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Rackemann v. Lisnr, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 24, 2018

ALAN RACKEMANN, individually and on behalf all others similarly situated, Plaintiff,
LISNR, INC., ADEPT MOBILE, LLC, and INDIANAPOLIS COLTS, INC., an Indiana Corporation, Defendants.



         This matter is before the Court on the parties' Objections to the Magistrate Judge's Report and Recommendation. This action began when the Plaintiffs/Counter-Defendants Alan Rackemann (“Rackemann”), Jeff Evans (“Evans”), and Edelson PC (“Edelson”) (collectively “Plaintiffs”) sought to litigate claims under the Electronic Communications Privacy Act (“Wiretap Act”), related to technology developed by the Counter-Claimant, LISNR, Inc., (“LISNR”). The Court dismissed Plaintiffs' claims for lack of subject matter jurisdiction (Filing No. 253, Filing No. 288) and LISNR's counterclaims are the only claims that remain in this action. On February 9, 2018, Plaintiffs filed a Motion to Dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, asking the Court to dismiss LISNR's counterclaims (Filing No. 250). The Motion to Dismiss was referred to the Magistrate Judge for a Report and Recommendation (Filing No. 256). On May 21, 2018, the Magistrate Judge submitted a Report and Recommendation, recommending that the Motion to Dismiss be granted in part and denied in part (Filing No. 296). On June 4, 2018, LISNR timely filed under seal an Objection to the Report and Recommendation (Filing No. 298), asserting the Magistrate Judge erred in recommending dismissal of certain claims. That same day, Plaintiffs also filed an Objection, asserting the Magistrate Judge made several errors and should have granted the Motion to Dismiss in its entirety (Filing No. 300). For the reasons stated below, the Court overrules both parties' Objections and adopts the Magistrate Judge's Report and Recommendation.

         I. BACKGROUND

         The following facts are accepted as true for purposes of the Motion to Dismiss and all reasonable inferences are drawn in a light most favorable to LISNR, as the non-moving party. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).

         Edelson is a law firm organized under the laws of the state of Illinois with its principal place of business in Chicago, Illinois, that generates litigation in the electronic privacy class action field and “has litigated some of the largest consumer class actions in the country on this issue.” (Filing No. 218 at 13.) In addition to attorneys, its staff includes “investigators” specializing in privacy issues, including employees with degrees in Computer Engineering and “Cyber Forensics and Security.” Id. Edelson had a heightened ability to understand in advance, the technology it attacks.

The firm has a technology lab staffed by technicians who regularly dissect new products, including applications for smart phones (“mobile apps” or “apps”), to proactively identify potential defendants in class action lawsuits that it will seek to file. It did and does so without any client whose interest it has been retained to represent or protect; instead, the work is done to generate new lawsuits that will further its own business and profits. Once it has identified the target, it then advertises on social media and other places seeking to solicit and entice individuals to agree to act as plaintiffs in claims it seeks to file. When contacted by a potential plaintiff, the firm attempts to convince them that they have been victimized by the potential defendant's (or defendants') product or conduct, with the goal of enticing them to permit Edelson to file a lawsuit in his or her name.

(Filing No. 218 at 13-14.)

         Rackemann and Evans are individual clients of the Edelson law firm. In October 2016, Plaintiffs initially alleged a putative class action against the Defendants LISNR, Adept Mobile, LLC, and the Indianapolis Colts, Inc. (“Colts”), alleging that the version of the Colts' mobile phone application (“the App”), that included LISNR's technology, violated the Wiretap Act. In particular, Plaintiffs alleged that the technology recorded users' private conversations. Through subsequent discovery and related litigation, it was determined that the version of the App on Rackemann's mobile phone did not include the “listening” technology at issue in the lawsuit. In addition, LISNR discovered the following:

• Prior to filing suit, Edelson studied the App and learned facts fatal to the Wiretap Act claims that they subsequently asserted on behalf of Rackemann;
• Edelson made numerous communications with users of the App-including Rackemann and Evans-misrepresenting how the App worked, in an attempt to recruit the users as plaintiffs in the present suit against LISNR;
• After Edelson recruited Rackemann to serve as the plaintiff in this suit, they directed him to delete the App from his phone, which he did;
• Rackemann never had a version of the App on his phone that included LISNR's technology and, thus, Rackemann never had standing to bring the present suit;
• Nevertheless, Edelson filed two complaints against LISNR with claims that they knew were baseless and factual allegations that they knew were false; and
• The Edelson firm repeatedly told LISNR - and this Court - that it fully intended to file a new suit on behalf of a class purportedly to be represented by Evans.

(Filing No. 281). This Court determined that Rackemann lacked standing to sue LISNR and Plaintiffs' claims were dismissed for lack of subject matter jurisdiction. (Filing No. 253, Filing No. 288.) Edelson sought to amend the complaint and substitute Evans as plaintiff, however, the Court denied the motion for leave to amend and dismissed Plaintiffs' claims for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(h)(3). (Filing No. 252, Filing No. 288.)

         On January 10, 2018, when LISNR filed its Answer, it included counterclaims asserting six causes of action against different combinations of plaintiffs, namely: Count I - Spoliation of Evidence against Rackemann and Edelson; Count II - Abuse of Process against Rackemann and Edelson; Count III - Declaratory Judgment Under 28 U.S.C. §§ 2201, et seq., against all Plaintiffs (seeking a declaration that the App does not violate the Wiretap Act); Count IV - Malicious Prosecution against Rackemann and Edelson; Count V - Violation of the Deceptive Trade Practices Act (the “DTPA”) against Edelson; and Count VI - Defamation against Edelson. (Filing No. 218.) Plaintiffs moved to dismiss these counterclaims (Filing No. 250), asserting that the counterclaims procedurally cannot be maintained in the absence of the underlying claims and because they fail on the merits.

         On February 14, 2018, the Court referred the Motion to Dismiss to Magistrate Judge Mark Dinsmore for a report and recommendation (Filing No. 256). On May 21, 2018, the Magistrate Judge recommended that the Court dismiss LISNR's counterclaims for declaratory judgment, abuse of process, and spoliation, but deny dismissal of LISNR's counterclaims for malicious prosecution, violation of the Illinois ...

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