Memorandum in Support of the Motion for Summary Judgment on Damages

This is actually more interesting than the motion itself. This lays out the reasons for Spamhaus' motion and why they think it means that they should win.

However, the redactions in the document render it useless for copying here. You'll just have to get the documents yourself.

Attachment	Date	Size
MotSJDamagesMemo.pdf	12/10/08 4:53 pm	484.97 KB
MotSJDamagesR56.pdf	12/10/08 4:54 pm	241.65 KB

Response to Motion for Summary Judgment on Damages

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

E360INSIGHT, LLC,
an Illinois Limited Liability Company, and
DAVID LINHARDT, an individual
Plaintiffs,

v.

THE SPAMHAUS PROJECT,
a company limited by guarantee and
organized under the laws of England, aka
THE SPAMHAUS PROJECT LTD,
Defendant.

e360INSIGHT, LLC AND DAVID LINHARDT’S RESPONSE IN OPPOSITION TO DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

Plaintiffs, e360Insight, LLC and David Linhardt (collectively “Plaintiffs”), by and through their attorneys, Synergy Law Group, L.L.C., and for their Response in Opposition to Defendant’s Motion For Summary Judgment, state as follows:

Plaintiffs obtained a default judgment against Defendant in the amount of $11,715,000 on September 13, 2006. Defendant then appealed. The Appellate Court upheld the entry of default judgment but remanded the case for a more extensive inquiry into Plaintiffs damages. Defendant has moved for summary judgment, alleging that Plaintiffs will be unable to prove any of their damages. As discussed below, Plaintiffs can establish their damages with a reasonable degree of certainty and summary judgment should therefore be denied.

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I. Plaintiffs Can Establish Damages to a Reasonable Degree of Certainty

a. Linhardt is Qualified to Testify as to the Damages Incurred by e360Insight and Linhardt

Linhardt, as president and owner of e360Insight, has personal knowledge of e360Insight’s business, its accounts and its income. (St. ¶¶1-2) As discussed in Plaintiffs Response to Defendants Motion to Exclude Linhardt’s testimony, Linhardt is qualified to testify as to the damages sustained by himself and e360Insight. Linhardt’s calculations of the damages sustained by the Plaintiff are based on the lost contracts and lost income due to the improper acts of Spamhaus. Specifically, Linhardt testified in his deposition regarding the contracts e360Insight lost due to the actions of Spamhaus (St. ¶¶4-10). Linhardt had personal knowledge of the value of these contracts. (Id.) Linhardt also had knowledge regarding e360Insight’s expectancy that these contracts would continue. (Id.) The Defendant has offered no evidence to the contrary. Defendant argues that Linhardt is not an expert in business valuation and therefore cannot testify as to any damages sustained by e360Insight. Computing the direct damages sustained by e360 does not require any specialized knowledge or expertise. These calculations are made by the president of the corporation based upon his personal knowledge. Defendant’s line of reasoning ignores the very nature of the direct damages sustained by e360Insight.

Linhardt has also calculated damages based on the loss of revenue due to Spamhaus blocks. As discussed in detail below, Linhardt calculated the direct revenue loss per blocked email message. Data relied upon by Linhardt included the number of email messages sent by e360Insight, the number of email messages blocked due to Spamhaus, and the revenue and profits earned by e360Insight on messages and accounts not blocked by Spamhaus. (St. ¶¶15-19). Linhardt has personal knowledge of this information as he regularly worked with and compiled this data.

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Accordingly, Linhardt is permitted to testify as to the value, the profits and projected profits of e360Insight.

