Avid Telecom LLC v. Frankel

• Docket Number: CV-22-00558-TUC-JCH
• Decision Date: 28 November 2023
• Parties: Avid Telecom LLC, et al., Plaintiffs, v. David Frankel, et al., Defendants.
• Court: U.S. District Court — District of Arizona

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Avid Telecom LLC, et al., Plaintiffs, v. David Frankel, et al., Defendants.

No. CV-22-00558-TUC-JCH

United States District Court, D. Arizona

November 28, 2023

ORDER

John C. Hinderaker United States District Judge

In this case, Plaintiff Avid Telecom^[1]alleges Defendant David Frankel^[2]defamed Avid to telecom business groups the public, and to multiple states attorneys general. Doc. 49 ("SAC") at 7, 9-11. On June 9, 2023, Avid filed its second amended complaint, asserting six claims for relief. Id. at 13-24. On June 29, Frankel answered. Doc. 53.

Before the Court is Frankel's "Second Motion to Dismiss Case Under Arizona's Anti-SLAPP Statute A.R.S. § 12-751," filed August 8. Doc. 66 ("MTD"). Following Ninth Circuit guidance, the Court ordered a response under Rule 56. Doc. 69. Avid responded primarily under Rule 12. See Doc. 77. Frankel replied disavowing a Rule 12 challenge. See Doc. 80 at 7. The Court ordered a sur-reply focusing Avid on Rule 56. Docs 81. Avid complied, Doc. 84, and the Court heard oral argument on November 8, 2023. Doc. 98 ("Hr'g Tr.").

I. Background

Avid Telecom is a common-carrier provider of long-distance telecommunications services. SAC ¶ 1. These services include transiting robocalls, which are pre-recorded messages delivered by computerized auto-dialer. Id. ¶ 11. Most robocalls are legal. Id. For example, calls delivered by computerized auto-dialer are legal if they are not pre-recorded, and vice versa. Id. ¶ 12. And pre-recorded messages delivered by computerized auto-dialer are legal if the caller is exempted by statute, such as political campaigns, or by the receiver's consent to these calls, such as pharmacy order updates. Id. ¶ 13.

Frankel is the highest-profile national advocate against illegal robocalling. SAC ¶ 46. Frankel developed a software system that purports to identify illegal robocalls and their source. MTD at 4. Frankel's software monitors thousands of telephone numbers Frankel purchased and placed on the National Do Not Call Registry. Id. The software interacts with any caller to these phone numbers while recording caller-ID information and the nature of the call. Id. Frankel markets this software as a way to identify suspect or illegal robocalls, and who is responsible for creating them. See id.

Avid alleges Frankel made false and misleading representations about Avid during a presentation to telecom industry leaders, and to the Ohio and Indiana attorneys general. SAC ¶¶ 48, 51. Specifically, Avid alleges Frankel showed a slide at a telecom industry summit essentially stating falsely that Avid was transiting illegal robocalls. Id. ¶¶ 51(a), 54. Avid also alleges Frankel falsely told telecom industry leaders that Avid was "the top offender" for illegal robocalls. Id. ¶¶ 51(b), 60. Avid also alleges Frankel made similar statements to at least the Ohio and Indiana attorneys general. Id. ¶¶ 40, 48, 63.

Avid alleges that, as a direct result of these statements, the Ohio and Indiana attorneys general issued onerous "Civil Investigative Demands" to Avid, two of Avid's customers withdrew their business, and one cancelled an anticipated contract. Id. ¶¶ 48, 118-19, 133-34, 152. Avid states six claims arising from these allegations: (1) defamation, (2) false light invasion of Avid principal Michael Lansky's privacy, (3-4) tortious interference with two business relationships, and (5-6) tortious interference with prospective economic advantage from those relationships. Id. at 13-23.

Frankel moves to dismiss under A.R.S. § 12-751. MTD at 1. Section 12-751 concerns "strategic lawsuits against public participation" ("SLAPP"). See A.R.S. § 12-751 (2022). SLAPP suits seek to use the threat or cost of litigation to deter constitutional activity. Arizona's anti-SLAPP statute was substantially revised on September 24, 2022. Compare A.R.S. § 12-751 (2022), with A.R.S. §§ 12-751, 752 (2006). The extent of the revision is best illustrated visually. The Court provides the first four sections only:

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Westlaw, https://westlaw.com/ (search "A.R.S. § 12-751"; then choose "History," "Versions," "Add to compare," "§ 12-751 (Effective September 24, 2022)," "§ 12-752 (Effective April 28, 2006 to September 23, 2022)"; then "Compare"). These revisions have not yet been applied in state or federal court.

