Piping Rock Partners, Inc. v. David Lerner Assocs., Inc.

• Citation: 946 F.Supp.2d 957
• Decision Date: 17 May 2013
• Docket Number: No. C 12–04634 SI.,C 12–04634 SI.
• Parties: PIPING ROCK PARTNERS, INC., and Christopher K. Germain, Plaintiffs, v. DAVID LERNER ASSOCIATES, INC., David Lerner, and George Dobbs, Defendants.
• Court: U.S. District Court — Eastern District of California

946 F.Supp.2d 957

PIPING ROCK PARTNERS, INC., and Christopher K. Germain, Plaintiffs,

v.DAVID LERNER ASSOCIATES, INC., David Lerner, and George Dobbs, Defendants.

No. C 12–04634 SI.

United States District Court, N.D. California.

May 17, 2013.

Jonathan Scott Ball, San Francisco, George Eaton Fleming, Fleming and Fell, PC, La Jolla, Thomas Daniel O'Brien, Attorney at Law, Ball Law Corporation, Oakland, CA, for Plaintiffs.

Matthew David Ridings, Jennifer S. Roach, Cleveland, OH, Nathan Randall Jaskowiak, Christopher A. Stecher, Keesal, Young & Logan, A Professional Corporation, San Francisco, CA, Michael G. Shannon, Thompson Hine, LLP, New York, NY, for Defendants.

ORDER DENYING DEFENDANTS' SPECIAL MOTION TO STRIKE; GRANTING PLAINTIFFS' SPECIAL MOTION TO STRIKE

SUSAN ILLSTON, District Judge.

Plaintiffs Chris Germain and Piping Rock Partners, Inc. (“Piping Rock”) have filed a second amended and restated complaint (“SAC”) against David Lerner Associates, Inc. (“DLA”) and two individuals, DLA's president David Lerner and former DLA employee George Dobbs, for libel.¹ Defendants DLA and Lerner filed a counterclaim against plaintiffs alleging tortious interference with contract, tortious interference with prospective business advantage, and commercial disparagement. Defendants have moved to strike plaintiffs' libel claim pursuant to California Civil Code § 425.16 (“anti-SLAPP law”).² Plaintiffs have similarly moved to strike defendants DLA and Lerner's counterclaim pursuant to the anti-SLAPP law. The parties' motions have been fully briefed and on April 19, 2013, the Court held a hearing on the motions. For the reasons set forth below, the Court DENIES defendants' special motion to strike and GRANTS plaintiffs' special motion to strike.

BACKGROUND

Plaintiff Chris Germain is the sole shareholder of plaintiff Piping Rock Partners, Inc., a California corporation that specializes in the acquisition and management of real estate for investment purposes. Germain is also the founder of REIT Wrecks, a blog where he and others discuss real estate investment trusts (“REITs”). Defendant David Lerner is the president and controlling owner of defendant David Lerner Associates, Inc., a privately-held brokerage firm incorporated in New York that sells security interests in REITs and other investment products. Defendant George Dobbs, a citizen of New Jersey, was employed at DLA as a registered securities broker from August 2003 to June 2012.

In January 2010, Germain launched a public forum on his blog REIT Wrecks to encourage discussion of non-traded REITs. In response to a reader's post about DLA and Lerner, Germain posted a reply explaining that DLA and Lerner appeared to be violating a regulation promulgated by the Financial Industry Regulatory Authority (FINRA). After months of publicity—including an article in Bloomberg discussing non-traded REITs and identifying Germain and REIT Wrecks by name, and a blog posting exchange between the Chief Compliance Officer for DLA and Germain—on May 27, 2011, FINRA filed a formal complaint against DLA, alleging various improprieties in connection with the non-traded REITs that DLA managed. In addition, two class action lawsuits were filed against DLA.

Plaintiffs allege that from June 23 to June 29, 2011, defendants conducted a retaliatory online “smear campaign” against Germain, Piping Rock, and the two law offices that filed the class action suits against DLA. The smear campaign included nineteen allegedly libelous posts on various consumer-report websites, including eight identical posts directed at Germain and Piping Rock. Defendant Dobbs admits authoring the eight posts at issue. However, the balance of eleven posts remain attributed to Doe defendants. The text of the eight identical posts was originally posted on the website “Ripoff Reports.” The text of that post was re-posted on other websites, including scaminfomer.com, getpayback.com, pissconsumer.com, complaintsboard.com, scamfound.com, and boardreader.com. In the posts, the author—defendant Dobbs allegedly acting on behalf of or at the direction of DLA and Lerner—accuses Piping Rock and Germain of having engaged in dishonest, fraudulent, and potentially criminal business practices. SAC ¶ 134–35, Ex. EE. Plaintiffs contend that Dobbs's statements are demonstrably false.