Plaintiffs’ Damage Calculations

e360Insight lost substantial revenue due to Spamhuas unlawful actions. (St. ¶¶3, 17-19). e360Insight is an email marketing company and earned revenue through sending email campaigns on behalf of its clients. e360Insight would send email messages on behalf of their clients to recipients who opted to receive such communications. e360Insight would be paid on a performance basis, meaning that e360Insight would be paid by the client for each “action” taken by the recipient, such as clicking on a link in the email message or visiting the client’s website. Due to the improper acts of Spamhaus, e-mails sent by e360Insight were blocked and did not reach the intended recipients. (St. ¶14) Instead, e360Insight would receive an error message indicating that the email had been blocked due to Spamhaus. (St. ¶15) Linhardt was able to determine the number of emails blocked to due to Spamhaus. (St. ¶16) For example, in 2004, e360Insight sent [REDACTED] messages. Of those, [REDACTED], or [REDACTED], were blocked by Spamhaus. Id. Because not all of the email messages sent were blocked, e360Insight was able to generate revenue on the unblocked accounts. (St. ¶20) Based on the account history and success of other email campaigns, Linhardt determined average revenue per thousand messages. Because the demographic and other segmentation characteristics between the records blocked and those not blocked by Spamhaus were identical, e360Insight reasonably assumes the blocked email messages would perform in the same way as the unblocked messages. It therefore follows that the blocked messages would generate substantially similar click-through rates, conversion rates and revenue productivity as the unblocked messages. The total amount of lost revenue can then be determined by applying the campaign performance metrics of the unblocked messages to the blocked messages. In 2004,
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the average revenue per thousand messages sent was [REDACTED]. (St. ¶18) This amount is then multiplied by the number of records blocked by Spamhaus, [REDACTED], which yields a total direct revenue loss due to Spamhaus blocks in 2004 of [REDACTED]. (St. ¶¶18-19) This process was carried out for the years 2003-2007 and is detailed in Exhibit 4 to Plaintiff’s Rule 56.1 Statement of Additional Facts. These calculations yielded a total direct revenue loss due to confirmed Spamhaus blocks of $[REDACTED]. (St. ¶19).

Plaintiffs have also claimed damage for contracts lost due to Spamhaus’ interference. Specifically, Plaintiffs identified Smartbargains, Vendare, Optinbig and Net Blue as clients lost due to Spamhaus. (St. ¶4) The initial damage calculations were the estimated revenues for the contracts over a term of two years and totaled $2,465,000.00. (St. ¶¶7-13). e360Insight had an established history with the clients lost and the profit history of those clients was used to calculate the lost revenues. (St. ¶20). e360Insight also suffered numerous lost business opportunities and a loss in enterprise value in the amount of $9,250,000. (St. ¶12). Linhardt testified that e360Insight lost these contracts as a direct result of Spamhaus’ actions. (St. ¶¶2, 4-6). As president and owner of e360Insight, Linhardt has personal knowledge of the value of these contracts to e360Insight and can testify accordingly.

II. Plaintiff’s Damages are Not Commingled with Damages of Non Parties

Defendant repeatedly and wrongly suggests that Plaintiffs’ damages are “commingled” with damages suffered by non-parties Maverick and Bargain Depot. As Linhardt explained in his deposition, a consolidated tax return was filed by Maverick. The mere fact that a consolidated return was filed does not preclude Linhardt and e360Insight from proving their damages. e360Insight’s damages are based on the lost contracts and lost income due to the unlawful acts of Spamhaus. Specifically, Linhardt testified in his deposition regarding the contracts e360Insight lost
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due to the actions of Spamhaus (St. ¶¶2, 4-6). Linhardt had personal knowledge of the value of these contracts as well as personal knowledge that Spamhaus was the cause the clients cancelled. Id. The filing of a consolidated tax return has no effect on the value of these contracts or on the fact they were lost due to the unlawful actions of Spamhaus. In addition, e360Insight has also presented damages for the direct revenue lost per blocked email message. As discussed above, these damages were calculated using the revenue and profits earned by e360Insight from 2003 through 2007. Again, the filing of a consolidated tax return has no effect on what income e360Insight generated. In addition, no other entities owned by Maverick generated any revenue. (St. ¶21). The consolidated tax return has no effect on the Plaintiffs damage calculations.