Several changes stand out. Section 12-751 (2006) no longer exists, replaced by the revised § 12-752 (2006), which was then renumbered § 12-751 (2022). Formerly, § 12-751 provided a statement of the legislature's purpose in enacting an anti-SLAPP framework and a statutory definition of the protected activity. See §§ 12-751(1), Sec. 2(A) (2006). The amendment also broadens the statute's protections beyond the "right to petition" (narrowly defined by § 12-751(1) (2006)). The amendment now extends to the "right to petition" in any context as well as the "right of speech, the press, [and] . . . to freely associate or peaceably assemble" (defined as "pursuant to the United States Constitution or Arizona constitution"). A.R.S. § 12-751(A) (2022).

The amendment also adds a dramatically different ex parte burden-shifting framework. The moving party's initial burden is an ex parte showing of "prima facie proof" that the action is "substantially motivated by a desire to deter, retaliate against or prevent the lawful exercise of a constitutional right." A.R.S. § 12-751(B) (2022). The statute does not define "prima facie proof"' or explain how it differs from the more commonly used terms "prima facie evidence" or "prima facie showing." The nonmovant is not required to respond to a motion until the court finds "prima facie proof."

The Court has no occasion to interpret the changes to Arizona's statute because state anti-SLAPP statutes are treated differently in federal court.

II. Legal Standard

A federal court sitting in diversity jurisdiction applies federal procedural law and state substantive law. Hanna v. Plumer, 380 U.S. 460, 465 (1965) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). Given a direct conflict between federal procedural rules and state law, the federal rules govern in federal court. Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 398 (2010) (citations omitted). The Ninth Circuit interprets these precedents and others to permit some state anti-SLAPP defenses in federal court. See, e.g., CoreCivic, Inc. v. Candide Grp., LLC, 46 F.4th 1136 (9th Cir. 2022); Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832 (9th Cir. 2001); U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963 (9th Cir. 1999).

The Ninth Circuit employs a two-step process to evaluate anti-SLAPP motions. First, the court determines whether the actions at issue involve an exercise of protected rights. See, e.g., Tennenbaum v. Arizona City Sanitary Dist., 799 F.Supp.2d 1083, 1086 (D. Ariz. 2011) (interpreting A.R.S. § 12-752 (2006)). Second, the court analyzes whether the anti-SLAPP motion raises a legal or a factual challenge. See Planned Parenthood Fed'n of Am., Inc. v. Ctr. for Med. Progress, 890 F.3d 828, 834-35 (9th Cir. 2018). When the anti-SLAPP motion "challenges the legal sufficiency of a claim, a district court should apply the Federal Rule of Civil Procedure 12(b)(6) standard and consider whether a claim is properly stated." Id. at 834. By contrast, when the anti-SLAPP motion "challenges the factual sufficiency of a claim, ... the Federal Rule of Civil Procedure 56 standard will apply." Id.

III. Analysis

A. The Court declines to decide which parts of § 12-751 are compatible with Rule 56 because discovery is required in any event.

Frankel first argues the Court must still use aspects of Arizona's anti-SLAPP statute while applying a Rule 56 standard. MTD at 5-6. In Frankel's view, at least the burden-shifting and attorneys' fees aspects of Section 12-751 are compatible with the federal rules. Id. at 6 (citing Gunn v. Dr age, 65 F.4th 1109, 1118 (9th Cir. 2023) (burden-shifting); Planned Parenthood, 890 F.3d at 833-34 (attorneys' fees)); Hr'g Tr. at 4:21-5:7. Frankel asserts the Arizona statute is compatible with Rule 56 because both require nonmovants to "present sufficient evidence . . . to establish each element of their asserted claims." MTD at 6. That Rule 56 burden, says Frankel, is the same as § 12-751(B)(2), which requires nonmovants to "show that their lawsuit is justified by existing law." Id.

Frankel was previously skeptical about the Court's approach to Arizona's anti-SLAPP statute. See 5/17/23 Hearing Transcript at 35:8-37:22. The Court disagreed then that Arizona's legislature used "prima facie proof"' to mean "prima facie evidence" because it would tend to ignore a potentially meaningful difference. Doc. 44 at 6 (citing Nicaise v. Sundaram, 432 P.3d 925, 927 (Ariz. 2019) ("A cardinal principle of statutory interpretation is to give meaning, if possible, to every word and provision so that no word or provision is rendered superfluous.") (citation omitted)). The Court also noted that Arizona's new anti-SLAPP statute is substantially different from others. See id. For example, California, Oregon, and Arizona's own former statute all define their terms and require briefing from both parties. See Cal. Civ. Proc. Code §§ 425.16(b)(2), (f); Or. Rev. Stat. Ann. § 31.150(3); A.R.S. § 12-752(A), (B) (2006). And some of Arizona's revisions appear to conflict with the federal rules. Compare, e.g., A.R.S. § 12-751(E) (2022), with Metabolife, 264 F.3d at 846. The Court also found its ruling, based on Rules 12 and 56, likely would be the same under Arizona's statute. Doc. 44 at 7.

Here it's deja vu all over again. The Court continues to see the difference between "prima facie proof" and "prima facie evidence" as...