Hypertouch Response to Discover Financial Service's appeal of sanctions for their "Bad Faith Appeal"

359 Port Royal Ave.

Foster City, CA 94404

July 6, 2004

The Honorable Judge Mark Forcum

Superior Court of California

County of San Mateo

Civil Department

400 County Center

Redwood City, CA 94063-1655

Re: Hypertouch Inc. v. Discover Financial Services, Inc.

Small Claims Case Nos. SCC 101498 and 101499

Your Honor,

I am writing to provide Hypertouch’s response to the letter dated, June 29, 2004, by the Defendant, Discover Financial Services (DFS), written to appeal the $306 sanction for “bad faith appeal” that the Court imposed on the Defendant at the Trials de Novo. The Defendant’s letter continues a pattern of unethical misrepresentations to the Court, and indicates that they are undeterred from continuing this behavior even after the Court’s awarding of sanctions. The Court did not award sanctions solely for the Defendant’s failure to appear in Court but for their sustained abuse of the judicial process and their attempts to mislead the Court.

Hypertouch was awarded damages in both small claims actions for the Defendant’s repeated violations of California’s anti-spam laws and despite Hypertouch’s numerous notices for them to cease. The Defendant filed their initial appeals of their two losses in Small Claims Court almost two weeks after the 30-day deadline for appeals had passed, in violation of CA CCP section 116:

116.750(b) A notice of appeal shall be filed not later than 30 days after

the clerk has delivered or mailed notice of entry of the judgment to

the parties. A notice of appeal filed after the 30-day period is

ineffective for any purpose.

In their letter to the Court asking for an exception to the 30-day period, the Defendant falsely claimed that the “service of the Notice of Entry of Judgment was defective” because it had been mailed to the Defendant’s service center in Phoenix, Arizona rather than the Defendant’s agent for service of process in Los Angeles. However, at the time of trial, the Defendant chose to represent themselves with someone flown in from their Phoenix office. Both the Defendant’s representative and myself were sworn in as legal representatives of the two parties. The presiding judge specifically asked the Defendant where notice of the judgment should be mailed and the sworn Defendant gave the Phoenix address and reconfirmed that address to the Court when the judge later read the new address back to him. A copy of the Court’s hand written note of the address correction is attached (Exhibit A). Since the Defendant themselves gave this new address for notice in sworn testimony to the Court, any claims of improper service were false.

I believe the commissioner who granted the appeal would not have done so had the Defendant been fully forthcoming in their letter and not mislead the Court. I would have also informed the Court of these omitted facts before the appeal had been granted, had I the opportunity. However, whether through ironic accident or due to deliberate malfeasance, the Defendant placed the wrong address on the copy of their appeal that they mailed to Hypertouch. This mis-addressing caused sufficient delay in the delivery of the letter that Hypertouch was unable to submit a response to the Court.

Once the appeals for Trials de Novo had been granted and the trials set, a third party, Leapfrog Online, contacted Hypertouch offering a confidential settlement for the judgments against the Defendant that Hypertouch had already been awarded in open court. Leapfrog is not a party to these actions. However, according to documents submitted to the Court by the Defendant and statements made during trial, Leapfrog manages the Defendant’s online promotions and has agreed to indemnify losses incurred by DFS. The settlement terms offered by Leapfrog were draconian in the extreme, including $25,000 liquidated damages--per incident of alleged confidentiality breach, requiring Hypertouch to destroy all records and backups of records for all of its servers and desktop machines for the past half decade, essentially crippling Hypertouch, etc.

Hypertouch declined Leapfrog’s offer of settlement a week before the June 4^th appeal date. After Hypertouch declined to settle on cases they had already won, the Defendant decided to drop their appeal. CA CCP section 116.790 allows sanctions to be awarded when an appeal is “not based on good faith, but was intended to harass or delay the other party, or to encourage the other party to abandon the claim…”

In the late afternoon of June 3, Hypertouch received a two line email stating, “Please be advised that Discover Financial Services has dismissed their appeals of case numbers SCC-101498 and SCC -101499.” The email was unsigned, though with a return email address of Leapfrog’s attorney. Hypertouch did present a copy of that email to the Court on June 4. The Court agreed that it was an unverified, out of court communication from a third party -- a third party, I pointed out, who stood to avoid substantial liability if Hypertouch had failed to appear at the Trials de Novo. Hypertouch believes that DFS filed its belated appeals and used the appeals process in bad faith, in an attempt to bully us into silence or to abandon our claims. The sanctions granted by the Court in the Trials de Novo were appropriate.

The Defendant is also misleading the Court when it writes in its June 29 letter: “For some reason, the Dismissals wound up at the Central Branch rather than the Southern Branch where the trial was being held.” The ‘for some reason’ is in fact because that is where the Defendants directly sent, via Federal Express, their motions to dismiss, despite the fact that the Court’s trial notice (Exhibit B) and the Defendant’s own motions to dismiss (Exhibit C) show the trials were at the Southern branch.

There was no error by the Court. In fact the Court clerk noted the Defendant’s action by taking care to photocopy the FedEx envelope and including it in the public case file (Exhibit D).

Though the Defendant’s motions were sent to the Court by overnight courier, they chose to send Hypertouch’s copies via ordinary surface postal mail. In fact, they even delayed giving Hypertouch’s letter to the post office until June 3, guaranteeing that it would not arrive until after the trials. The last page of Exhibit C clearly shows the Los Angeles post office postmark of June 3 laid over the prepaid postage stamp. Presumably for thoroughness, the Defendant also continued in using the wrong mailing address for Hypertouch though all of their Court filings used Hypertouch’s correct address. The Defendant had both Hypertouch’s fax number and email address and my personal email address but chose not to use them to inform Hypertouch in a timely matter of their attempted motions. Contrary to DFS’s claim in their letter, Hypertouch did not receive notice from DSF that they were abandoning their appeal prior to the date of trial, thus requiring me to prepare and show for the trials.

The June 29^th letter neglects to mention that in fact DFS’ attorney spoke with the Court clerk on June 3 to confirm the arrival of their motions. As can be seen on their letterhead, opposing counsel has offices in the San Francisco Bay area. It would have been an easy matter for them to deliver the motions to the correct address, or simply send someone to Court on Friday.

I lost a full day of wages going to Court on June 4 to represent Hypertouch for two appeals filed in bad faith and under false pretences. If needed, I can supply a pay stub showing the missing 8 hours of salary. The sanctions awarded by the Court help but do not fully cover those lost earnings. Since the deadline for appeals had well gone past, Hypertouch had to recreate many of the exhibits used in trial. The copying costs of those exhibits were also covered by the sanctions. Hypertouch and the Court’s personnel spent a fair amount of time on June 4 in two full Trials de Novo, presenting and recording full detailed evidence, showing which emails were part of each action and what costs and interest had accrued since the first trails, in February. Indeed, Hypertouch believes that the Court would serve the interests of justice by increasing the sanctions against the Defendants to the maximum allowed by law for each action.

In light of the Defendant’s misrepresentations to the Court, their misuse of the appeals process, and the costs in time, resources and lost earnings that DFS’s actions cost both Hypertouch and the Court, I ask that the Court deny the Defendant’s request.

Sincerely,

J. Joseph Wagner

President

Hypertouch, Inc.