Sparrow Fund Mgmt. LP v. Mimedx Grp., Inc.

• Decision Date: 31 March 2019
• Docket Number: 18 Civ. 4921 (PGG) (KHP)
• Parties: SPARROW FUND MANAGEMENT LP, Plaintiff, v. MIMEDX GROUP, INC., PARKER H. PETIT, and JOHN DOES 1-10 Defendants.
• Court: U.S. District Court — Southern District of New York

SPARROW FUND MANAGEMENT LP, Plaintiff, v. MIMEDX GROUP, INC., PARKER H. PETIT,and JOHN DOES 1-10 Defendants.

18 Civ. 4921 (PGG) (KHP)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 31, 2019

ORDER

PAUL G. GARDEPHE, U.S.D.J.:

Plaintiff Sparrow Fund Management, LP ("Sparrow") brings this defamation action against Defendants MiMedx Group, Inc. ("MiMedx"), Parker H. Petit, and John Does. Plaintiff alleges that Defendants defamed it by making false statements about Sparrow in connection with a prior civil action.

Defendants MiMedx and Petit have moved to dismiss. (Mtns. (Dkt. Nos. 44, 46)) On December 14, 2018, Magistrate Judge Katharine H. Parker issued a Report and Recommendation ("R&R") recommending that this Court grant in part and deny in part Defendants' motions. (R&R (Dkt. No. 84) at 25)¹

Plaintiff and Defendants filed timely objections to the R&R. (Objs. (Dkt. Nos. 92-94)) Having reviewed the parties' objections, this Court will adopt Judge Parker's R&R in part as set forth below, and will grant Defendants' motions to dismiss in their entirety.

BACKGROUND

I. FACTS

Plaintiff Sparrow is a New York-based hedge fund. (Cmplt. (Dkt. No. 6) ¶ 1) Defendant MiMedx is a biopharmaceutical company with its principal place of business in Georgia. (Id. ¶ 2) Defendant Petit is the Chairman and Chief Executive Officer of MiMedx. (Id. ¶ 3) John Does 1-10 are anonymous Twitter users. (Id. ¶ 4)

The instant action arises out of an earlier civil action (the "MiMedx Action"). See MiMedx Grp., Inc. et al. v. Sparrow Fund Mgmt. LLP et al., 17 Civ. 7568 (PGG) (KHP) (S.D.N.Y. 2017). Judge Parker summarizes that suit as follows:

The MiMedx Action was commenced on October 4, 2017 against Sparrow, Viceroy Research, and BR Dialectic Capital Management LLC and its principal John Fichthorn for defamation and related torts. [(MiMedx Action Dkt. No. 1)] The gravamen of the allegations in [the MiMedx Action] was that Sparrow or one of its principals (Nathan Koppikar), using the pseudonym Aurelius Value, defamed MiMedx in blog posts and tweets with the aim of harming market confidence in MiMedx and bettering Sparrow's short positions in MiMedx stock. Sparrow denied that it was Aurelius Value and argued to this Court that MiMedx had publicly recognized that it did not know who was behind Aurelius Value. [(MiMedx Action Dkt. Nos. 55, 56)] Sparrow moved to dismiss the complaint in the MiMedx Action. It also moved for sanctions against MiMedx under Rule 11 of the Federal Rules of Civil Procedure. The Court granted Sparrow's motion to dismiss but denied its motion for sanctions. SeeMiMedx Grp., Inc. v. Sparrow Fund Mgmt. LP, 17 Civ. 7568 (PGG) (KHP), 2018 WL 847014 (Jan. 12, 2018), adopted by 2018 WL 4735717 (Sept. 29, 2018). The MiMedx Action was subsequently terminated in its entirety after MiMedx elected not to file an amended complaint. [(MiMedx Action Dkt. Nos. 116, 117)]

(R&R (Dkt. No. 84) at 2-3)

On June 5, 2018 - during the pendency of the MiMedx Action - Sparrow commenced this action against Defendants. (Cmplt. (Dkt. No. 6)) Sparrow alleges that MiMedx and/or Petit made a number of defamatory statements about it, all related to claims made in the MiMedx Action. (Id. ¶¶ 12-27) Sparrow also alleges that MiMedx and Petit conspired with the John Doe Defendants to further defame Sparrow on social media. (Id. ¶¶ 28-39)

Judge Parker summarizes the alleged defamatory statements as follows:

1. Statements made in MiMedx's pleadings in the MiMedx Action, such as the allegation that Aurelius Value is one or more of Sparrow's partners or employees and that "[i]n an all-out effort to ensure that they would profit from their negative investments, Defendants [including Sparrow] have maliciously disseminated materially false, misleading and defamatory statements about MiMedx and its employees to shareholders and the investing public, intending to fraudulently manipulate the market for MiMedx's stock and to allow Defendants [including Sparrow] to reap enormous profits from the resulting price decline." (Id. ¶¶ 12, 14[-]16) (collectively, "Statement 1.")

