36 Misc.3d 1231(A), 2012-51569, Silvercorp Metals Inc. v. Anthion Mgt. LLC

• Date: 16 August 2012
• Citation: 36 Misc.3d 1231(A),959 N.Y.S.2d 92
• Docket Number: 2012-51569,150374/2011
• Parties: Silvercorp Metals Inc., Plaintiff, v. Anthion Management LLC (a/k/a CHINASTOCKWATCH.COM), JERRY KATZ, ALFREDLITTLE.COM, ALFRED LITTLE, SIMON MOORE, JON R. CARNES, ZANE HEILIG, EOS HOLDINGS LLC, ANDREW WONG, INTERNATIONAL FINANCIAL RESEARCH & ANALYSIS GROUP, AND JOHN DOES 1-5, Defendants

Page 1231(A)

36 Misc.3d 1231(A)

959 N.Y.S.2d 92

Silvercorp Metals Inc., Plaintiff,

v.

Anthion Management LLC (a/k/a CHINASTOCKWATCH.COM), JERRY KATZ, ALFREDLITTLE.COM, ALFRED LITTLE, SIMON MOORE, JON R. CARNES, ZANE HEILIG, EOS HOLDINGS LLC, ANDREW WONG, INTERNATIONAL FINANCIAL RESEARCH & ANALYSIS GROUP, AND JOHN DOES 1-5, Defendants

Nos. 2012-51569, 150374/2011

Supreme Court of New York, New York

August 16, 2012

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

FOR THE PLAINTIFF Silvercorp Metals: Steven Crimmins, K & L GATES LLP, NEW YORK, NEW YORK.

FOR THE DEFENDANTS Alfredlittle.com, Alfred Little, Simon Moore, Jon Carnes, EOS Holdings, Andrew Wong, and International Financial Research & Analysis Group: EATON & VAN WINKLE LLP, NEW YORK, NEW YORK.

FOR THE DEFENDANT Anthion Management and Roman Roik a/k/a Jerry Katz: Douglass Maynard, AKIN GUMP STRAUSS HAUER and FELD LLP, NEW YORK, NEW YORK.

OPINION

Hon. Carol R. Edmead, J.S.C.

MEMORANDUM DECISION ¹

In this action, Anthion Management LLC (a/k/a Chinastockwatch.com) (" Anthion" ) moves (007) to dismiss the Second Amended Complaint of plaintiff Silvercorp Metals Inc. (" Silvercorp" ) pursuant to CPLR 3211(a)(1) and (7). By separate motion (008), AlfredLittle.com, Alfred Little, Simon Moore, Jon R Carnes, EOS Holdings LLC, Andrew Wong, and International Finance Research & Analysis Group (collectively, the " AlfredLittle.com group" ) also move to dismiss on those grounds, as well as CPLR 3013, 3016(a), and 3211(a)(3).²

Factual Background

Silvercorp is a silver producer operating in China and Canada with stock that trades on the New York and the Toronto Stock Exchanges. Silvercorp alleges that Anthion and the AlfredLittle.com group (collectively herein, " defendants" ) published defamatory letters and internet postings against it as part of a scheme to drive Silvercorp's stock prices down in order to profit from their short sale positions.

The first, a letter by Anthion dated August 29, 2011 (the " Anthion August 29 Letter" ), was sent to the Ontario Securities Commission, several financial journalists, and Silvercorp's auditors, Ernst & Young LLP. Such letter indicated that the writer had a short position in Silvercorp stock and referenced a draft report which accused Silvercorp of engaging in accounting fraud.³

The second, a posting on September 13, 2011 (the " Alfred Little September 13 Posting" ) by the AlfredLittle.com group, raised concerns about Silvercorp's production and quality of the ore being mined at its key mine, the overvaluation of its shares, questionable customers, and a questionable acquisition of a company from a relative of Silvercorp's chairman.

The third is a second letter sent by Anthion on September 14, 2011 (the " Anthion September 14 Letter" ) to the British Columbia Securities Commission, the Ontario Securities Commission and Ernst & Young. This letter referenced a September 14, 2011 posting on Chinastockwatch.com (the " Anthion September 14 Posting" ), that accused Silvercorp of overstating its cash positions, misrepresenting the quality of its silver deposits and drilling costs, and falsely representing its financial condition.

Next, the AlfredLittle.com group authored and disseminated a posting on its website on September 19, 2011 (the " Alfred Little September 19 posting" ). This posting contained substantially similar claims as the Alfred Little September 13 Posting. On the same date, defendant Simon Moore republished the statements on Bloomberg news.

Consequently, Silvercorp commenced this action for defamation, unjust enrichment, trade libel, and unlawful deceptive acts and practices under New York General Business Law (" GBL" ) § 349.

