Patriot Grp., LLC v. Doe (In re Fustolo)

In re STEVEN C. FUSTOLO, Debtor

THE PATRIOT GROUP, LLC, Plaintiff v. STEVEN C. FUSTOLO and JOHN DOES 1-10, Defendants

Case No. 13-12692-JNF

Adv. P. No. 15-1015

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

March 24, 2015

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the "Motion to Dismiss Amended Complaint" filed by Steven C. Fustolo (the "Debtor"). The Patriot Group , LLC ("Patriot" or the "Plaintiff") filed an Opposition to the Motion to Dismiss, together with the Declaration of Zachary C. Kleinsasser, Esq., an attorney at the firm of Greenberg Traurig, LLP, counsel of record to the Plaintiff. Attorney Kleinsasser attached a transcript of an evidentiary hearing held on February 20, 2015 with respect to the Plaintiff's Motion for Civil Contempt during which the Debtor repeatedly invoked his Fifth Amendment right against self-incrimination.

II. BACKGROUND

The Plaintiff filed a Verified Complaint for Injunctive Relief against the Debtor on January 13, 2015. In its Complaint, it alleged, inter alia, the following:

Beginning in the Spring of 2014 - nearly a year after the Chapter 7 Involuntary Petition in this case was filed - defendants began a systematic, malicious, and deliberate course of unlawful conduct designed to attack plaintiff's reputation and business as a means of intimidating plaintiff and related persons and influence the claims asserted in, and the outcome of, these bankruptcy proceedings. Defendants engaged in these attacks on plaintiff by fabricating accusations of tax and securities fraud by plaintiff and plaintiff's founder and chief executive officer and posting those fabrications on the Internet for world-wide consumption and also disseminating them through the U.S. mail. Defendants' cyber-bullying campaign and other misconduct was intended to publicly humiliate, harass, threaten, and harm the plaintiff and related persons.

Upon information and belief, Defendant Steven C. Fustolo, and others acting in concert with him, engaged in a clandestine and nefarious scheme designed to force Plaintiff The Patriot Group, LLC to withdraw its Objection to Discharge Pursuant to 11 U.S.C. §§ 523 and 727, to influence the prosecution and outcome of these bankruptcy proceedings, and to retaliate against plaintiff for its role in commencing this involuntary proceeding. To this end, Mr. Fustolo, or others acting at his direction, paid a Florida web designer to create a blog through which Mr. Fustolo published false, malicious, defamatory and untrue articles about plaintiff and its principal, John C. Howe. Metadata obtained from documents provided by the Florida web designer revealed that "Steve Fustolo" "authored" the defamatory materials. This, taken in conjunction with the substantial additional evidence described herein, leads to the unavoidable conclusion that Mr. Fustolo is the mastermind behind this cyber-bullying campaign.

Verified Complaint at ¶¶ 1-2. On January 14, 2015, the Plaintiff filed a Motion for Injunctive Relief, referencing the allegations in its Complaint, as well as sections 105(a), 303(b), 523(c) and 727(c) of the Bankruptcy Code. In its Motion for Injunctive Relief, the Plaintiff sought an order enjoining the Debtor and those acting in concert with him "from, among otherthings, continuing to publish via the Internet, US mail, or otherwise, defamatory statements about Patriot, its Chief Executive Officer, John C. Howe, and related persons" and an order "directing defendants to immediately remove the untrue articles from publication and cease and desist from any further publications." In support of its motion, the Plaintiff further represented that the cyber-bullying campaign engineered by the Debtor was intended to force Patriot to withdraw its objection to the Debtor's discharge (Adv. P. No. 14-1193), to retaliate against the Plaintiff for its role in commencing the involuntary petition, and to influence the prosecution and outcome of the bankruptcy proceeding. As it noted in the introductory paragraphs to its Complaint, Patriot, in its Motion for Injunctive Relief, asserted that the Plaintiff paid a Florida web designer to create a fictitious blog through which untrue articles were published.¹ The Plaintiff stated that attacks on itbegan on May 9, 2014 when a lawyer representing the Debtor (Attorney Bruce Edmands) wrote to the Plaintiff's counsel, Michael Fencer, Esq., advising him that the Debtor had filed a "whistle blower claim" against Patriot with the Internal Revenue Service (IRS) and a corresponding "notice" of the claim with the Securities and Exchange Commission (SEC). The Plaintiff further set forth in its motion that "[a]ccording to the letter, Mr. Howe [Patriot's Chief Executive Officer, John C. Howe] and Patriot - with advance knowledge of Mr. Fustolo's intent to notify the IRS of Patriot's 'tax fraud' - preemptively commenced this involuntarily bankruptcy proceeding 'as a means of retaliating against [Mr.Fustolo] for reporting Patriot's tax violations.'" It further stated that cyber attacks began on or about August 21, 2014 with a press release titled "Old Hill Partners and John Howe under IRS and SEC Investigation" which was posted on a press release website with the URL [uniform resource locator] www.prnation.org. That post was quickly followed on August 25, 2014 with an almost identical post titled "John C. Howe, Westport, Ct. Hedge Fund Executive Investigated for Tax Fraud and SEC Violations" on a blog hosted by Blogspot at whistleblowersinternationalblog.blogspot.com (WBI Blog), under the screen name "Ashley Martin."² Patriot set forth additional information about subsequent attacks, including the release of the same and similar false publications alleged to be from a "media contact" at WBI through two paid wire release services. According to Patriot, the defendants also caused more than two dozen videos to appear on video sites, dailymotion.com,youtube.com, and vimeo.com, commencing on or about October 27, 2014. The videos contained Mr. Howe's photograph and false accusations identical or similar to those first published on the WBI Blog, as well as the posting of defamatory statements on consumer complaint boards. Further attacks involved Mr. Howe's wife, daughter, business associates and counsel. According to Patriot,