III. The Illinois “New Business Rule” Does Not Bar Plaintiffs’ Damages

Defendant asserts the Plaintiffs’ damage claims are barred by the Illinois new business rule. The proffered justification for this rule is that “a new business has yet to show what its profits actually are.” SK Hand Tool Corp. v. Cocoran Partners, 284 Ill. App. 3d 417, 427 (1st Dist. 1996). However, there are many exceptions to this rule and courts have found that “evidence of prior profits is not the sine qua non of proof of damages ..”. Id. The cases relied upon by Defendants are clearly distinguishable from the present case. In both Dominion Nutrition and M.S. Distributing, the plaintiffs were new businesses with no profit history to use as a basis for their damages. Dominion Nutrition, Inc. v. Cesna, 467 F. Supp. 2d 870 (N.D. Ill. 2006); M.S. Distrib. Co. v. Web Records, Inc., 2003 U.S. Dist. LEXIS 8078 (N.D. Ill. 2003).

In contrast, e360Insight has a profit history on which its damage claim is based. Although Spamhaus’ unlawful conduct severely affected e360Insight’s business, e360Insight continued to operate and generate revenues from 2003 through 2008. (St. ¶20-21) As discussed in Linhardt’s deposition and as evidenced in e360Insight’s profit and loss statement, e360Insight generated total
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gross profits of [REDACTED] from 2003 through 2008. Id. This is not the case of a start-up company that never generated any revenues and has no basis on which to calculate lost profits. e360Insight was able to generate revenue on some of its campaigns despite Spamhaus’ actions that caused many of those emails to be blocked. The profits earned by e360Insight provide a reasonably certain basis on which to calculate its damages. “Where there is concrete evidence from which the lost profits for a new venture can be determined to a reasonable degree of certainty, they may be recovered.” Jamsports and Entertainment v. Paradama Productions, 2004 U.S. Dist. LEXIS 23605, *16 (N.D. Ill. Nov. 22, 2004). (Ex. A) Courts have also noted,

[W]hile damages cannot be based on pure speculation or guesswork, they also need not be proven with the certainty of calculus. And where the uncertainty of the damages stems from the defendants' illegal conduct, the defendants should not benefit from the uncertainty they created. Speculation has its place in estimating damages, and doubts should be resolved against the wrongdoer.

BE&K Construction Co. v. Will & Grundy Counties Building Trades Council, AFL-CIO, 156 F.3d 756, 770 (7th Cir. 1998).

e360Insight has an established profit history on which its damages are based. This case is clearly distinguishable from the cases cited by Defendant.

Conclusion

Summary judgment is only appropriate if the evidence shows that “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law”. Fed. R. Civ. P. 56(c). A genuine issue of material fact exists if the trier of fact could find in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, a court should construe all facts and inferences in favor of the nonmoving party. Id.

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Defendant’s basis for its motion is that Plaintiffs cannot prove any of their damages. As discussed above, Plaintiffs have claimed damages for lost contracts, lost revenue and defamation. Even if some elements of Plaintiffs damage claims were barred, Plaintiffs would nevertheless be able to prove the remainder of their claims. Unless it is found that Linhardt may not testify as to any of the damages suffered by either him or e360Insight, Plaintiffs are entitled to damages and summary judgment is improper. e360Insight has an established profit history upon which its damages are based. Linhardt, as president and owner of e360Insight, has personal knowledge of the damage suffered both by e360Insight and himself and can testify accordingly. Plaintiffs have established that they will be able to prove damages with reasonable certainty and summary judgment should therefore be denied.

e360Insight, LLC and David Linhardt,
Plaintiffs.

By: /s/ Bartly J. Loethen
One of Their Attorneys
Bartly J. Loethen (6225484)
Joseph L. Kish (6197916)
Shaina A. Moss (6283585)
Synergy Law Group, LLC
730 West Randolph, 6th Floor
Chicago, Illinois 60661
Telephone: (312) 454-0015
Facsimile: (312) 454-0261

Attachment	Date	Size
MSJResponse.pdf	01/09/09 2:32 pm	92.14 KB

Motion to Strike Affidavit of David Linhardt

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

e360 INSIGHT, LLC, an Illinois Limited
Liability Company, and DAVID LINHARDT,
an individual,
Plaintiffs,

v.

THE SPAMHAUS PROJECT, a company
limited by guarantee and organized under the
laws of England, a/k/a THE SPAMHAUS
PROJECT, LTD.,
Defendant.

