IN IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS - AUSTIN DIVISION

FUNDSXPRESS FINANCIAL
NETWORK, INC.
Plaintiff,

v.	

DIGITAL INSIGHT	
CORPORATION, ET AL.	
Defendants.	

DEFENDANTS' MEMORANDUM IN SUPPORT OF THEIR MOTION FOR MORE DEFINITE
STATEMENT PURSUANT TO RULE 12(e)

INTRODUCTION

Plaintiff FundsXpress Financial Network, Inc.'s ("FX") Count Seven for
"Defamation" is an amalgam of parts of every defamation legal theory
imaginable: libel, slander, trade libel and disparagement, yet fails
to adequately plead any one of these theories. Moreover, it also fails
to specify the specific defendants against whom it is alleged. The
result is that this count is so vague, ambiguous and nonspecific to
any of the defendants, that no one of them can reasonably be required
to frame a responsive pleading. Thus, the defendants' motion for a
more definite statement should be granted.

II.

STATEMENT OF FACTS

Due to the length of the Second Amended Complaint and the fact that
the defamation allegations are scattered throughout it, defendants are
setting forth the relevant allegations for the Court's convenience:

Digital Insight defames FundsXpress in the marketplace.

54. Not satisfied with misappropriating trade secrets, Digital Insight
    has also engaged in the systematic defamation, disparagement, and
    trash-talking of FundsXpress in the marketplace. On information
    and belief, FundsXpress alleges that Digital Insight and its
    employees routinely make false, defamatory and disparaging
    statements about FundsXpress intending to destroy FundsXpress's
    ability to retain its customers and obtain new customers.

55. Specifically, on or about February 20, 2002, in trying to make a
    sale for Digital Insight, Defendant Crain stated falsely to a
    customer of FundsXpress that FundsXpress had laid off 90% of its
    employees in the last 12 months, cut customer service by 90%, done
    no upgrades to its products in the last 12 months, made no
    investment in research and development, was almost out of cash,
    and was for sale.

56. These statements were false, substantially false, and gave a
    substantially false impression of FundsXpress's financial
    condition.

57. On or about May 29, 2002, Defendant Dorman tried to deflect the
    damages caused by Digital Insight's theft of FundsXpress's trade
    secrets by falsely blaming FundsXpress. He publicly stated, in
    words or effect, that "In the past year FundsXpress has laid off
    most of their sales force and raised prices at the same time. We
    hired three of those people they laid off. Were their sales down
    and ours up because ... they laid off people and raised prices?"
    This statement was literally and substantially false, and gave a
    substantially false impression of FundsXpress's financial
    condition.

***

FundsXpress's damages from Digital Insight's defamatory statements.

62. In addition to the damages resulting from the theft of trade
    secrets, FundsXpress has suffered damages as a result of Digital
    Insight's series of false and defamatory statements, which,
    according [sic] FundsXpress's customers and potential customers,
    has continued. Libel per se is not protected by the constitution
    and entitles the libel[sic] to recover presumed damages without
    the showing of economic harm.[1] These damages are hard to quantify,
    but they are presumed under the law, and the amount of damages can
    be determined by the jury. FundsXpress believes these damages are
    not less than $50,000.00.

***

COUNT VII DEFAMATION

89. The false and defamatory statements alleged above constitute
    libel, slander, trade libel and disparagement of FundsXpress. The
    statements are defamatory per se and therefor damages are
    presumed. In the alternative, the statements were made either
    negligently, or knowing they were false, or with actual serious
    doubts as to the truth of the statements, and with common law
    malice and ill will.

90. The false and defamatory statements alleged above were the
    proximate cause of actual and presumed damages to FundsXpress,
    which sues to recover presumed, actual, and exemplary damages on
    account of the Defendants' defamatory statements.

III.

ARGUMENT

FX's defamation count is defective in three respects: (1) it fails to
distinguish and correctly plead among the separate torts of libel,
slander, and business disparagement; (2) it fails to allege all of the
required elements of any one of those three torts; and (3) it fails to
identify the specific defendants against whom it is alleged.