Defendants counter that beginning in January 2010, Germain commenced his own unlawful campaign to interfere with DLA's business through postings on his REIT Wrecks blog. In particular, they allege that Germain accused DLA of fraudulent criminal activity, lying to its investors, and scamming customers. Defendants point to twelve statements posted on REIT Wrecks that were allegedly authored by Germain or “encouraged and sanctioned” by him. Counterclaim ¶ 20. DLA and Lerner contend that these statement have no basis in fact. Moreover, DLA and Lerner also allege that Germain intended to interfere with DLA's client relationships and that some clients redeemed their investments after encountering negative information about them on the internet.

On April 9, 2012, plaintiffs filed a complaint against John Doe Nos. 1–6 in San Francisco County Superior Court, alleging libel and intentional interference with contractual relations under California law. On June 25, 2012, plaintiffs filed a first amended complaint, and later on July 17 and July 23, 2012, plaintiffs filed amendments to the first amended complaint naming Dobbs, Lerner, DLA, and John Doe Nos. 1–7 as defendants. On September 5, 2012, DLA and Lerner removed the action to federal court. On November 9, 2012, 2012 WL 5471143, the Court denied defendants' motion to dismiss for lack of personal jurisdiction. On December 21, 2012, plaintiffs filed their second amended and restated complaint.³ The parties' cross motions to strike under California's anti-SLAPP statute followed thereafter.

LEGAL STANDARD

The California anti-SLAPP statute permits defendants to bring a “special motion to strike” if a cause of action against them arises “from any act ... in furtherance of the ... right of petition or free speech ... in connection with a public issue,” unless “the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.” Cal. Code Civ. Proc. § 425.16(b)(1). “In making its determination, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” Id. at § 425.16(b)(2). If a defendant prevails on a motion to strike, that defendant “shall be entitled to recover his or her attorney's fees and costs.” Id. § 425.16(c). Although it is a state statute, California's anti-SLAPP protections apply to state law claims brought in federal court. United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 971–73 (9th Cir.1999).⁴

In evaluating an anti-SLAPP motion, courts engage in a two-part inquiry. “First, a defendant must make an initial prima facie showing that the plaintiff's suit arises from an act in furtherance of the defendant's rights of petition or free speech ... Second, once the defendant has made a prima facie showing, the burden shifts to the plaintiff to demonstrate a probability of prevailing on the challenged claims.” Vess v. Ciba–Geigy Corp., 317 F.3d 1097, 1110 (9th Cir.2003). The plaintiff's burden is “comparable to that used on a motion for judgment as a matter of law.” Price v. Stossel, 620 F.3d 992, 1000 (9th Cir.2010). “The plaintiff 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 plaintiff is credited. A defendant's anti-SLAPP motion should be granted when a plaintiff presents an insufficient legal basis for the claims or when no evidence of sufficient substantiality exists to support a judgment for the plaintiff.” Id. at 1000 (citations and internal quotation marks omitted). Evidence must be admissible and is not weighed by the Court, but presumed true if in favor of the plaintiff. See, e.g., Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832, 840 (9th Cir.2001); Tichinin v. City of Morgan Hill, 177 Cal.App.4th 1049, 1062, 99 Cal.Rptr.3d 661 (2009).

DISCUSSION

I. Defendants' Motion to Strike Plaintiffs' Libel Claim.

A. Act in furtherance of the defendant's rights of free speech

The first step in analyzing an anti-SLAPP motion is determining whether the defendant successfully made “an initial prima facie showing that the plaintiff's suit arises from an act in furtherance of the defendant's rights of petition or free speech.” Vess, 317 F.3d at 1110. California's anti-SLAPP statute defines such as an act to include, inter alia, “any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest.” Cal. Code Civ. Proc. §§ 425.16(e).

Plaintiffs concede that the Ripoff Reports website is a public forum, but dispute whether Dobbs's posting was in connection with an issue of public interest. Dobbs's posting read as follows:

If you are looking to invest in real estate or need to do a 1031 exchange stay far away from Piping Rock Partners and especially Christopher Germain the president of the company. They will promise you the rosiest of scenarios with the lowest cost but unfortunately after the documents are signed and the check is cashed you find out it was anything but true. These guys leverage real estate using over 90% debt, through first and second mortgages. They show you how good the revenue stream is and the dividends you'll earn so that the debt seems inconsequential. Well I'm here to tell you it's nothing like Chris Germain says it is.

The property I bought a share of was a complete bust, but his presentation was that this was the “deal of a life time.” All the generous revenue I was going to make never materialized. When I questioned him he gave me every song in the book...