THE SPAMHAUS PROJECT’S MOTION TO STRIKE THE JANUARY 7, 2009 AFFIDAVIT OF DAVID LINHARDT

The Spamhaus Project (“Spamhaus”), pursuant to Federal Rule of Civil Procedure 37(b)(2), moves this Court for entry of an order striking the January 7, 2009 Affidavit of David Linhardt and the exhibit to that affidavit.1 In support of this Motion, Spamhaus states:

[1 The January 7, 2009 Affidavit of Linhardt, and its accompanying Exhibit A entitled “Direct
Damages from Spamhaus ROKSO Listing,” was filed under seal per the Agreed Protective Order
in this case, and attached as Exhibit 1 to Plaintiffs’ Response in Opposition to Spamhaus’ Motion
in Limine (Doc. 190), and as Exhibit 2 to Plaintiffs’ Response to Spamhaus’ Rule 56.1 Statement
of Facts (Doc. 194).]

1. On August 30, 2006, Plaintiffs filed Linhardt’s first Affidavit. In his August 30, 2006 Affidavit, Linhardt claimed that Plaintiffs suffered damages of approximately $11.7 million. No exhibits or supporting calculations were produced in support of Linhardt’s August 30, 2006 Affidavit while fact discovery was still generally open.

2. When asked during his deposition about his methodology for arriving at the $11.7 million damages claim, or whether he had any underlying records or workpapers reflecting his
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calculations, Linhardt testified that he did not recall how he calculated the number, and that he did not have any supporting documentation or work-papers reflecting his calculations:

• “Q: Just to be clear, you are not able to testify today as to the precise methodology used to get from the numbers in Exhibit 10 to the number in Paragraph 32 of Exhibit 9, correct?

A: I don’t recall specifically.”

Q: And you don’t have any papers which reflect that, correct?

A: I do not.”
(Linhardt Dep. 286-87.)2

[2 Citations to “Linhardt Dep.” refer to the transcript of Linhardt’s November 10-11, 2008 Deposition in this case, previously provided to the Court as Ex. 1 to Spamhaus’ Memorandum of Law in Support of its Motion in Limine (Doc. 186).]

• “Q: And I am focusing on quantitative. There’s a number of $9.25 million. As you sit here today, can you tell me anything about the methodology that you used to come up with $9.25 million?

A: No, I don’t recall the specific methodology.

Q: And you don’t have any documents that reflect that, correct?

A: That’s correct.”
(Linhardt Dep. 288-89.)

3. In his January 7, 2009 Affidavit, Linhardt now claims, “Upon review of financial records I was able to recall how such damages were computed.” (January 7, 2009 Affidavit at ¶ 8.) Linhardt attached a spreadsheet to his January 7, 2009 Affidavit as Exhibit A entitled “Direct Damages from Spamhaus ROKSO Listing.” Spamhaus has never seen this document before and it was not produced to Spamhaus prior to or in the course of Linhardt’s deposition.

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4. Linhardt’s January 7, 2009 Affidavit is not the first time that Plaintiffs have submitted an untimely document in support of their damages calculation. (See Doc. 157 at 1-4.)

5. After months of delay and the close of discovery, Plaintiffs filed their Supplemental Amended Responses to Spamhaus’ Interrogatories on September 12, 2008, amending their damages claim to approximately $136 million.

6. When Spamhaus moved to dismiss for these discovery violations by Plaintiffs, this Court, in an Order dated October 15, 2008, ordered stricken any damages amounts in Plaintiffs’ Supplemental Amended Responses to Spamhaus’ Interrogatories in excess of $11.7 million, as well as Plaintiffs’ identification of 16 previously undisclosed witnesses in support of their damages, citing the fact that “the course of action Plaintiffs have pursued is unacceptable.” (Doc. 173.)

7. This Court should similarly strike the January 7, 2009 Affidavit of David Linhardt and the accompanying exhibit because Plaintiffs’ untimely submission continues a well-documented pattern of contumacious disregard for discovery deadlines and proper procedure. (See Doc. 157 at 1-4.)

