An Emperor With No Clothes — American Apparel Founder’s Defamation Case Exposed by anti-SLAPP Motion

Charney v. Standard General, 3/28/17 CA2/5   

Charney is the type of litigant who wears as “kick me” sign on his back – but he put there himself.  The facts — He was CEO of American Apparel; the company conducted an investigation and terminated him based on that investigation.  Standard (an affiliate of American Apparel) issued a press-release as part of the termination. It was pretty innocuous as far as press releases go – It said an investigation was conducted by a third party, the investigation was thorough, and that Standard supported the Board’s decision to terminate Charney based on that investigation. Charney cried foul and sued Standard for, among other things, defamation.  Standard filed an anti-SLAPP motion (of course) and won (of course).  Apparently this didn’t compute, so Charney appealed the trial court’s decision.  Held: Affirmed.

The two-step anti-SLAPP analysis is well known:  Code of Civ. Proc. section 425.16 provides, a “cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”  

Chaney conceded that Standard met prong one – In other words, his lawsuit was directed at Standard’s protected activity.  

Charney argued that he could satisfy prong 2 and show that his lawsuit had minimal merit.  In considering his argument, think of turning a car key where the engine turns over but won’t start.  To state a defamation claim, the plaintiff must present evidence of a statement of fact that is provably false. First, Charney claimed that an independent third party didn’t do the investigation. Whether the statement was false or not didn’t help him; the statement was made about a third person, not about him.  Charney also argued that the press release falsely characterized the investigation as impartial.  But “impartial” is a matter of opinion and subjective judgment, and therefore was not fact that would support a defamation action.  Finally, Charney inaccurately claimed that the press release said he was terminated for cause.  The release said no such thing and didn’t provide the underlying factual findings of any allegations against him.

It must be nice to be able to afford pointless litigation – but what a waste of the court’s time.  

When One Hunter is armed with Penal Code 632 and the other with anti-SLAPP, Who Wins?

Safari Club v. Dr. Lawrence Rudolph, 1/18/17, 9C

For 25 years Rudolph had been a member, and sometime president, of Safari Club, a hunting organization with 50,000 members.  In 2012, Safari expelled him based on accusations of ethical violations.  Rudolph sued Safari and its president, Whipple.  Later, he lured Whipple to lunch and secretly recorded the conversation, which was later published on YouTube for the benefit of Safari’s members.  Relying in part on Penal Code 632 (consent required by all participants to a confidential communication), Whipple sued Rudolph for claims related to invasion of privacy.  Rudolph filed an anti-SLAPP motion, and the trial court granted his motion to four of Whipple’s seven claims.  Rudolph appealed the denial of his motion to the remaining claims.  Held: Affirmed.

California’s anti-SLAPP statute (CCP 425.16) requires an early dismissal of cases where defendant can demonstrate that the conduct giving rise to the lawsuit is protected by the statute (e.g., free speech, right to petition etc.), unless plaintiff can then show he has a reasonable probability of prevailing.  That burden equates to a showing of minimal merit sufficient to overcome a non-suit or directed verdict motion.

Here, the conduct in question is the secret recording of a lunch conversation. PC 632 forbids recording a confidential communication without the other’s consent.  The court held that Rudolph’s conduct was protected by 425.16(e)(4), which protects conduct in furtherance of free speech in connection with a public issue.  The court analogized Rudolph’s conduct to undercover newsgathering.  The court rejected Whipple’s argument that violating PC 632 cannot be protected conduct – That issue presents a question of fact because Rudolph claimed that the conversation was not  a confidential because it occurred in a public place.    

Moreover, the public issue test was also met because the issue pertained to an organization with a large membership, and included various claims of governance abuse and the waste of resources.

At the same time, Whipple met his burden under the merits prong.  Rudolph said the conversation took place in a public place, nixing any claim to confidential communication or privacy.  But such communications can still be confidential, depending on the facts.  Whipple had testified that they kept their voices down and stopped talking when anyone approached their table.  So, another question of fact for the jury.
Footnote: Whipple has died and a family member is now pursuing these claims as his successor.  But claims for wrongs to the person aren’t assignable, emotional distress damages are no longer recoverable, and, as the court noted, there are questions about whether his widow has standing to pursue these claims in federal court.  And Whipple won’t be there as a witness.  This case could be a train wreck, and it looks like a good time to end the case.

Evidentiary Speculation Is Insufficient to Defeat anti-SLAPP motion

Schwern v. Plunkett, 1/17/17, 9C

In this case, a couple living in Oregon filed for divorce.  The night the divorce was filed they met for one last dinner.  Wife, Plunkett, alleged that her husband, Schwern, sexually assaulted her at the dinner meeting.  Schwern is arrested but the DA decides not to file charges.  Schwern and Plunkett work in the same industry and word of Plunkett’s accusation spreads in that community.  Later, Plunkett also tells a mutual friend about the allegations.  Schwern sues Plunkett for defamation; Plunkett files an anti-slapp motion under Oregon’s version of that law, which is modeled on California’s.  Trial court denies Plunkett’s motion under prong 2, and Plunkett appeals.  Held: Reversed.

