by Defendants Judicial Watch and Fitton insofar as it is based on allegedly false statements to Judicial Watch employees and the media.*fn1 To the extent that Defendants Orfanedes and Farrell have joined in Fitton and Judicial Watch's motion to dismiss as to Counts Four, Five, and Nine, the Court's conclusions with respect to those Counts apply equally to Orfanedes and Farrell. Furthermore, the Court shall (5) deny Plaintiffs' motion for leave to file a sur-reply; (6) deny the motion to dismiss Plaintiffs' Second Amended Complaint brought by Defendants Orfanedes and Farrell (insofar as it raises an additional argument not addressed in Fitton and Judicial Watch's motion to dismiss); (7) deny the motion to strike brought by Defendants Fitton and Judicial Watch; and (8) deny as moot the motion to sever brought by Defendants Judicial Watch and Fitton.

I: BACKGROUND

A. The Parties

Defendant Judicial Watch, Inc. is a 501(c)(3) organization formed under the laws of the District of Columbia and headquartered in the District of Columbia, which Plaintiffs describe as a "public interest government watchdog to investigate and prosecute government corruption and abuse." Second Am. Compl. (hereinafter "SAC") ¶ 20. Defendant Fitton is President of Judicial Watch, Defendant Orfanedes is the Secretary and a Director of Judicial Watch, and Defendant Farrell is a Director of Judicial Watch. Id. ¶¶ 21-23.

Plaintiff Larry Klayman ("Klayman") is the self-described founder and former Chairman and General Counsel of Judicial Watch, who resides in and practices law in the State of Florida. Id. ¶¶ 1, 18, 26. Plaintiff Louise Benson ("Benson") is a resident of California who has been a supporter of and donor to Judicial Watch. Id. ¶ 19.

B. Klayman's Tenure At and Decision to Leave Judicial Watch

Klayman alleges that in 1994, he "conceived of, incorporated and founded Judicial Watch to restore and promote ethics in the government and in the legal profession . . . ." Id. ¶ 2. According to Klayman, during the ten (10) years after he founded Judicial Watch, the organization grew to a $28 million plus per year foundation with regional offices in five cities, employed about 50 employees, and planned to expand nationally and internationally. Id. ¶ 4. In addition, Judicial Watch had nationally syndicated radio and television shows called "The Judicial Watch Report," and, according to Klayman, "achieved many notable successful verdicts or findings in courts throughout the United States." Id.

Klayman further alleges that in 2003, he decided to leave Judicial Watch in order to run for a seat in the United States Senate from his home state of Florida. Id. ¶¶ 5-6. As a result, Klayman entered into severance negotiations with Fitton, Orfanedes, and Farrell. Id. ¶ 7. On September 19, 2003, Klayman entered into a detailed Severance Agreement, signed by Klayman and Fitton, on behalf of Judicial Watch, and attested to by Orfanedes, as Corporate Secretary of Judicial Watch. Id.; Defs.' Judicial Watch and Fitton Mot. to Dismiss Second Am. Compl. (hereinafter "Fitton/JW Mot. to Dismiss"); Ex. 1 (9/19/03 Severance Agreement). In addition, Klayman alleges that before he left Judicial Watch, he discovered that, contrary to representations Fitton had previously made, Fitton had not obtained an undergraduate degree. Id. ¶ 8. As a result, Klayman alleges that, "[a]s a condition to his signing the Severance Agreement and stepping down from Judicial Watch, Klayman insisted, and Fitton agreed, to have Judicial Watch hire a qualified person to become Chairman." Id. ¶ 10.

C. Events Subsequent to Klayman's Departure from Judicial Watch

Klayman alleges that, "[i]nstead of taking the steps he promised to find a distinguished and qualified Chairman to run Judicial Watch, Fitton has solely acted to entrench himself as head of Judicial Watch," and that as a result, "today there is no Chairman, and Fitton controls Judicial Watch." Id. ¶¶ 11-12. Klayman further alleges that, since Klayman's departure from Judicial Watch, Fitton has mismanaged Judicial Watch and misled "Klayman and others to promote his personal agenda, interests, and political ideology to the detriment of Judicial Watch, Klayman, and Judicial Watch's donors and supporters." Id. ¶¶ 13-14. Klayman also alleges that Judicial Watch, Fitton, Orfanedes, and Farrell have "defamed, disparaged and cast Klayman in a false light to denigrate Klayman, and in an effort to undermine Klayman's ability to return to the helm of Judicial Watch or compete with Judicial Watch in the future." Id. ¶ 16.