8. Further, Plaintiffs’ use of Linhardt’s January 7, 2009 Affidavit would be prejudicial to Spamhaus because the affidavit directly contradicts Linhardt’s deposition testimony, and Spamhaus did not receive the Affidavit in the course of discovery and thus could not use it in the deposition of Linhardt, Plaintiffs’ sole witness on damages. Linhardt’s deposition was delayed numerous times, both due to Plaintiffs’ failure to appear to properly noticed depositions (Doc. 156) and due to Plaintiffs’ failure to provide timely responses to interrogatories and discovery requests regarding the basis for their damages claim. Spamhaus
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was forced to wait over 9 months for this necessary discovery prior to deposing Linhardt on Plaintiffs’ damages claim.

9. After this lengthy delay of Linhardt’s deposition, Linhardt’s testimony revealed that Plaintiffs had failed to produce all the documents underlying their damages claim. (Linhardt Dep. at 246-48, 267-68.) On the second day of Linhardt’s deposition, Plaintiffs produced a version of a spreadsheet containing a calculation of Plaintiffs’ direct damages that was different than versions previously produced to Spamhaus. (Linhardt Dep. at 246-48, 267-68.) Now, months later, Plaintiffs have produced yet another new, previously-undisclosed spreadsheet, that again claims to be a calculation and workpapers regarding Plaintiffs’ damages. Plaintiffs’ pattern of continually producing different, untimely, previously-undisclosed versions of their damages calculations is outrageous and begs the question of whether Plaintiffs actually know what damages, if any, they suffered due to Spamhaus’ alleged conduct.

10. Furthermore, Exhibit A to the January 7, 2009 Affidavit of Linhardt should also be barred because it fails to produce, attach, or cite any underlying numbers or data used in its calculations. During this litigation, Plaintiffs have repeatedly asserted varying claims of revenue lost, days of service lost, number of emails blocked, etc. without substantiating any of their claims. Exhibit A to the January 7, 2009 Affidavit of Linhardt is more of the same, and should be disregarded by the Court for its inherent unreliability.

11. In addition to being untimely, prejudicial, and unreliable, the January 7, 2009 Affidavit of Linhardt should also be barred by this Court as an attempt to create a sham issue of fact contrary to prior deposition testimony in order to escape summary judgment. The Seventh Circuit has “long followed the rule that parties cannot thwart the purposes of Rule 56 by creating ‘sham’ issues of fact with affidavits that contradict their prior depositions.” Bank of Illinois v.
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Allied Signal Safety Restraint Sys., 75 F.3d 1162, 1168 (7th Cir. 1996). Where a contradiction exists between earlier deposition testimony and an affidavit later submitted in opposition to a motion for summary judgment, the affidavit is properly disregarded. Ineichen v. Ameritech, 410 F.3d 956, 963 (7th Cir. 2005) (disregarding Plaintiffs’ later filed affidavit where she claimed that her coworkers made disapproving comments about her interracial relationship in contradiction to her earlier deposition where she stated that her coworkers never mentioned the interracial nature of her relationship). The Seventh Circuit refuses to accept these “sham” affidavits that contradict earlier deposition testimony because they are inherently unreliable, and a mere attempts to manufacture a factual dispute in order to defeat summary judgment. Lorillard Tobacco Co., Inc. v. A & E Oil, Inc., 503 F.3d 588, 592 (7th Cir. 2007) (holding that Defendant’s later filed affidavit contradicting his earlier deposition testimony that he always checked for counterfeit markings was an attempt to create a sham issue which “negate[d] his feigned ignorance”).

12. In this case, Linhardt explicitly testified at his deposition that he did not have any supporting records or documents to support the methodology or numbers comprising Plaintiffs’ $11.7 million damages claim. . (See Doc. 186 at 6-8, 14; Linhardt Dep. at 270, 272, 275-77, 279-81, 286-89.) He then directly contradicted his previously sworn to statements in his January 7, 2009 Affidavit. The January 7, 2009 Affidavit of Linhardt is explicitly disallowed under the law of the Seventh Circuit and thus properly stricken.