A. The Seventh Count Fails To Allege Any Defamation Claim

1. Count Seven Does Not Allege Libel

The defamation count does not state a claim for libel because the
alleged defamatory statements are oral, not expressed in written or
other graphic form. See Tex.  Civ. Prac. & Rem. Code section 73.001,
which states:

   A libel is a defamation expressed in written or other graphic form
   that tends to blacken the memory of the dead or that tends to
   injure a living person's reputation and thereby expose the person
   to public hatred, contempt or ridicule, or financial injury or to
   impeach any person's honesty, integrity, virtue, or reputation or
   to publish the natural defects of anyone and thereby expose the
   person to public hatred, ridicule, or financial injury. (Emphasis
   added.)

There is no properly pled libel claim in the 105 paragraphs of the
Second Amended Complaint.

2. Count Seven Does Not Allege Slander Per Se

In a slander case, the oral statements "though false and opprobrious,
are not actionable without pleading and proof of special damages
unless they impute to another the commission of a crime or affect a
person injuriously in his office, profession or occupation."  Stearns
v. McManis, 543 S.W.2d 659 (Tex. App. - Houston [lst Dist.]
1976). Under the exception that makes false words spoken of another's
condition or conduct actionable per se as will affect one in his
office, business or profession, the words must touch him in some way
that is harmful to one engaged in his particular office, business, or
profession. Id. at 661-62. As explained by the court in Braugh
v. Enyart, 658 S.W.2d 221 (Tex. App. Corpus Christi 1983):

  Disparaging words, to be actionable per se . . . must affect the
  plaintiff in some way which is peculiarly harmful to one engaged in
  his trade or profession. Disparagement of a general character,
  equally discreditable to all persons, is not enough unless the
  particular quality disparaged is of such a character that it is
  peculiarly valuable in the plaintiff's business or profession
  .... Thus, a statement that a physician consorts with harlots is not
  actionable per se although a charge that he makes improper advances
  to his patients is actionable; the one statement does not affect his
  reputation as a physician whereas the other does so affect
  it. (Emphasis added.)

An example of this rule is in Stearns, where the court upheld the
trial court's judgment that the use of the term "puppy miller"[2] was
actionable per se, as there was uncontradicted evidence that plaintiff
was in the business of buying and selling Saint Bernard puppies and
that the disparaging words would be peculiarly harmful to one engaged
in that business. Id. at 662. Here, FX has not satisfied this rule
because it has not alleged that the statements at issue were
"peculiarly" harmful to one in its business. FX needs to provide
details as to how the alleged defamatory statements in paragraphs 55
and 57 were peculiarly harmful to a company that provides Internet
banking services to independent and community banks, credit unions and
other smaller financial institutions. (See Second Amended Complaint,
1T 14.) Moreover, paragraph 55 alleges that damaging statements were
made to an unidentified FX customer; if so then FX should be required
to plead the identity of the customer and the specific damage alleged
to have occurred from that specific defamatory statement to that
specific customer.

3. Count Seven Fails To Allege Business Disparagement/Trade Libel

FX's defamation count's inclusion of trade libel and disparagement
ignores the law that business disparagement is a separate tort from
defamation. The general elements of a claim for business disparagement
are: (1) publication by the defendant of the disparaging words; (2)
falsity; (3) malice; (4) lack of privilege; and (5) special
damages. Hurlbut v. Gulf Atlantic Life Insurance Co., 749 S.W.2d 762
(Tex. 1987).[3] The tort is part of the body of law concerned with the
subject of interference with commercial or economic relations.

An action for business disparagement is similar in many respects to an
action for defamation. Both involve the imposition of liability for
injury sustained through publications to third parties of a false
statement affecting the plaintiff. The two torts, however, protect
different interests. The action for defamation is to protect the
personal reputation of the injured party, whereas the action for
injurious falsehood or business disparagement is to protect the
economic interests of the injured party against pecuniary loss. Id. at
766.

