Dealertrack, Inc. v. Huber

• Decision Date: 26 October 2006
• Docket Number: No. CV06-23385 AGFMOX.,CV06-23385 AGFMOX.
• Citation: 460 F.Supp.2d 1177
• Court: U.S. District Court — Central District of California
• Parties: DEALERTRACK, INC., Plaintiff, v. David L. HUBER, Finance Express LLC, and John Doe Dealers, Defendant(s). And Related Counterclaims.

460 F.Supp.2d 1177

DEALERTRACK, INC., Plaintiff, v. David L. HUBER, Finance Express LLC, and John Doe Dealers, Defendant(s) And Related Counterclaims.

No. CV06-23385 AGFMOX.

United States District Court, C.D. California, Southern Division.

October 26, 2006.

COPYRIGHT MATERIAL OMITTED

Alexandra M. Sepulveda, Igor Shoiket, Roger L. Cook, Townsend Townsend & Crew, San Francisco, Laurie L. Levin, Richard I. Samuel, Goodwin Procter, New York, NY, Shepard M. Remis, Goodwin Procter, Boston, MA, for plaintiff.

Jon W. Gurka, Joseph R. Re, Michael William Gray, Knobbe Martens Olson and Bear, Irvine, for defendants.

ORDER GRANTING IN PART AND DENYING IN PART PLAITIFF/COUNTER-CLAIM DEFENDANT DEALERTRACK'S (1) SPECIAL MOTION TO STRIKE (2) MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM, AND (3) MOTION TO STRIKE ON GROUNDS OF INSUFFICIENCY

GUILFORD, District Judge.

This case puts this Court in the middle of a stream of jurisprudence threatening to flood courts with lawsuits spawning lawsuits breeding still further judicial proceedings. Here, a lawsuit about intellectual property claims now involves claims of libel, and the California Anti-SLAPP statute at California Code of Civil Procedure section 425.16. The matter now focuses on one sentence in a twenty-one page complaint. The sentence alleges, on information and belief, general allegations of financial misconduct in a complaint concerning infringement of intellectual property. Because this allegation has sufficient connection to the action as a whole, occurring in a complaint, the Court finds it is protected by the litigation privilege and therefore strikes Defendants/Counter-Plaintiffs' libel claim. Complaint allegations should not so easily be allowed to spawn libel actions. But California law allows such a libel action to breed an Anti-SLAPP motion which must be granted. Accordingly, the Court must find that Defendants' libel suit is a SLAPP suit, and Plaintiff/Counter-Defendant's Motions for Failure to State a Claim for the libel claim is denied as moot. Further, the Court denies Plaintiff/Counter-Defendant's remaining Motions for Failure to State a Claim and grants Plaintiff/Counter-Defendant's Motion to Strike for Insufficiency.

BACKGROUND

Plaintiff/Counter-Defendant Dealertrack, Inc. ("Plaintiff') is a corporation which has developed and patented a system to provide automated credit application services to the automobile industry. (Complaint ¶ ¶ 7-42.) Defendant/Counter-Plaintiff John Huber ("Huber") is the President of Defendant/Counter-Plaintiff Finance Express LLC. (Compl. ¶ 53.) Defendant/Counter-Plaintiff Finance Express LLC is a corporation which also offers a system providing credit application processing. (Compl. ¶¶ 52, 54.) (Defendants Huber and Finance Express referred to collectively as "Defendants.") Defendants allege that the parties entered into a Mutual Confidentiality Statement ("MCA"). (Answer ¶¶ 16-17, 33.) A representation in the MCA requires that the disclosure of confidential information was for the "sole purpose of the potential business relationship contemplated between the parties and thereafter possibly conducting negotiation with respect thereto." (Id., Exh. A.) After the parties signed the MCA, Defendants demonstrated for Plaintiff the proprietary Finance Express Dealer Management System ("FEX System") twice. (Id. at ¶¶ 18-19.) Defendants allege that the information learned from the demonstration was used to gain .an advantage in this litigation. (Id. at ¶¶ 22, 26-27.).

The Complaint in this action alleged patent infringement, copyright infringement in violation of 17 U.S.C. section 501, false advertising in violation of 15 U.S.C. section 1125(a), and violations of California Business and Professional Code sections 17500 et seq. The pivotal passage is found in paragraph 44 of the Complaint:

Upon information and belief, from 1987 to 2001, Huber exhibited a repetitive pattern of behavior in the Automobile Finance Industry whereby he sold automobile retail sales contracts, gave a guarantee of payment on these contracts, and subsequently defaulted on the guarantee.

Defendants answered with a general denial and fourteen affirmative defenses, and counterclaimed on ten grounds, claiming that Plaintiff libeled Huber in paragraph 44 of the Complaint. Defendants also alleged that Plaintiff engaged in fraudulent behavior and misappropriated trade secrets. Plaintiff then filed a Special Motion to Strike Defendants' Libel Counterclaim, a Motion to Dismiss for Failure to State a Claim for Deceit, Fraud, Constructive Fraud, or Misappropriation of Trade Secrets, and a Motion to Strike several affirmative offenses on grounds of insufficiency ("Motion"). After considering the moving, opposing, and reply papers, and the oral argument, the Special Motion to Strike is granted, the Motions to Dismiss are denied, and the Motion to Strike on the Grounds of Insufficiency is granted.