In addition, Klayman alleges that, more than a month after he stepped down as Chairman and General Counsel of Judicial Watch, Fitton caused Judicial Watch to send a fund-raising letter that falsely represented that Klayman was still Chairman and General Counsel of Judicial Watch, and used Klayman's name and image without permission. Id. ¶ 48; Ex. A (10/03 Judicial Watch Verdict mailing). Klayman alleges that this mailing created confusion among donors, who mistakenly sent donations to Judicial Watch, believing that Klayman was still running Judicial Watch. Id. ¶ 49.

D. Benson's Donation to Judicial Watch

Plaintiffs allege that in November 2002, while Klayman was still Chairman and General Counsel of Judicial Watch, Judicial Watch began a campaign to raise funds to purchase the building in which Judicial Watch's headquarters was located. Id. ¶ 50. As a result, Judicial Watch sent solicitations to potential donors, including Benson. Id.; Ex. B (copy of solicitation sent to Benson). Benson alleges that, relying on representations made in that solicitation that the money raised would be used to purchase the Judicial Watch headquarters building, she pledged $50,000 to Judicial Watch and paid $15,000 up front to Judicial Watch. Id. ¶ 51. In addition, Benson alleges that she entered into an agreement with Judicial Watch that, as consideration for her $50,000 pledge and $15,000 up-front payment, Judicial Watch would name the President's Office in the headquarters after Benson, and that Judicial Watch further agreed that after purchasing the building, Judicial Watch would place a plaque on the President's Office recognizing Benson's contribution. Id. ¶¶ 81-83.

Benson alleges that, after Klayman's departure from Judicial Watch, "Fitton caused Judicial Watch to cease actively pursuing the purchase of the Building, but concealed that fact from Benson and other similarly situated donors and supporters of Judicial Watch." Id. ¶ 53. Indeed, Benson alleges "on information and belief" that "Fitton caused Judicial Watch to commingle with Judicial Watch's operating funds, or misuse in other ways, the approximately $1.4 million raised from Benson and others." Id. ¶ 56. Nevertheless, Benson alleges, Judicial Watch published newsletters in February 2005 and September 2005 which led Benson and other donors to believe that Judicial Watch was actively pursuing the purchase of the headquarters building and maintaining donations in a segregated, interest-bearing account. Id. ¶¶ 55, 57; Exs. C (2/05 Judicial Watch Verdict) and D (9/05 Judicial Watch Verdict). Benson specifically alleges that when she questioned Judicial Watch about the status of her donation and Judicial Watch's attempts to purchase the headquarters building, Judicial Watch fund-raiser Robert G. Mills "deliberately misrepresented that Judicial Watch was actively attempting to purchase the Building." Id. ¶¶ 60-61.

E. Plaintiffs' Second Amended Complaint

Plaintiffs filed their initial Complaint against Defendants Judicial Watch and Fitton on April 12, 2006, and thereafter filed an Amended Complaint against Judicial Watch and Fitton on May 1, 2006. Plaintiffs filed their Second Amended Complaint on June 14, 2006, in which they maintained the same nine Counts, but added Defendants Orfanedes and Farrell. Counts One, through Three of Plaintiffs' Second Amended Complaint are brought by Plaintiff Benson, while Counts Four through Nine of Plaintiffs' Second Amended Complaint are brought by Plaintiff Klayman.

In Count One, Benson claims Fraudulent Misrepresentation against Fitton and Judicial Watch, alleging that Fitton and Judicial Watch misrepresented that they intend to use Benson's money to purchase a headquarters for Judicial Watch, despite having taken no steps to purchase the building, in order to induce Benson from demanding a refund of her donation. SAC ¶¶ 68-78. In Count Two, Benson claims Breach of Contract solely against Judicial Watch, alleging that by not purchasing a building for Judicial Watch headquarters, Judicial Watch breached its agreement offering Benson naming rights to the President's Office in consideration for her pledge of $50,000 and contribution of $15,000. Id. ¶¶ 79-88. In Count Three, Benson claims Unjust Enrichment solely against Judicial Watch, alleging that Judicial Watch accepted and used the benefit of Benson's $15,000 contribution, which she made in the belief that Judicial Watch would purchase the headquarters building and provide her with naming rights. Count Three further alleges that Benson "conferred a substantial benefit upon Judicial Watch in an amount in excess of $65,000" through support services she provided Judicial Watch "with the expectation that Fitton and others would act honestly and ethically toward her and to the public generally." Id. ¶¶ 89-96.

