|
California Code of Civil Procedure § 425.17(c):
A New Restriction on Anti-SLAPP Motions
By Bruce E.H. Johnson1
[Fall 2005]
In the fall of 2004, V. Whitney Tilson sent an email to a Wall Street Journal reporter and others regarding Troy Group, Inc., in which he owned stock. The email asked, "Are these guys the biggest crooks on the planet or what?" When the company sued for defamation, Tilson moved to strike the complaint as a Strategic Lawsuit Against Public Participation (SLAPP), designed to stifle his speech. The company fought back, claiming that a recent statute barred his anti-SLAPP motion. Troy Group, Inc. v. Tilson, 364 F. Supp. 2d 1149 (C.D. Cal. 2005).
A federal district court ruled against Troy Group this April. But the case brought attention to California Code of Civil Procedure § 425.17(c), a new limit on the otherwise broad anti-SLAPP statute. Passed in 2003 to curb perceived abuse of the anti-SLAPP statute, Section 425.17 provides that the anti-SLAPP statute does not apply to specific public interest actions if certain conditions are met. It also withdraws the immediate right of appeal that otherwise is available to a defendant whose SLAPP motion is denied.
Perhaps most controversially, subsection (c) of Section 425.17 exempts from the protection of the anti-SLAPP statute "cause[s] of action brought against a person primarily engaged in the business of selling or leasing goods or services, including, but not limited to, insurance, securities, or financial instruments…” if two conditions are met. First, the challenged statements must be representations of fact about a competitor’s business operations, goods, or services. The exemption applies to representations made for the purpose of securing transactions in the person’s goods or services, or statements made in the course of delivering them. Cal. Code Civ. Proc. § 425.17(c)(1).
Second, the intended audience must be an actual or potential customer, or a person likely to repeat the statement to a customer. Alternatively, the statement can arise within the context of some regulatory proceedings. Id. § 425.17(c)(2).
Section 425.17(c) has not been extensively litigated. However, the section’s legislative history points to a narrow interpretation of the new statute, and the few cases that have arisen reflect a desire to remain true to the legislative intent.
Events leading to subsection (c)
SLAPP suits are "brought to obtain an economic advantage over the defendant, not to vindicate a legally cognizable right of the plaintiff…[T]hey are generally meritless suits brought by large private interests to deter common citizens from exercising their political or legal rights or to punish them for doing so." Wilcox v. Superior Court, 27 Cal. App. 4th 809 (1994), disapproved on other grounds, Equilon Enterprises v. Consumer Cause, Inc., 29 Cal. 4th 53 (2002). Concerned about "a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances," the California Legislature enacted the anti-SLAPP statute, California Code of Civil Procedure § 425.16, in 1992.
The anti-SLAPP statute allows defendants to file a special motion to strike non-meritorious claims that arise from the defendant’s exercise of free speech and petition rights. It operates in two stages. First, the defendant must make a threshold showing that the lawsuit is the result of protected conduct. Equilon Enterprises, 29 Cal. 4th at 67. The burden then shifts to the plaintiff to show a probability of prevailing on the claim. Id. If the plaintiff cannot do so, the suit is dismissed and the plaintiff is liable for the defendant’s costs and attorney’s fees. Id.
The statute has been invoked in hundreds of cases and has been praised by media and consumer groups. However, in the late 1990s, businesses increasingly used the statute in a way many characterized as abuse. The Consumer Attorneys of California argued that corporations were using non-meritorious SLAPP motions to stymie litigation against them. It told a legislative committee that "a simple pro bono public interest case that should be completed in six months with $5,000 in expenses becomes a costly and financially risky ordeal when the anti-SLAPP law is misused." Report of Senate Judiciary Committee on Senate Bill No. 515, as amended May 1, 2003, pp. 4-5.