2. In an October 31, 2017 10-Q filing with the SEC, MiMedx disclosed the MiMedx Action and ["again repeated its statement that Sparrow is Aurelius Value."] (Id. ¶ 13) ("Statement 2.")

3. On or about October 4, 2017, Petit publicly stated with regard to the defendants in the MiMedx Action:

"We contend that the defendants knowingly concocted and disseminated false statements against MiMedx and our employees to our shareholders, the investment community and the public at large. To manipulate the market and serve their financial interest in driving down the price of MiMedx stock, they made these misleading statements. In their baseless statements, they either purposely omitted facts or context favorable to MiMedx, made suggestions concerning the Company that ran counter to the facts known by the defendants, or refused to do any informational and fact-finding due diligence, but just published any information that supported their conspired short thesis.

We believe these types of illegal short attacks are ultimately short term in nature when the fundamentals of a business such as MiMedx are strong. Eventually, the constant outstanding performance delivered by MiMedx cannot be ignored. Unfortunately, in the meantime, honest shareholders may be deceived and harmed by the loss of their investment value, while dishonest individuals and entities are able to profit through manipulation." (Id. ¶ 17) ("Statement 3.")

4. On or about October 4, 2017, Bill Taylor, President and COO of MiMedx stated:

"In our press release of September 29, 2017, we alerted our shareholders to the document we posted on the MiMedx website to expose the false and misleading information distributed by Viceroy Research and Aurelius Value. We encourage everyone to thoroughly read the document to gain the appropriate insight into the volume of misleading information, outright lies and libel against innocent individuals and the Company these organizations orpersons have stooped to publish. In this document, we have posted numerous examples that easily discredit their statements." (Id. ¶ 18) ("Statement 4.")

5. On or about October 17, 2017, MiMedx issued a press release accusing "short sellers of impersonating Pete Petit and sending out fake emails on his behalf and described such actions as "a crime." (Id. ¶ 19.) Petit commented publicly on this press release by stating: "[w]e believe this activity is related to the recent short seller attacks on the Company. This particular group of short sellers continues to resort to ridiculous and unscrupulous means to attempt to do damage to MiMedx. Of course their ultimate goal is to depress the price of our stock. However, by impersonating me in emails to our analysts, with comments that create insecurity relative to our Company's performance or my ethics and integrity, is reprehensible and unlawful. We have also seen other indications of unlawful activity." (Id.) (collectively, "Statement 5.")

6. On or about October 27, 2017, on a public call with investors, Petit described the activities of those "entities that are involved in this unlawful short selling activity" as "illegal." (Id. ¶ 20) ("Statement 6.")

7. On November 10, 2017, an article by Linette Lopez was published in Business Insider about MiMedx entitled "The so-called Trump of Georgia is on a wild crusade against Wall Street short sellers." (Id. ¶ 21.) On November 14, 2017, in a publicly-posted letter, Petit responded to the article by stating: "MiMedx filed lawsuits in order to find legal relief and obtain damages for false and defamatory statements made by certain entities acting as shills for short-sellers illegally attempting to manipulate MiMedx stock." (Id. ¶ 22.) Petit also stated that "[the short sellers, including Sparrow] are wrong when the basis of their short sell thesis is founded on false and fraudulent information and meritless claims. In fact, that is against the law." (Id. ¶ 22) (collectively, "Statement 7.")

8. On or about November 30, 2017, Petit stated in a public conference in New York that "short sellers" are engaged in "illegal" behavior. Further, Petit identified the short sellers to whom he was referring as those who MiMedx was going "down the civil path with." (Id. ¶ 23) ("Statement 8.")

9. On or about November 30, 2017, Petit wrote a letter to the SEC, which MiMedx published on its website on a page for "short selling commentary." In the letter, Petit described Aurelius Value as a "shill" engaged in "recent illegal short selling." (Id. ¶ 24.) He further stated:

"I realize that ordinary people do not understand just how corrupt dishonest persons can become. Real truthful facts do not mean anything to individuals who have their own agenda. . . . This has become a classic case . . . of what fraudulent stock manipulation really involves. . . . [T]hese particular illegalshort sellers apparently do not care about credible sources for their information." (Id. ¶ 24) (collectively, "Statement 9.")

10. On or about December 13, 2017, Petit referred to "illegal short selling activities" in a public conference call with investors. (Id. ¶ 25) ("Statement 10.")

11. On or about January 18, 2018, Petit referred to short sellers "using illegal techniques" in a conference call with investors. (Id. ¶ 26) ("Statement 11.")

12. Sometime in February 2018, MiMedx posted a rebuttal of claims made by Aurelius Value on its website, suggesting criminal and illegal activity. (Id. ¶ 27) ("Statement 12.")

(R & R (Dkt. No. 84) at 3-6)

Sparrow further claims that the John Doe Defendants conspired with MiMedx and Petit to make defamatory statements about Sparrow on Twitter and in a blog post. Judge Parker describes the factual basis of the conspiracy allegation as follows:

"Concurrent with the filing of MiMedx's complaint, a group of anonymous bloggers began simultaneously tweeting and posting content clearly designed to promote MiMedx stock while

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