Counts Four and Five are brought by Klayman against all Defendants, and relate to the fund-raising mailing sent by Judicial Watch a month after Klayman's departure which allegedly misrepresented that Klayman was still Chairman and General Counsel of Judicial Watch. Count Four alleges that the mailing constituted false designation of origin, false and misleading descriptions, false and misleading representations, false and misleading advertising, and other acts of unfair competition, in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A) and (B). Id. ¶¶ 97-106. Count Five alleges that the mailing constituted an unauthorized use of Klayman's name and likeness, in violation of Florida Statute § 540.08. Id. ¶¶ 107-114.

Counts Six, Seven, and Eight are brought by Klayman solely against Judicial Watch and seek three separate remedies for Breach of Contract -- rescission, damages, and specific performance. Count Six alleges that Judicial Watch willfully breached the Severance Agreement by (1) defaming, disparaging and casting Klayman in a false light to the public and the media; (2) failing to pay Klayman the full amount due under the Severance Agreement; (3) failing to return all of Klayman's property; (4) failing to take affirmative steps to purchase the Judicial Watch headquarters building and remove Klayman as guarantor for the Judicial Watch lease; and (5) failing to find a suitable successor for Klayman as Chairman of Judicial Watch. Id. ¶¶ 33-47; 115-132. Klayman alleges that these "deliberate misrepresentations materially induced [him] to enter into the Severance Agreement," and further claims that in light of Judicial Watch's pervasive breaches of the Severance Agreement, monetary damages would be inadequate. Id. ¶¶ 133-135. As a result, Klayman claims that the Severance Agreement must be rescinded, with Klayman restored to his position as Chairman of Judicial Watch. Id. ¶¶ 135-137.

Count Seven incorporates by reference Klayman's previous allegations and seeks damages for Judicial Watch's alleged breach of the Severance Agreement. Id. ¶¶ 138-140. Count Eight seeks specific performance as a remedy for Judicial Watch's alleged breach of the Severance Agreement, incorporating by reference Klayman's previous allegations, and further alleging that Judicial Watch has breached the Severance Agreement by: (1) failing to remove Klayman as guarantor for all credit card accounts; and (2) failing to provide Klayman access to documents. Id. ¶¶ 141-147.

Finally, Klayman brings Count Nine against all Defendants for Defamation. Under the heading "Count Nine" of the Second Amended Complaint, Klayman describes three allegedly defamatory publications. First, Klayman alleges that, in its 2003 and 2004 Form 990 tax returns, Judicial Watch knowingly published false and misleading statements that Klayman owed Judicial Watch certain monies, and that Judicial Watch subsequently published the false tax returns on its website. Id. ¶¶ 66, 150-151. Second, Klayman alleges that, in response to his filing of the initial Complaint in this action, Fitton and Judicial Watch knowingly sent a false statement to Judicial Watch employees claiming that Klayman filed this action because he owed Judicial Watch a significant sum of money. Id. ¶ 154. Klayman alleges that when they published the false and misleading statement, "all Defendants knew that Klayman did not, individually, owe Judicial Watch any money." Id. ¶ 155. Third, Klayman alleges that Fitton and Judicial Watch published knowingly false statements in a number of media outlets, including The Washington Post, The Washington Times, World NetDaily.com, and Slate.com, by telling reporters that "Klayman filed his suit as a 'tactical maneuver designed to distract attention away from the fact that Klayman owes more than a quarter of a million dollars to Judicial Watch.'" Id. ¶¶ 156-157 (emphasis in original).

In addition, elsewhere in the Second Amended Complaint, under the heading "Defamation, Disparagement of Klayman and Misrepresentation," Klayman alleges that Fitton has caused Judicial Watch to disparage and defame Klayman "in violation of the Severance Agreement" by allegedly doctoring press quotations originally made about Klayman so that they refer to Judicial Watch instead, and then posting these false statements on the Judicial Watch website. Id. ¶ 65. It is unclear whether these allegations support Klayman's three Counts for breach of contract or instead relate to Count Nine, Klayman's claim for defamation.