It added that "[t]he filing of the meritless SLAPP motion by the defendant, even if denied by the court, is instantly appealable, which allows the defendant to continue its unlawful practice for up to two years, the time of appeal." Id. The organization pointed to a rapid increase in the number of SLAPP motions filed, and to seminars like the Practising Law Institute’s "Challenging a 17200 Claim as a SLAPP Suit." Id. at 7.
The legislative history of Section 425.17 reflects that the Legislature was influenced by the comments of Penelope Canan, co-author of the seminal research on SLAPP suits, who wrote, "How ironic and sad...corporations in California have now turned to using meritless anti-SLAPP motions as a litigation weapon. This turns the original intent of one of the country’s most comprehensive and effective anti-SLAPP laws on its head." Id. at 6. She and others urged the Legislature to adopt limits on the types of defendants who could bring anti-SLAPP motions. "Wealthy corporate defendants, some with their own legal departments, simply do not suffer the chilling effect on their rights when faced with a lawsuit claiming, for example, false advertising or fraud or illegal business practices, that common citizens suffer when sued for speaking out," she argued. Id.
Subsection (c) faced a wide range of opponents
The first legislative attempt to limit anti-SLAPP motions was SB 789, introduced in 2001. Governor Gray Davis vetoed the bill, writing that "[t]he First Amendment right to free speech should be carefully guarded and the Court may be in the best position to ensure this right is protected by examining these claims on a case by case basis." Report of Senate Rules Committee on Senate Bill No. 515, as amended July 8, 2003, p. 6.
SB 515, which became Section 425.17, was introduced the next year. The bill faced opposition from groups as varied as the American Civil Liberties Union, the California Chamber of Commerce, and Novartis Pharmaceuticals Corporation. Id. at 7. Novartis feared the bill would close the only avenue available to protect itself from litigation based on its public positions. Id. at 8. The California Building Industry Association worried that it would eliminate the protection that the statute had offered from NIMBY (Not in My Back Yard) litigation. Id. The California First Amendment Coalition was concerned "that it creates novel issues and potential ambiguities and therefore new fodder for protracted appellate clarification." Report of Assembly Committee on Judiciary on Senate Bill No. 515, as amended June 27, 2003, p. 7.
In addition to these practical objections, some groups argued that SB 515, and particularly the portion that became Section 425.17(c), would unconstitutionally single out commercial speech for regulation. The Civil Justice Association of California said: "Senate Bill 515 attempts to enact a wholesale denial of the ability of an entire class of defendants [businesses selling or leasing goods or services] to protect themselves against a harassing lawsuit." Id. at 7. Despite these objections, the Legislature passed the Bill in August 2003.
Courts consistently have rejected constitutional challenges to subsection (c)
Opponents have challenged the statute’s constitutionality but courts consistently have rejected these challenges. In Brenton v. Metabolife Int’l, Inc., 116 Cal. App. 4th 679 (2004), defendant MII argued that Section 425.17(c) "cannot be applied to this or any other action because it is a regulation of or restriction on commercial speech that must satisfy the strict scrutiny standard of Central Hudson Gas & Elec. v. Public Serv. Comm'n 447 U.S. 557 (1980)." 116 Cal. App. 4th at 691-92.
The court rejected this constitutional challenge because Section 425.17(c) "does not purport to regulate, restrict, condition or penalize MII’s ability as a speaker freely to engage in commercial speech; it merely regulates or restricts MII’s ability as a litigant to seek dismissal of certain lawsuits at a particular stage of the litigation." Id. at 692. The court further noted that "we are unaware of any case law holding there is a constitutional imperative that a legislature must make procedural screening devices available to preempt those private lawsuits." Id.