In an effort to discover the source of the cyber-bullying, Mr. Howe and Old Hill filed an action in The Circuit Court for the Seventh Judicial District In And For Miami-Dade County Florida in an action entitled, Old Hill Partners, Inc. and John Howe v. John Doe, Case No. 16-2014-CA-008673 (Florida Action). Through an investigation and discovery in that action, they learned information that demonstrates that the WBI Blog was created at the direction of and financed by Mr. Fustolo as a vehicle through which Mr. Fustolo could engage in cyberbullying through the publication of false and defamatory articles about Mr. Howe, Patriot, Old Hill, and other funds as a means of intimidating Patriot from pursuing its claims in these bankruptcy proceedings.

Motion for Injunctive Relief at p.9, ¶ 18. As a result of its discovery, it set forth additional evidence that the Debtor was the mastermind of the cyber-bullying campaign.

The Debtor opposed the issuance of an injunction, and the Court conducted a hearing on January 22, 2015. At the hearing, counsel to the Plaintiff referenced a number of criminal statutes that the defendants may have violated, including 28 U.S.C. §§ 1512 and 2261(a),³ and Mass. Gen. Laws ch. 265, § 43A,⁴ as well as the decision of theUnited States Court of Appeals for the First Circuit in In re Sheridan, 362 F.3d 96, 107 (1st Cir. 2004) ("[T]o the extent that attorney misconduct may have thwarted the efforts of the bankruptcy court to bring a particular bankruptcy proceeding efficiently to conclusion, it is at least arguable that attorney disciplinary proceedings occurring during such a case can be classified as core.").

Following the hearing, the parties submitted briefs. In its brief, the Plaintiff argued that the Debtor's misconduct violated Mass. Gen. Laws ch. 258E, § 1, as well as the federal and state criminal statutes referenced above.

On January 30, 2015, the Court, finding that the Debtor had failed to rebut the evidence presented by Patriot in support of its Motion for Injunctive Relief, entered the following preliminary injunction:

The Court orders that the Defendant, Steven C. Fustolo (the "Defendant") and his agents, employees, representatives, and any person acting on his behalf (the "Restrained Parties") to immediately cease and desist from publishing or causing to be published any and all defamatory, disparaging, vexatious, libelous, harassing, unlawful, or false statements, articles, press releases, blogs, stories, or publications of any sort on the Internet, through US mail, or through any other medium concerning Patriot and its employees, officers, directors, and agents, including, without limitation, John C. Howe (the "Protected Parties"), as set forth in the Verified Complaint.

The Defendant shall forthwith take all actions reasonably necessary to remove or to cause the Restrained Parties to remove all defamatory, disparaging, vexatious, libelous, harassing, unlawful, or false statements about the Protected Parties from the Internet or other mediums or platforms which were posted, published, mailed, drafted, or reproduced in any mannerby the Restrained Parties.⁵

In its Memorandum accompanying the order granting the Plaintiff a preliminary injunction the Court observed:

The provisions of 28 U.S.C. § 157(b)(5) which provide that personal injury tort claims must be tried in the district court and not the bankruptcy court do not apply at this stage of the proceeding. This is not a personal injury claim as Patriot made clear in its post-hearing brief that it is not seeking damages for or to enjoin defamation, but rather is seeking to restrain harassment that violates Massachusetts law. To

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