Penrose Hill, Ltd. v. Mabray

• Citation: 479 F.Supp.3d 840
• Decision Date: 18 August 2020
• Docket Number: Case No. 20-cv-01169-DMR
• Court: U.S. District Court — Northern District of California
• Parties: PENROSE HILL, LIMITED, et al., Plaintiffs, v. Paul MABRAY, Defendant.

479 F.Supp.3d 840

PENROSE HILL, LIMITED, et al., Plaintiffs,

v.Paul MABRAY, Defendant.

Case No. 20-cv-01169-DMR

United States District Court, N.D. California.

Signed August 18, 2020

Gershon Akerman, Pro Hac Vice, Karen Bitar, Pro Hac Vice, New York, NY, Jennifer L. Shoda, Seyfarth Shaw LLP, San Francisco, CA, for Plaintiffs.

Douglas Antonio Alvarez, Rachel E. Matteo-Boehm, Katherine Anne Keating, Bryan Cave Leighton Paisner LLP, San Francisco, CA, for Defendant.

ORDER ON DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS AND SPECIAL MOTION TO STRIKE

Re: Dkt. No. 18

Donna M. Ryu, United States Magistrate Judge

Plaintiffs Penrose Hill, Limited ("Penrose Hill") and Philip James filed this action on February 14, 2020, alleging a single state law claim for defamation against Defendant Paul Mabray. [Docket No. 1 ("Compl.").] Jurisdiction is based on diversity.¹ Mabray now moves for judgment on the pleadings pursuant to Federal Rule of Civil Procedure ("Rule") 12(c) and to strike the complaint pursuant to California Code of Civil Procedure ("CCP") § 425.16. [Docket Nos. 18 ("Mot."), 31 ("Reply").] Plaintiffs timely opposed. [Docket No. 29 ("Opp.").] The court held a hearing on July 9, 2020.

For the reasons stated below, Mabray's motion under CCP § 425.16 is denied and his Rule 12(c) motion is granted.

I. BACKGROUND

A. Penrose Hill's Operations

The following facts are alleged in the complaint.² Penrose Hill is a Delaware corporation with a principal place of business in New York City, New York. Compl. ¶ 5. It is a federally licensed and bonded winery business. Id. ¶ 2. Penrose Hill is one of the largest wineries in the United States, and sells millions of bottles of wine per year, both domestically and internationally. Id. ¶ 3. James founded Penrose Hill in 2015 and is currently the CEO of the company. Id. ¶¶ 12-13. He describes himself as an "entrepreneur who has spent his career working in the wine industry." Id. ¶ 12. He has masters’ degrees in computational chemistry and business administration and has been qualified as a Certified Specialist of Wine by the Society of Wine Educators. Id. Starting in 2005, James has "built several of the largest online wine businesses in the United States" and has been recognized by various institutions for his contributions to the wine industry. Id.

Penrose Hill employs its own team of winemakers, designers, and data scientists, which has enabled it to "create its own unique portfolio of wines." Compl. ¶ 14. Penrose Hill's wines have won over 1,000 wine awards since the company was founded in 2015 and are sold throughout the United States as well as internationally. Id. ¶¶ 14, 17. Penrose Hill also "sources top quality wines from around the world." Id. ¶ 21. Unlike traditional wine businesses, Penrose Hill uses a direct-to-consumer distribution model. Id. ¶ 4. Through its website, Firstleaf.com, Penrose Hill operates the Firstleaf Wine Club ("Firstleaf"), which is an online wine subscription service. See id. ¶¶ 18-20. Members receive wines that are matched to their individual preferences through an algorithm developed by Penrose Hill's in-house data science team. Id. ¶ 20.

B. Allegedly Defamatory Statements

Mabray is a well-known wine blogger who has been involved in the wine industry for over two decades. Compl. ¶¶ 24-25. According to Plaintiffs, traditional wine bloggers like Mabray "do not like the disruptive nature" of services like Penrose Hill's because "they are frequently paid by traditional wine businesses that seek to maintain the status quo." Id. ¶ 23. Plaintiffs also allege that Mabray has a "vested interest, including a financial interest, in the digital and e-commerce wine industries," since he founded two internet wine companies and is the CEO of a wine industry data analytics company. Id. ¶¶ 26-28.