Later courts have agreed that Section 425.17(c) is not an unconstitutional regulation of commercial speech. In one case, defendant U-Haul claimed that Section 425.17(c) violates equal protection guarantees under the state and federal Constitutions because it "selectively exempt[s] corporate defendants...from the protections afforded by the anti-SLAPP statute." Metcalf v. U-Haul Int’l, Inc., 118 Cal. App. 4th 1261, 1266 (2004). That court also rebuffed the constitutional challenge, saying "Section 425.17 does not create impermissible classifications among those who utter constitutionally protected speech. Rather, it creates classifications of litigants who can take advantage of the anti- SLAPP statute." Id. It found that the statute survived a rational basis review, saying, "[t]he Legislature enacted the anti-SLAPP statute to prevent powerful plaintiffs from chilling the rights of defendants to participate in the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances." Id. at 1267. See also Physicians Comm. for Responsible Medicine v. Tyson Foods, 119 Cal. App. 4th 120, 130 (2004) ("We do not consider, however, that…subdivision (c), restricts or regulates speech by redefining the availability of a procedure for early adjudication of claims. This contention was expressly rejected in Brenton").
Application of subsection (c) to false advertising claims
Three early cases, all dealing with false advertising claims, focused mainly on subsection (c)’s retroactivity and constitutionality, rather than its scope of application. However, the cases provide some insight into what types of cases fall within the ambit of Section 425.17(c).
In Brenton, the plaintiff claimed she suffered a psychotic breakdown after using the defendant’s product. She sued, asserting claims for products liability, negligence, breach of express and implied warranty, fraud and violations of Business and Professions Code sections 17200 and 17500, based in part on claims of false advertising and product misbranding. 116 Cal. App. 4th at 683. The court noted that "Section 425.17, subdivision (c) appears to remove Brenton’s unfair practices claim (as well as her individual claims) from the types of claims against which an anti-SLAPP motion can be filed. MII does not contest that application of subdivision (c) here would be fatal to its present anti-SLAPP motion." Id. at 688.
In Metcalf, the plaintiff claimed that U-Haul intentionally engaged in a uniform practice of overstating the actual size of its storage units. 118 Cal. App. 4th at 1263. Here, too, the court noted that "U-Haul acknowledges that Metcalf's causes of action against it arise out of its statements in connection with commercial transactions; it concedes if section 425.17 applies to this case, it cannot be considered a SLAPP suit." Id. at 1265. Likewise, the Tyson Foods plaintiff claimed that Tyson’s chicken "advertisement creates the false and misleading impression that chicken is a health food that can protect against the risk of developing heart disease." 119 Cal. App. 4th at 123 (internal quotation marks omitted). The court held that "[t]he present suit comes squarely within [subsection (c)]...PCRM alleges deceptive advertising practices, consisting of misleading statements about Tyson’s chicken products, that were made for the purpose of promoting sales of these products." Id. at 128.
In each of these three cases, courts found with little discussion that claims based on false advertising satisfied each provision of Section 425.17(c). In each case, the courts found, the defendant was communicating with customers about its products in an attempt to sell them. Two closer cases discuss each element of the statute in more depth.
Courts have refused to extend § 425.17 beyond false advertising
In New.net, Inc. v. Lavasoft, 356 F. Supp. 2d 1090 (C.D. Cal. 2004), a producer of spyware sued a software company based on defendant’s inclusion of information about the plaintiff’s product in defendant’s anti-spyware database. The court found that "[j]ust because Defendant operates a business and sells software products does not mean that Defendant is primarily engaged in the business of selling goods." Id. at 1103. The court was concerned that, for example, if the definition of business engagement were too broad, "Consumer Reports would be ‘primarily engaged in the business of selling ... goods or services,’ thus making Consumer Reports ineligible for the protection of the anti-SLAPP statue." Id. at 1104.
In addition, the court held that Lavasoft and New.net were not competitors. Noting that there was no statutory definition of a competitor, the court held that the two companies did not meet the dictionary definition of "one selling or buying goods or services in the same market as another." Id. Finally, the court noted that New.net’s attempt to avoid the SLAPP statute also failed because references to it did not occur until after the defendant’s software was downloaded and in use. Id. For each of these reasons, New.net’s attempt to circumvent the anti-SLAPP statute via Section 425.17(c) failed.