Anthion now argues that the defamation claim should be dismissed pursuant to CPLR 3211(a)(1) and (7) because the letters and reports at issue demonstrate conclusively that the challenged statements are non-actionable, constitutionally protected opinion. The content of the communications at issue, their tone and stated purpose show that Anthion was expressing its view that Silvercorp potentially committed accounting fraud.

Its August 29 Letter was sent to a select audience, raising concerns of accounting irregularities in Silvercorp's financial statements which Anthion viewed as fraudulent. Anthion's August 29 Letter enclosed a detailed report that Anthion intended to publish on the Internet, together with the research and analysis in support thereof. Copies of the supporting documents, referred to as " links," were enclosed with Anthion's Letter. Anthion also included a chart comparing the company's reported figures with other mines, cited the website that was the source of the information, and set forth the factual basis for its position. Therefore, the August 29 Letter cannot reasonably be understood to imply the assertion of undisclosed facts justifying the accusation. Also, the stated purpose of the Anthion August 29 Letter, which included phrases like the author " believed" Silvercorp committed " potential" fraud, and that the stated " opinions" could change, demonstrates that it was an expression of opinion. The Letter explicitly sought an independent investigation by the government regulator and the other sophisticated, professional readers. Thus, read as a whole, the challenged statements would be understood as allegations and accusations, to be investigated, not an actionable statement of facts. Also, since the Anthion August 29 Letter states that the author works for a firm that has a short position in Silvercorp's stock, readers knew that the writer had a financial interest, and this disclosed motive indicates that the author is expressing his opinion. The anonymous submission also indicates that the statements are not to be understood as fact. In the broader social context, its August 29 Letter is like an Op Ed letter to the editor, questioning whether Silvercorp was an accounting fraud and sought an independent investigation, or like whistleblower letters anonymously sent to government regulators, audit firms and members of the financial press.

Its anonymous September 14 Posting on Chinastockwatch.com was a revised version of the draft report that was enclosed with its August 29 Letter. The September 14 Posting contained updated analysis, with links to the articles, financial statements and work product that supported the opinions expressed. The point-counterpoint nature of Silvercorp's press release and the September 14 Posting is characteristic of opinionated debate. Like the draft report enclosed with the August 29 Letter, the September 14 Posting contained all the facts and analysis that formed the basis of the stated concerns about Silvercorp's accounting practices and stated that it represented an " opinion." There is no implication that the opinions expressed in the posting were based on undisclosed facts. Within the broader social context, the September 14 Posting on the internet, where debate is often caustic and free-wheeling, is reasonably understood as expressing the opinion of the writer.

Anthion also argues that the unjust enrichment claim fails, as it improperly merges into the defamation claim. New York courts do not allow plaintiffs to plead an unjust enrichment claim as a separate tort claim that arises from the same allegations as the defamation claim, as Silvercorp does here. Further, the Complaint fails to allege that Silvercorp conferred a benefit upon Anthion. And, based on the Complaint, Silvercorp could not have given a benefit to Anthion as they had no direct dealings.

Anthion further asserts that Silvercorp's trade libel claim is insufficiently pled because the challenged statements are protected opinion, they are not about Silvercorp's products, and the Complaint fails to sufficiently allege special damages. Anthion's trade libel claim also fails to allege that the challenged statements undermined its ability to sell its goods and services. The challenged statements concerning accounting fraud relate to Silvercorp's fitness as a business, and do not impugn the quality of the minerals it sells. While Silvercorp claims that these statements caused abnormal trading patterns in Silvercorp's stock price and volume, Silvercorp's stock is not its product. Further, the Complaint alleges round figures and general allegations, and thus, fails to plead fully and accurately special damages. The allegation that the alleged defamation " induc[ed] others not to deal with Silvercorp" as demonstrated by abnormal trading volume and decreases in the value of Silvercorp stock does not make sense, or state a claim for damages resulting from any denigration of Silvercorp's products.

It is also asserted that the deceptive trade practices claim under GBL 349 also fails, as securities transactions are not covered by the statute. Further, Silvercorp lacks standing to pursue the GBL 349 claim, in that it failed to allege that Anthion engaged in conduct that has " a broader impact on consumers at large" and is " directed to consumers." Also, there is no allegation of any " consumer-oriented" acts that directly caused " actual injury" to Silvercorp that is sufficiently direct to be of a kind consistent with purposes of the statute. And, GBL 349 applies to disputes between businesses in instances where an organizational plaintiff is similarly-situated to other consumers, which is not the case herein.

In support of their motion to dismiss, the AlfredLittle.com group adds that the defamation claim fails to adequately allege what words, if any, were false. Nor does Silvercorp allege any facts contradicting the challenged statements. Thus, Silvercorp fails to sufficiently allege falsity to support a defamation claim. And, certain allegations are flatly contradicted by Silvercorp's admissions in the Complaint and in documents filed with the...