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Conclusion

For the foregoing reasons, Spamhaus asks this Court to grant its Motion to Strike the January 7, 2009 Affidavit of David Linhardt.

Dated: January 28, 2009

Respectfully submitted,

THE SPAMHAUS PROJECT
By: s/ David Jiménez-Ekman
Craig C. Martin
David Jiménez-Ekman
Chad Emerson Bell
JENNER & BLOCK LLP
330 North Wabash Avenue
Chicago, IL 60611

Attachment	Date	Size
MotStrikeLinhardtAff.pdf	01/30/09 5:41 pm	24.91 KB

Reply to Response to Motion for Summary Judgment on Damages

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

e360 INSIGHT, LLC, an Illinois Limited
Liability Company, and DAVID LINHARDT,
an individual,
Plaintiffs,

v.

THE SPAMHAUS PROJECT, a company
limited by guarantee and organized under the
laws of England, a/k/a THE SPAMHAUS
PROJECT, LTD.,
Defendant.

THE SPAMHAUS PROJECT’S REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT

Introduction

In our opening brief, we demonstrated that Spamhaus is entitled to summary judgment on damages for three reasons: (1) Plaintiffs will have no evidence to prove their damages claims if our motion in limine directed at David Linhardt’s damages testimony is granted; (2) Plaintiffs cannot show damages to a reasonable certainty because their financial data is co-mingled with non-parties Maverick and Bargain Depot; and (3) Plaintiffs’ damages are barred by Illinois’ “new business” rule, which prevents the recovery as damages of lost profits for a new business. Plaintiffs’ response makes three principal arguments, none of which has merit.

First, Plaintiffs’ defense of the proffered testimony of Linhardt based on the response to the motion in limine fails for the reasons explained in our reply in support of our motion in limine. Second, Plaintiffs’ argument that a consolidated tax return does not mean damages cannot be separately proved for the entities, while correct, does not cure Plaintiffs’ admission
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that the books and records of e360 make separating that data out impossible. Third, Plaintiffs’ contention that the “new business” rule does not apply ignores that, at the time their claims arose, they were a “new business,” and even today, e360 has no history of revenues which could even come close to justifying the $11.7 million in damages they seek.

I. If The Court Grants Our Motion To Exclude Linhardt’s Testimony, Spamhaus Is Entitled To Summary Judgment Because Plaintiffs Have No Evidence To Meet Their Burden Of Showing Damages To “A Reasonable Certainty.”

In our opening memorandum (Doc. 187 (“Op. Br.”) at 5), we demonstrated that Spamhaus is entitled to summary judgment because the Court should exclude Linhardt’s damages testimony, and that is the only evidence Plaintiffs have to sustain their burden of proof on damages. In their response, Plaintiffs do not contest (i) that they bear the burden of proof, (ii) that they must show damages to a “reasonable certainty,” or (iii) that Linhardt’s testimony is the only evidence of their damages. Instead, Plaintiffs argue that Linhardt’s testimony is admissible based on the same arguments articulated in Plaintiffs’ opposition to our motion in limine. We rely on our Reply in Support of the Motion in Limine as a full reply to those arguments and, to the extent necessary, incorporate our reply here. However, Plaintiffs’ response makes clear that, if our motion in limine is granted, they have no defense to summary judgment, and it should be granted.

II. Alternatively, Plaintiffs Cannot Show Their Damages To A Reasonable Certainty Because They Are Commingled With Damages Suffered By Non-Parties, Maverick And Bargain Depot.

In our opening brief (Op. Br. at 6), we showed that Plaintiffs cannot recover damages in any event because there are no separate financial records for the only corporate party, e360. Instead, those records are inextricably commingled with financial data from non-parties, and
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therefore e360 cannot meet its burden of showing its own damages to a “reasonable certainty.” Plaintiffs’ response (Doc. 192 (“Resp.”) at 4-5) does not dispute the legal standard, the identity of the parties, or the inability of non-parties to recover damages. Instead, Plaintiffs claim they can proceed because, in their view (Resp. at 4), “The mere fact that a consolidated return was filed does not preclude Linhardt and e360Insight from proving their damages.”