In Tilson, 364 F. Supp. 2d 1149, the defamation case discussed above, the court was similarly stringent. The court found, first, that "[t]he September 8 email is clearly not about Tilson’s business, rather it is about Troy, which, as the Troy Parties admit, is not a business competitor of Tilson." Id. at 1155. Second, it held that "the September 8 email was not made to obtain approval for or promote Tilson’s goods or services, or made in the course of delivering his goods or services." Id. Finally, the court noted that "the Troy Parties fail to show that the intended audience included an actual or potential buyer or purchaser, or that the allegedly defamatory statement would likely be repeated to such an individual." Id. From this, the court concluded that "the exception codified in Section 425.17 has no application here." Id.
These two cases show how plaintiffs have tried to use Section 425.17(c) to remove anti-SLAPP protections from statements made outside the false advertising context. But the two rulings, both in the Central District of California, also reflect each court’s reluctance to extend the bounds of Section 425.17(c) beyond false advertising.
Exemption for media defendants
Section 425.17, including subsection (c), does not apply to many types of media activity (which therefore remain protected by the anti-SLAPP statute). Subsection (d)(1) expressly exempts from the scope of Section 425.17 journalists, as defined by Section 1070 of the Evidence Code ( California’s shield law). This includes those "connected with or employed upon a newspaper, magazine, or other periodical publication, or by a press association or wire service, or any person who has been so connected or employed." Cal. Evid. Code § 1070. Similarly protected is any person connected with a radio or television station. Id.
Section 425.17(d)(1) also exempts "any person engaged in the dissemination of ideas or expression in any book or academic journal, while engaged in the gathering, receiving, or processing of information for communication to the public." Finally, Section 425.17(d)(2) exempts actions "based upon...any dramatic, literary, musical, political, or artistic work, including, but not limited to, a motion picture or television program, or an article published in a newspaper or magazine of general circulation."
These subsections entirely exempt many types of media activity from the limitations imposed by Section 425.17(c). Moreover, these group listings are not exclusive. One court noted that "[t]he fact that ‘radio stations’ are not specifically listed is of no moment because the language of the subdivision specifically states it is not inclusive...We see no distinction in this and the gathering and dissemination of news by other media organizations which are identified in the exception." Ingels v. Westwood One Broadcasting Services, Inc., 129 Cal. App. 4th 1050, 1068 (2005).
Conclusion
Section 425.17(c) represents an attempt to limit perceived abuses of the anti-SLAPP statute without burdening the type of speech that it was intended to protect. So far, courts have applied Section 425.17(c) mainly to false advertising claims, while rejecting creative attempts to expand the statute. They have also made clear that Section 425.17 as a whole does not apply to many media activities.
For those who have relied on the anti-SLAPP statute to protect their public speech, this careful attention to the limitations of Section 425.17(c) should be welcome news. This is because, to borrow Dr. Canan’s words, an overly-broad application risks once again turning "the original intent of one of the country’s most comprehensive and effective anti-SLAPP statutes on its head."
NOTES
1 Rory Eastburg, a summer associate in the Los Angeles office of Davis Wright Tremaine, provided valuable assistance in researching and writing this article.
Other articles in the 2005 FALL Newsletter:
|
About the author:
| |
Bruce E.H. Johnson, a partner in DWT's Seattle office, is a member of both the California and Washington State Bars, and has represented media clients in both jurisdictions.
Bruce can be reached at (206) 628-7683 or BruceJohnson@dwt.com. |
This First Amendment Law Letter is a publication of the law firm of Davis Wright Tremaine LLP and is prepared by its Communications, Media and Information Technologies Department, Kelli L. Sager and Daniel M. Waggoner, co- chairs, Rochelle Wilcox, editor and Steve Chung, associate editor.
Our purpose in publishing this law letter is to inform our clients and friends of recent First Amendment and communications law developments. It is not intended, nor should it be used, as a substitute for specific legal advice since legal counsel may be given only in response to inquiries regarding particular factual situations.
Copyright © 2005, Davis Wright Tremaine LLP.
Return
to CMIT page
|
