Muddy Waters, LLC v. Superior Court of San Bernardino Cnty.
|10 March 2021
|California Court of Appeals Court of Appeals
|MUDDY WATERS, LLC, Petitioner, v. The SUPERIOR COURT OF SAN BERNARDINO COUNTY, Respondent; Perfectus Aluminum, Inc., Real Party in Interest.
Davis Wright Tremaine, Bruce E. H. Johnson, Diana Palacios, Los Angeles, and Ambika K. Doran for Petitioner.
No appearance by Respondent.
Ruyak Cherian, Don F. Livornese ; Dilworth Paxson, Thomas S. Biemer and Christie Callahan Comerford for Real Party in Interest.
On September 8, 2017, Perfectus Aluminum, Inc., (plaintiff or Perfectus) filed a civil complaint alleging causes of action for (1) violation of California Unfair Competition Law ( Bus. & Prof. Code, § 17200 et seq. ); (2) trade libel; and (3) intentional interference with prospective economic advantage. Plaintiff named "Dupré Analytics" as the sole defendant in the complaint and alleged liability based upon the publication of two reports (Dupré Reports) that suggested plaintiff was part of a conspiracy to artificially inflate the sales of a large Chinese aluminum company.
Muddy Waters, LLC, doing business as Dupré Analytics (Muddy Waters) responded to the complaint by filing a special motion to strike pursuant to California's anti-SLAPP (strategic lawsuit against public participation) statute found in Code of Civil Procedure 1 section 425.16. The trial court denied Muddy Waters's motion on the ground that Muddy Waters failed to show plaintiff's causes of action arose out of protected activity under section 425.16 and that alternatively, the commercial speech exception found in section 425.17, subdivision (c), precluded granting the motion.
Muddy Waters seeks writ relief from the superior court's denial of its motion, and we issued an order to show cause in response. We conclude the trial court erred in denying Muddy Waters's special motion to strike. Accordingly, we will order a writ of mandate issue directing the superior court to vacate its order denying Muddy Waters's special motion to strike and to enter a new order granting the motion.
Muddy Waters is a firm engaged in the business of financial analysis and activist short selling. In July 2015, it took a short position2 on the stock of China Zhongwang Holdings, Ltd. (Zhongwang)—a publicly traded Chinese company that purports to be one of the world's largest producers of aluminum goods. Muddy Waters then proceeded to publish the two Dupré Reports, which detailed an investigation into Zhongwang's operations and concluded that Zhongwang was engaged in a large-scale operation to fraudulently inflate sales through the use of intermediary companies owned or controlled by Zhongwang's founder and his proxies. Muddy Waters published the reports under the pseudonym "Dupré Analytics" and posted the reports on a website accessible to the public. Plaintiff was one of the intermediary companies referenced in the Dupré Reports.
In 2016, plaintiff made a business decision to export its aluminum product overseas due to changing market conditions. However, its aluminum product was detained at the port of Long Beach by the United States Customs and Border Protection agency while waiting to be loaded for export, and the product presumably remains detained to this day.
On September 8, 2017, plaintiff filed a civil complaint for damages and injunctive relief. The complaint named "Dupré Analytics" as a defendant; identified it as a "business entity of unknown form"; and alleged that it falsely claimed to be a research analyst and short seller of securities in Chinese companies. The complaint alleged that Dupré Analytics published two reports that falsely accused plaintiff of being complicit in an illegal scheme to import and stockpile aluminum; that representations in these reports were false; that the reports were subsequently disseminated and republished by numerous media outlets; and that plaintiff was harmed as a result. Based upon these allegations, plaintiff asserted causes of action for (1) unfair competition ( Bus. & Prof. Code, § 17200 et. seq. ); (2) trade libel; and (3) intentional interference with prospective economic advantage.