On December 11, 2017, Mabray published the blog post that is the subject of this defamation action ("Blog Post"). See Compl., Ex. A (blog post on medium.com dated Dec. 11, 2017). The Blog Post is titled "Fakers Not Makers and The Return of Philip James." The first part of the article referenced a "new subscription economy in the wine industry," and stated that some wine sellers expanding into the online market follow a traditional model where they "search[ ] to find good deals or great new finds to bring to wine consumer[s]." Mabray then critiqued other wine subscription services that "look to participate in the [wine] market by sourcing bulk juice and creating false brands to fool unsophisticated consumers." According to Mabray, these "fakers" propagate an "illusion that they have access to unique pricing and juice that equals the great and family owned brands at huge savings." He wrote that he does not think "all the wines they make are bad nor ALL of their wines are manufactured labels" but that these companies are "mostly substituting plonk in the place of artisanal wine." While Mabray listed several companies that he believes are engaging in this "inauthentic" model, Penrose Hill was not among them.

The second part of the article turns to a discussion of James, "one of wine-techs [sic ] interesting characters." Mabray reviewed James's positive public image as a supporter of charity and a successful wine-tech entrepreneur but then seemed to criticize that image, stating that "most of us in the industry remember a different story." He claimed that another company James previously founded competed with a service called "Cellartracker," and that James committed an "egregious act of scraping ... data from Cellartracker.com." Mabray then criticized another of James's business ventures for "spending a dollar to make $0.50," laying off 35% of its employees, and eventually "transform[ing] into the Hot Topic of wine retailers." Mabray also asserted that James started a charity fundraising campaign about a fictional device that supposedly turns water into wine. Although Mabray acknowledged that the campaign turned out to be "an elaborate stunt for a good cause," he stated that "quite a few of the press were duped into featuring the absurd campaign claims." He wrote that "many of us inside the wine industry were not surprised that it was yet another hoax from Philip James. Fool me once, shame on you. Fool me twice, shame on me."

After reviewing the history of James's allegedly dubious past in the wine industry, Mabray announced that "now [James is] back in wine and armed with $4,000,000 he has created a tangled web of companies starting with Penrose Hill at the top." He claimed that once "you drill down ... past [the] parent company ... you see they are all just shells on top of the one theme – taking plonk and repacking it." Mabray wrote that Firstleaf is "claiming to unleash the cost shackles for the consumer to allow them exclusive access to vineyards and winemakers." Mabray then cast doubt on that claim, stating that:

So with all this new cadre of fakers vs makers what should we believe out from [sic ] from Philip James and the his [sic ] collection of companies? That he is a good actor returning to wine after two failed attempts to help the industry become better? A maker of companies to help the consumer? Or a faker, returning again to prey on the market conditions and ignorance of the consumer? Regardless of his intentions the key is that we all remain diligent in helping educate consumers on the difference between the fakers and the makers.

Id. at 5.

Plaintiffs claim that the Blog Post contains defamatory statements about Penrose Hill and James that falsely accuse them of dishonesty with respect to their wine marketing and inaccurately portray James as incompetent and unfit to run a wine business. Compl. ¶¶ 32-33. Plaintiffs also assert that Mabray's statements about James's activities prior to founding Penrose Hill, such as "scraping ... data from Cellartracker.com" and perpetrating a hoax with respect to his charity fundraising event, are defamatory because they are false and impute fraud to James. Id. ¶¶ 23-24. According to Plaintiffs, the statements are false because Penrose Hill, which is founded and run by James, "is a winery licensed ... both federally and by the State of California, creates real wine brands, and does not misrepresent or obfuscate the nature, quality, or source of its wines." Id. ¶ 35. Plaintiffs allege that the Blog Post was and has been read by "individuals at all levels in the wine industry, including investors, wine producers, wine distributors, wine retailers, and wine consumers," and that the defamatory statement prevented those stakeholders from trusting James and conducting business with him and Penrose Hill. Id. ¶¶ 37-38. Plaintiffs state that the false statements in the Blog Post have interfered with their business relationships and they have lost business opportunities as a result. Id. ¶¶ 39-40.

On July 26, 2019, a non-party Twitter user posted an article and quoted some text from the source:

Retail on the high street is changing. More grocery shopping is being done online & wine choice [is] less well-informed without personal advice in store. How do you see the future of wine sales developing given the shift to more digital purchasing?

Compl., Ex. B. Another user tweeted in response: "This sounds like the Naked/Majestic route. Own-brand ranges on the up? Does this then shift the onus on producer to find distributor even more?" Mabray then responded to that user:

PL/CL³ is more of a UK phenomenon than US (but we're moving that way). I don't think it's bad as long as it has purpose & transparency. Re: Naked & that ilk – don't get me started –

Id. ("Tweet"). The Tweet linked to the Blog Post, and the link displayed a preview of the article with the photo of James used in the Blog Post, the title of the post, and a quote from the article: "There is a new era of companies trying to capitalize on the new subscription economy in the wine industry. Some good, some fakers." Plaintiffs claim that the Tweet constitutes a republication of the initial defamation and...