Two take-aways – First, because of recent amendments to Oregon’s version of the law, the Court ruled that the denial of an anti-slapp motion under Oregon law is now an appealable order under 28 USC 1291, a conclusion that 9C previously reached when applying California’s anti-slapp law.  The amended version of Oregon’s anti-slapp law, like California’s, provides immunity from trial, not just a defense to liability.  Therefore, a denial of an anti-slapp motion is a final decision that triggers appellate jurisdiction.  Now to the merits.

On the substance of the anti-slapp motion: The parties did not dispute that Schwern’s claim arises “out of expressive activity protected by the statute.”  The burden shifted to the Schwern to establish that there is a probability that the he would prevail on the claim by presenting substantial evidence to support a prima facie case.   Here, he failed Evidence 101 – While it was clear from online traffic that individuals and organizations knew that Schwern had been arrested for an alleged sexual assault, Schwern provided no evidence in response to the anti-slapp motion that Plunkett was the source of that information.  Case over. 

anti-SLAPP not a deterrant to chutzpah

Healthsmart v. Kabateck, January 10, 2017, 
Dr. Drobot used to sell medical devices to Pacific Hospital that he owned through a wholly owned holding company called Healthsmart.  In January 2014, Dr. Drobot pled guilty to federal charges related to certain business schemes.  According to the plea, he sold the devices at fraudulently inflated prices for the purpose of getting reimbursements from insurance companies; he referred patients to Pacific Hospital to get a kickback on spinal surgeries; and he provided financial benefits to a senator to influence legislation.  One month later, a prior patient of Pacific Hospital filed a civil action based on those facts, and further alleged that counterfeit hardware was used in spinal surgeries.  The patient’s attorneys made statements about the lawsuit to reporters at Fox 11 news and CBS radio.  Dr. Drobot and Healthsmart sued the patient’s attorneys for defamation and related claims.
 The trial court granted attorneys’ anti-SLAPP motion and awarded about $64,000 in fees against Dr. Drobot.  Held: Affirmed.

The court used the usual two-step process to evaluate anti-SLAPP motions – Does the challenged claim arise from activity protected by the anti-SLAPP lawsuit (e.g., free speech about an issue of public interest), and, if so, can the plaintiff prove the probability of prevailing on the claim.  

Dr. Drobot argued that the attorneys were exercising their right to free speech, but not in connection with an public issue or issue of public interest.  The public interest test is problematic because it can mean anything, since almost anything can be more or less connected to some aspect of the “public interest.” To avoid over-application the “public interest” prong, one court has fashioned the test to focus on whether the conduct concerns (1) “a person or entity in the public eye”; (2) “conduct that could directly affect a large number of people beyond the direct participants”; or (3) “a topic of widespread, public interest.”

The court had no trouble finding that this prong of the test had been met: Dr. Drobot and the hospital put the devices in thousands of people, consumers have an interest in being informed of issues concerning certain doctors and health facilities, and there were assertions of a widespread illegal physician kickback scheme raise issues concerning the integrity of the health care system, which is a matter of widespread public concern.  On top of this, all of it was linked to allegations of bribing a senator.  So prong one, no problem.

The burden then shifted to Dr. Drobot to show that his claims had minimal merit.  Not a heavy burden; but he couldn’t meet it.  The attorneys’ statements to the media were protected under Civil Code section 47, under the “fair report” privilege. Civil Code section 47(d)(1) defines a “privileged publication or broadcast” to include one made “[b]y a fair and true report in, or a communication to, a public journal, of (A) a judicial, (B) legislative, or (C) other public official proceeding, or (D) of anything said in the course thereof, or (E) of a verified charge or complaint made by any person to a public official, upon which complaint a warrant has been issued.”  This privileged protects not only the media, but those who report to the media, including those attorneys who have a penchant for talking to the media.

A couple of footnotes: Attorneys should still exercise caution in how they speak to the media.  The court has modified its opinion (no change in judgment) to include the following sentence: “More particularly, the attorney defendants in this case are protected from liability under the fair report privilege in informing the news media that they have alleged that plaintiffs used counterfeit screws in spinal surgeries and were part of a scheme that supplied prostitutes, but they are not protected if they informed the media that such facts were true.” 

Second, the opinion contains this very interesting footnote about other litigation concerning against Dr. Drobot: “Other plaintiffs subsequently filed complaints against Drobot alleging similar facts and causes of action. Most of the lawsuits were filed by people who had surgery at hospitals other than Pacific Hospital. Drobot successfully demurred to the complaints of three such lawsuits and 27 other lawsuits were subsequently dismissed voluntarily. Drobot thereafter filed a verified complaint for malicious prosecution against the 30 plaintiffs and their attorneys, including the attorney defendants in this case. The attorney defendants in that malicious prosecution case filed an anti-SLAPP motion, which the court granted. Drobot appealed. That appeal, Healthsmart Pacific, Inc., et al. v. Golia, etc., et al., case No. B266311, is pending.”