On June 28, 2006, Defendants Fitton and Judicial Watch filed a Motion to Dismiss Counts One, Two, Three, Four, Five, Six, and Nine of Plaintiffs' Second Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The Motion to Dismiss brought by Defendants Fitton and Judicial Watch did not address Count Seven, Klayman's claim for damages based on breach of the Severance Agreement, or Count Eight, Klayman's claim for specific performance based on breach of the Severance Agreement.*fn2 Plaintiffs filed their Opposition to the motion to dismiss brought by Defendants Fitton and Judicial Watch (hereinafter "Pls' Opp'n to Fitton/JW Mot.") on August 8, 2006, and Defendants Fitton and Judicial Watch filed their reply (hereinafter "Fitton/JW Reply") on September 1, 2006. Plaintiffs subsequently filed a motion for leave to file a sur-reply on September 14, 2006, which all Defendants opposed on September 22, 2006.

Also on June 28, 2006, Defendants Fitton and Judicial Watch filed a Motion to Sever the Claims of Plaintiff Benson from the Claims of Plaintiff Klayman, pursuant to Federal Rule of Civil Procedure 20(a) and Local Civil Rule 7.1, as well as a Motion to Strike portions of the Second Amended Complaint, pursuant to Federal Rule of Civil Procedure 12(f). See Mot. to Sever; Mot. to Strike. Plaintiffs opposed each of these motions on August 7, 2006, and Fitton and Judicial Watch filed their replies in further support of these motions on September 1, 2006.

Furthermore, on July 10, 2006, Defendants Orfanedes and Farrell filed a separate Motion to Dismiss the Second Amended Complaint (hereinafter "Orfanedes/Farrell Mot. to Dismiss"), in which they expressly join the Motion to Dismiss previously filed by Defendants Fitton and Judicial Watch as to the substance of those Counts in which they were named as defendants (Count Four - Violation of the Lanham Act; Count Five - Violation of Florida Statute 540.08; and Count Nine - Defamation). In addition, Defendants Orfanedes and Farrell argue that Klayman's claims against them should be dismissed because the allegations contained in the Second Amended Complaint fail to support individual liability on their parts. See generally Orfanedes/Farrell Mot. to Dismiss. Plaintiffs filed their Opposition to that motion on August 7, 2006 (hereinafter "Pls' Opp'n to Orfanedes/Farrell Mot."), and Defendants Orfanedes and Farrell filed their Reply on September 1, 2006 (hereinafter "Orfanedes/Farrell Reply").

II: LEGAL STANDARDS

In evaluating a motion to dismiss for failure to state a claim made pursuant to Federal Rule of Civil Procedure 12(b)(6), "the Court must construe the complaint in the light most favorable to plaintiff and must accept as true all reasonable factual inferences drawn from well-pleaded factual allegations." In re United Mine Workers of Am. Employee Benefit Plans Litig., 854 F. Supp. 914, 915 (D.D.C. 1994); see also Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979) ("The complaint must be 'liberally construed in favor of the plaintiff,' who must be granted the benefit of all inferences that can be derived from the facts alleged."). While the Court must construe the complaint in the Plaintiff's favor, it "need not accept inferences drawn by [the] plaintif[f] if such inferences are unsupported by the facts set out in the complaint." Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Moreover, the Court is not bound to accept the legal conclusions of the non-moving party. See Taylor v. FDIC, 132 F.3d 753, 762 (D.C. Cir. 1997). The Court is limited to considering facts alleged in the complaint, any documents attached to or incorporated in the complaint, matters of which the court may take judicial notice, and matters of public record. See EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997); Marshall County Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 n.6 (D.C. Cir. 1993). Factual allegations in briefs of memoranda of law may not be considered when deciding a Rule 12(b)(6) motion, particularly when the facts they contain contradict those alleged in the complaint. Henthorn v. Dep't of Navy, 29 F.3d 682, 688 (D.C. Cir. 1994); cf. Behrens v. Pelletier, 516 U.S. 299, 309 (1996) (when a motion to dismiss is based on the complaint, the facts alleged in the complaint control).

III: DISCUSSION

A. Motion to Dismiss Brought by Defendants Judicial Watch and Fitton

Defendants Fitton and Judicial Watch argue that Counts One, Two, Three, Four, Five, Six, and Nine of the Second Amended Complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. For their part, Plaintiffs contend that the allegations contained in each of the challenged counts are sufficient to state a cause of action, and that ...


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