1. PLAINTIFF'S SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)

1.1 Legal Standard

California's statute attacking Strategic Lawsuits Against Public Participation ("Anti-SLAPP statute") at California Code of Civil Procedure § 425.16 applies in federal court. United States v. Lockheed Missiles & Space Co., 190 F.3d 963 (9th Cir.1999). A party filing a special motion to strike under the Anti-SLAPP statute must make an initial prima facie showing that the opposing party's suit arises from an act in furtherance of the party's right of petition or free speech. Bosley Med. Inst., Inc. v. Kremer, 403 F.3d 672, 682 (9th Cir.2005) citing Braun v. Chronicle Publ'g Co., 52 Cal.App.4th 1036, 61 Cal.Rptr.2d 58 (1997). It need not be shown that the suit was brought with the intention to chill the party's speech. The opposing party's "intentions are ultimately beside the point." Id., citing Equilon Enterprises, LLC v. Consumer Cause, Inc., 29 Cal.4th 53, 124 Cal. Rptr.2d 507, 52 P.3d 685 (Cal.2002).

After the prima facie showing is made, the burden then shifts to the opposing party to prove a probability of prevailing on the merits. Blanchard v. DirectTV, Inc., 123 Cal.App.4th 903, 912-13, 20 Cal. Rptr.3d 385 (2004), citing § 425.16, subd. (b)(1). To do this, the opposing party "must demonstrate that the complaint is legally sufficient and supported by a prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the [non-moving party] is credited." New. Net, Inc. v. Lavasoft, 356 F.Supp.2d 1090, 1099 (C.D.Cal.2004).

1.2 Discussion

Both parties agree that Plaintiff has made the initial prima facie showing regarding whether paragraph 44 of the Complaint arises from an act in furtherance of the party's free speech. Thus, the sole issue is whether Defendants have satisfied their burden to demonstrate a probability of prevailing on the merits. Cal. Civ.Proc.Code § 425.16(b)(1). Plaintiff argues that Defendants cannot demonstrate a probability of success because the libel claim is barred under California's privilege for judicial proceedings. (Cal. Civ.Code. § 47; Motion at p. 7-8.) Defendants argue that this litigation privilege does not apply under the four-factor test found in Silberg v. Anderson, 50 Cal.3d 205, 212, 266 Cal.Rptr. 638, 786 P.2d 365 (Cal.1990). (Defendants-Counterclaimants' Opposition to Plaintiff-Counterclaim Defendant's Consolidated Special Motion to Strike, Motion to Dismiss for a Failure State a Claim and Motion to Strike on Grounds of Insufficiency ("Opposition") at p. 3.)

The Silberg test establishes that the litigation privilege applies to any communication (1) made in judicial or quasijudicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical. relation to the action. Silberg, 50 Cal.3d at 212, 266 Cal.Rptr. 638, 786 P.2d 365. "Any doubt about whether the privilege applies is resolved in favor of applying it." American Products Co., Inc. v. Law Offices of Geller, Stewart & Foley, LLP, 134 Cal.App.4th 1332, 1343, 37 Cal.Rptr.3d 93 (2005) citing Kashian v. Harriman, 98 Cal. App.4th 892, 912-913, 120 Cal.Rptr.2d 576 (2002). The Court finds that the statement in paragraph 44 of the Complaint satisfies these factors.

First, the statement was made within the judicial pleadings, and therefore directly occurred within the judicial proceedings. Second, the statement was made by a litigant. Third, Plaintiff made such statements in its complaint, which is an essential document in the litigation and necessary to achieve the objects of the litigation. In this case, the Court is particularly persuaded by the fact that the statements were made in the complaint, not outside of the courtroom or in ancillary documents. See California Physicians' Service v. Superior Court, 9 Cal.App.4th 1321, 1330, 12 Cal.Rptr.2d 95 (1992). "Pleadings and process in a case are generally viewed as privileged communications." Navellier v. Sletten, 106 Cal. App.4th 763, 770, 131 Cal.Rptr.2d 201 (2003). Statements made in pleadings are generally viewed as privileged communication precisely because the litigation privilege was intended to grant litigants the "utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions." Silberg, 50 Cal.3d at 213, 266 Cal.Rptr. 638, 786 P.2d 365; Rubin v. Green, 4 Cal.4th 1187, 17 Cal.Rptr.2d 828, 847 P.2d 1044 (1993). Allowing a complaint allegation like that in paragraph 44 to support libel claims would cause plaintiffs to fear or second guess making the general allegations involved at this stage of litigation. This is exactly what the litigation privilege is designed to prevent.

Defendants ignore the problem of crying libel over a statement made in pleadings and focus on the fourth factor of the Silberg test, arguing that the statement in paragraph 44 is not related or connected to the subject of this case. (Opposition at p. 4-8.) The Court disagrees, finding that in an...