But Plaintiffs’ claim (Resp. at 5) that the “filing of a consolidated tax return has no effect on the value” of contracts underlying their damages claims, or their damages claims themselves, mixes the apple of a consolidated tax return with the oranges of co-mingled books. We agree that the mere filing of a consolidated tax return does not, by itself, mean that Plaintiffs were unable to separate financial data of the party e360 from the non-parties Maverick and Bargain Depot. Certainly, even if consolidated tax returns are filed, separate books and accounting records can be kept, which would allow each entity to prove its own damages. But that is not what Linhardt testified to at his deposition. What he conceded, and is admitted by Plaintiffs in their Local Rule 56.1 statement, is:

• Non-party Maverick kept books on a “consolidated” basis; that is, “the books were kept
at the Maverick level, so there aren’t separate financial statements for Bargain Depot and
e360” (Doc. 194 at 2; Linhardt Dep. at 97-99); and

• There is “no way of separating out results and data for e360 from, for example, Bargain
Depot.” (Doc. 194 at 2; Linhardt Dep. at 99-100.)1

[1 Citations to “Linhardt Dep.” refer to the transcript of Linhardt’s November 10-11, 2008
Deposition in this case, previously provided to the Court as Ex. 1 to Spamhaus’ Memorandum of
Law in Support of its Motion in Limine (Doc. 186).]

Plaintiffs have no separate data for e360 which would allow them to offer testimony relevant to
e360’s damages whatsoever.

Nor can Plaintiffs rely on their current claim that only e360 generated revenue. Linhardt testified at his deposition that he included Bargain Depot’s numbers in his damages calculations

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for e360. In explaining the discrepancy between an older and more recent version of his quantitative analysis, Linhardt said, “Well, one thing I forgot to include was cost of goods sold for any e-commerce revenue. So, you know, the variable cost of the business of getting one email delivered where it would have otherwise been blocked, there’s a data royalty cost that’s included here, but I forgot to include e-commerce cost of goods sold. So if Bargain Depot sells a pair of sunglasses, there’s a product cost associated with that item that was not reflected, so I made an adjustment to account for that.” (Linhardt Dep. at 87-88.) Linhardt said that he included e-commerce revenue and cost of goods sold in his damages calculations, yet he later agreed that e360 did not sell any goods; Q: “I understood from your testimony this morning that e360 did not itself sell any physical goods or services other than e-mail marketing, correct?” A: “Correct.” (Linhardt Dep. at 97.) Linhardt further testified, “when a product is sold, the revenue goes to the Maverick-reported number, which is essentially – and the costs go there as well. There’s only one set of consolidated books.” (Linhardt Dep. at 100.) Linhardt also responded to the follow question: “Q: Is it your testimony that all revenue, regardless of the entity that generated it, including Bargain Depot, flowed into e360’s account?” A: “Yes.” (Linhardt Dep. at 103.)

Thus, while Plaintiffs now argue that “no other entities generated any revenue,” including, presumably, Bargain Depot, Linhardt’s own testimony undermines this statement. Furthermore, this position is in direct conflict with statements made by Plaintiffs (or, at least by Linhardt as indirect owner of Bargain Depot) in past litigation. In Maui Jim Inc. v. Bargain Depot Enterprises, LLC, No. 06-cv-01169 (C.D. Ill.) (Mihm, J.), Bargain Depot stated that it was “undisputed” that Bargain Depot “offered for sale sunglasses.” (Bargain Depot’s Response to Maui Jim’s Motion for Summary Judgment at 3, filed April 20, 2007, attached as Ex. 1.) If
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Bargain Depot were not generating revenue, it is unlikely that Bargain Depot would have even participated in a lawsuit regarding patent infringement (since Bargain Depot presumably could not infringe a sunglasses patent without producing or selling sunglasses), much less admit that it “offered for sale sunglasses.”