More stringent requirements have always been imposed on the "plaintiff
seeking to recover for injurious falsehood in three important respects
-- falsity of the statement, fault of the defendant and proof of
damage." Regarding falsity, the common law presumed the defamatory
statement to be false and truth was a defensive matter. The plaintiff
in a business disparagement claim, however, must plead and prove the
falsity of the statement as part of his cause of action. Id. However,
FX has failed to allege any details as to why the alleged defamatory
statements in paragraphs 55 and 57 are false.[4] For example, FX has not
alleged that it has done any upgrades to its products in the last 12
months or that it has made any investments in research and
development.

Proof of special damages is an essential part of the plaintiffs' cause
of action for business disparagement. The requirement goes to the
cause of action itself and requires that plaintiff "establish
pecuniary loss that has been realized or liquidated as in the case of
specific lost sales." Furthermore, the communication must play a
substantial part in inducing others not to deal with the plaintiff
with the result that special damage, in the form of the loss of trade
or other dealings, is established. Id. at 767 ("No evidence was
offered of damages resulting from loss of business expected from any
particular customer or prospective customer to whom disparaging
statements were made by defendants.")

See also Granada Biosciences. Inc. v. Forbes, Inc., 49 S.W.3d 610, 620
(Tex App. - Houston [14th Dist.] 2001) (stating same rule). In
addition, under federal pleading requirements, "when items of special
damages are claimed, they shall be specifically stated."
Fed. R. Civ. P. 9(g). Thus, while the requirement that plaintiff plead
special damages arises from state law governing a claim for product
disparagement, the requirement that special damages be specifically
pleaded stems from Fed. R. Civ. P. 9(g). Accordingly, plaintiff must
specifically plead special damages in accordance with
Fed. R. Civ. P. 9(g) in order to state a claim for product
disparagement. Isuzu Motors Limited v. Consumers Union of United
States, Inc., 12 F. Supp. 2d 1035 (C.D. CA 1998). In Isuzu, plaintiff
alleged that it had suffered and continued to suffer special damages
from the loss of revenue from wholesale and retail sales of Isuzu
Troopers. In determining whether plaintiff's allegations were
sufficient under Rule 9(g), the court stated:

   In light of the apparent absence of guidance on the requirements of
   Rule 9(g) in our own Circuit, the Court looks to the decisions of
   the Seventh, Eight and D.C. Circuits to determine the requirements
   of Rule 9(g).

   A bare allegation of the amount of pecuniary loss alleged is
   insufficient, and plaintiff is not required to allege a specific
   dollar amount. Nonetheless, if the plaintiff desired to predicate
   its right to recover damages upon general loss of custom, it should
   have alleged facts showing an established business, the amount of
   sales for a substantial period preceding the publication, the
   amount of sales subsequent to the publication, [and] facts showing
   that such loss in sales were the natural and probable result of
   such publication[.]

   Under the foregoing authority, plaintiff's allegations do not
   satisfy Fed. R.  Civ. P. 9(g). Several district court decisions
   interpreting Rule 9(g) also support the conclusion that plaintiff's
   allegations are not sufficiently specific.  Id. at 1047 (citations
   omitted).

Other circuits concur with the Ninth Circuit as to the requirements of
pleading special damages in a business disparagement case. In Fowler
v. Curtis Publishing Co., 182 F.2d 377 (D.C. Cir. 1950), the court
found that the following allegations did not adequately allege the
special damage which must be averred to state a case for disparagement
of business:

   '4. As a result of the malicious publication of said libelous
   article and photographs the business of the plaintiff Thomas
   W. Fowler, has been subjected to an unwarranted and undesired
   publicity and the good will which the plaintiff has heretofore
   enjoyed has been destroyed and said publication has caused many of
   the persons who have been renting taxicabs from the plaintiff to
   refrain from renting 'Columbia cabs', and plaintiff Thomas
   W. Fowler, in the operation of his business has been otherwise
   seriously injured, his credit has been destroyed, and his standing
   in the taxicab industry has been damaged and impaired; all to his
   damage in the sum of One Hundred Thousand ($100,000.00) Dollars.

   '5. As a result of the malicious publication of said libelous
   article and photographs as aforesaid, the plaintiff Charles
   B. Howery and fifty-nine other Columbia Cab drivers have been
   injured in their business and have been brought into public scandal
   and disgrace and held up to public ridicule, hatred and contempt
   and have lost the confidence of the public; all to the damage of
   said plaintiffs in the sum of Three Hundred Thousand (300,000.00)
   Dollars.'