On February 8, 2018, Muddy Waters filed a special motion to strike plaintiff's complaint pursuant to section 425.16 in response to plaintiff's complaint. Muddy Waters appeared in the action as "Muddy Waters, LLC doing business as Dupré Analytics." The motion asserted that claims in the complaint arose from Muddy Waters's exercise of free speech in a public forum and were therefore entitled to dismissal, unless plaintiff could establish a probability of prevailing on the merits.
The motion was accompanied by the declaration of Carson Block, who attested that he was the chief investment officer of Muddy Waters, that Muddy Waters is in the business of financial analysis and activist short sales, and that Muddy Waters authored the reports identified in the complaint under the pseudonym "Dupré Analytics." Mr. Block stated that in 2015, Muddy Waters began an investigation into Zhongwang, a publicly traded Chinese company. According to Mr. Block, this investigation led Muddy Waters to believe that Zhongwang was engaged in an extensive operation that involved using companies owned or controlled by Zhongwang's principal shareholder and proxies to facilitate sales of Zhongwang aluminum to related companies, allowing Zhongwang's principal shareholder and proxies to be personally enriched at the expense of shareholders and creditors of the company. As a result, Muddy Waters took a short interest in Zhongwang and published its findings in the first Dupré Report dated July 2015. This report implicated plaintiff as one of the companies used by Zhongwang's principal shareholder in order to stockpile aluminum goods and inflate sales. When Zhongwang denied allegations made in this first report, Muddy Waters issued a second report on September 9, 2015.
Muddy Waters's motion was also accompanied by a declaration of counsel, attaching various documents from actions filed in federal court against plaintiff by the United States and related to the detention of plaintiff's aluminum goods while awaiting export.
In opposition to the special motion to strike, plaintiff argued that the Dupré Reports did not constitute protected speech because they were not made in a place open to the public or in a public forum; did not involve a public issue or an issue of public interest; and fell within the commercial speech exception set forth in section 425.17. Additionally, plaintiff argued that even if the reports were protected speech, its evidence was sufficient to show it had a probability of prevailing on the merits of its claims.
In support of this claim, plaintiff attached the declaration of Xiang Chun Shao, who declared that he was a manager of Perfectus's operations in California; Perfectus is in the business of purchasing and distributing aluminum products; an unidentified predecessor entity to Perfectus was responsible for importing the aluminum products currently held by Perfectus; and the aluminum products were imported with the intent to sell or lease the products. Xiang Chun Shao also declared that "[d]ue to changes in market conditions and an unsuccessful marketing strategy ... none of the [aluminum products] was sold or leased [in the United States]" and that Perfectus "made a business decision to export the [products] to Vietnam." Finally, Xiang Chun Shao detailed that the aluminum product was ultimately detained by the United States while waiting to be loaded to ship abroad. As of the date of the declaration, the product remained detained by the United States.
Plaintiff also submitted deposition testimony by Carson Block and e-mail communications obtained during discovery that suggested the information contained within the Dupré Reports was the result of investigations funded or initiated by potential Perfectus competitors.
On June 26, 2020, the trial court held a hearing on Muddy Waters's special motion to strike. The trial court denied the motion on the basis that Muddy Waters had failed to establish that plaintiff's claims arose out of protected speech, specifically concluding that the reports at issue constituted "commercial speech" exempt under section 425.17, subdivision (c), and that the reports were not published in a public forum. Given this conclusion, the trial court never reached the issue of whether plaintiff established a probability of prevailing on the merits. Muddy Waters filed a petition for writ of mandate challenging the trial court's denial of its motion to strike.
Writ relief is appropriate where a party is left without a "plain, speedy, and adequate remedy, in the ordinary course of law." ( § 1086.) Normally, errors related to anti-SLAPP motions would not be subject to writ relief because ( Benton v. Benton (2019) 39 Cal.App.5th 212, 217, 252 Cal.Rptr.3d 118 ( Benton ).) ( People ex rel. Lockyer v. Brar (2004) 115 Cal.App.4th 1315, 1317-1318, 9 Cal.Rptr.3d 844.)
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