III. Alternatively, Plaintiffs Cannot Recover Damages Because Illinois Law Bars Lost Profits For A New Business.

In our opening brief (Op. Br. at 6-8), we demonstrated that Plaintiffs’ damages are barred by Illinois’ “new business” rule because e360 was started for $5,000 in 2003, and had no profit history before Spamhaus’ allegedly unlawful conduct later in 2003. In their response (Resp. at 5-6), Plaintiffs claim that the rule does not apply because e360 operated and has a history of revenue and profit from 2003 through 2008. Plaintiffs’ argument is unpersuasive for three reasons.

First, Plaintiffs’ assertion that e360 was not a new business based on its five years of operating and generating revenues from 2003 to 2008 ignores that their claims arose, not in 2008
or 2009, but in December 2003, only nine months after e360 began operations. The cases we cite in our motion for summary judgment support e360’s designation as a new business based on its status when its claims arose (Op. Br. at 7-8), and, given the purposes of the rule, that is what matters: the issue Plaintiffs must prove is what their profits would have been “but for” Spamhaus’ allegedly unlawful conduct.2 Plaintiffs’ revenues and profits after that conduct occurred cannot, by definition, show what the revenues and profits would have been but for Spamhaus’ conduct, and therefore are no way for Plaintiffs to make the showing required of
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causation. In fact, any revenue and profits by Plaintiffs’ after Spamhaus’ alleged conduct in late 2003 would go exclusively to the other side of the coin, and show Plaintiffs’ performance in the actual world (in the presence of Spamhaus’ conduct). The nine months or so of Plaintiffs’ performance prior to Spamhaus’ conduct places Plaintiffs’ claims squarely within the prohibition of the “new business” rule.

[2 We note that, due to the default, Your Honor will accept the truth of the factual allegations regarding Spamhaus’ conduct. However, Spamhaus respectfully believes that it has many defenses on the merits to Plaintiffs’ claims, and that it is Plaintiffs who engaged in unlawful conduct (spamming), not Spamhaus.]

Second, even if (contrary to fact) nine months of history were enough to avoid application of the new business rule, that history would not entitle Plaintiffs to any damages. That is because, according to Plaintiffs, the profit during that period was actually lower than it was after Spamhaus’ conduct. (Ex. 2 to Doc. 186 – e360Insight LLC Profit & Loss.) (We put aside that this profit was for all of the consolidated companies, not just e360, and therefore independently cannot prove Plaintiffs’ damages claims for the reasons discussed in Part II.) The net profits actually went up for the next three years after Spamhaus’ alleged conduct, which would prevent Plaintiffs from showing that Spamhaus was the “but for” cause of a reduction in any profit based on the short pre-conduct profit history available to Plaintiffs.

Third, the cases Plaintiffs cite do not rescue their claim from the new business rule. Plaintiffs’ reliance on Jamsports and Entertainment, LLC v. Paradama Productions, Inc., 2004 U.S. Dist. LEXIS 23605, *16 (N.D. Ill. Nov. 22, 2004) is misplaced because in that case, there was a specific competitor who operated the exact business that Jamsports would have operated but for defendant’s conduct which provided a basis for the “but for” showing. Here, Plaintiffs have no evidence of a directly analogous business, required by the Jamsports court, to circumvent the new business rule. The other case Plaintiffs cite, BE&K Construction Co. v. Will & Grundy Building Trades Council, AFL-CIO, 156 F.3d 756, 770 (7th Cir. 1998), is even farther afield: it does not address the application of the new business rule and instead is cited for the
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proposition that damages need not be proved “with the certainty of calculus.” While that may be true, it does nothing to weaken the application of the new business rule here.

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Conclusion
For the foregoing reasons, Spamhaus is entitled to summary judgment on all of Plaintiffs’ damages claims under Federal Rule of Civil Procedure 56.

Dated: January 28, 2009

Respectfully submitted,

THE SPAMHAUS PROJECT

By: s/ David Jiménez-Ekman
Craig C. Martin
David Jiménez-Ekman
Chad Emerson Bell
JENNER & BLOCK LLP
330 North Wabash Avenue
Chicago, IL 60611

Attachment	Date	Size
MSJDamagesReply.pdf	01/30/09 4:33 pm	29.84 KB
MSJDamagesReplyExh1.pdf	01/30/09 4:33 pm	208.33 KB