The court held that these allegations were much too general to meet
Rule 9(g)'s requirement of particularity. Id. at 379. See also Tamburo
v. Calvin, 1995 U.S. Dist. LEXIS 3399 (N.D. Ill. 1995) ("Tamburo's
disparagement claims cite 'lost sales,' 'a devastating loss of
business,' 'loss of business reputation,' and 'mental anguish and
excessive stress' as the damages resulting from defendants'
statements. However, these blanket allegations of injury are not
sufficiently specific to satisfy Rule 9(g)'s requirements. American
Needle & Novelty. Inc. v. Drew Pearson Marketing' Inc., 820
F. Supp. 1072, 1076 (N.D. Ill. 1993). At a minimum, Tamburo must
allege which statements caused what damage and the exact amounts of
alleged damages.")

Clearly FX has only stated "blanket allegations of injury", instead of
the required specific damages. Its conclusory allegations that "These
damages are hard to quantify, but they are presumed under the law, and
the amount of damages can be determined by the jury. FundsXpress
believes these damages are not less than $50,000.00," fail to satisfy
the requirements for pleading special damages under either Texas or
federal law. FX needs to allege further factual details that support
a causality to its alleged damages, such as its loss of business from
particular or prospective customers, the amount of sales for a
substantial period preceding the publication of the alleged defamatory
statements, the amount of sales subsequent to the publication, and
facts showing that such loss in sales was the natural and probable
result of such publication.

IV.

CONCLUSION

FX's defamation count is vague and ambiguous and fails to state a
claim upon which relief can be granted in numerous respects. It cannot
be determined upon which of the three theories FX is proceeding:
slander, libel, or business disparagement. It cannot be determined
which of the defendants it is alleged against. It fails to state all
of the elements of a claim for libel, a claim for slander per se, or a
claim for business disparagement. Thus, Digital's motion for a more
definite statement pursuant to F.R.C.P. Rule 12(e) should be
granted.

[1] Snead v. Redland Aggregates, Ltd., 998 F.2d 1325 (S~ Cir. 1993).

[2] The term is considered disparaging by dog fanciers and describes
one whose primary interest is in selling puppies for profit with
little concern for their health or for improving the breed.

[3] Although research revealed cases mentioning that a plaintiff had
brought a trade libel claim, none of them discussed the elements of
such a claim.

[4] Regarding fault, the defendant in a defamation action was held
strictly liable for his false statement whereas the defendant in an
action for business disparagement or injurious falsehood is subject to
liability "only if he knew of the falsity or acted with reckless
disregard concerning it, or if he acted with ill will or intended to
interfere in the economic interest of the plaintiff in an unprivileged
fashion." Hurlbut v. Gulf Atlantic Life Insurance Co., 749 S.W.2d 762,
766 (Tex. 1987). FX has adequately alleged this element.

Respectfully submitted,

CLARK, THOMAS & WINTERS,
A Professional Corporation
By: BARRY K. BISHOP
State Bar No. 02346000
P. O. Box 1148
Austin, Texas 78767-1148
(512) 472-8800
(512) 474-1129 fax

John W. Cotton
Aaron C. Gundzik
COTTON & GUNDZIK LLP
725 South Figueroa Street, 34th Floor
Los Angeles, California 90017
(213) 312-1330
(213) 623-6699 fax

ATTORNEYS FOR DEFENDANTS DIGITAL INSIGHT CORPORATION, ERIC EDWARDS,
RONALD GOFFMAN, JOHN DORMAN, VINCENT BRENNAN AND STEPHEN CRAIN

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing
document has been served on all counsel of record via ( )
hand-delivery, ( ) facsimile and/or (*) certified mail, return receipt
requested, on this 31 day of July, 2002:

R. James George, Jr.
Nanneska N. Hazel
George & Donaldson, L.L.P.
114 West 7th Street, Suite 1100
Austin, Texas 78701
(512) 499-0094 fax
Barry K. Bishop