Is it defamatory to call someone “racist”?

In today’s political climate, the term “racist” gets used in seemingly every discussion. I get at least one call a week from a potential client wanting to sue someone for defamation because they were called a racist.

But is it defamatory to call someone “racist”? Would such an action be viable? To answer that question, let’s first set the legal scene, beginning with the elements of defamation.

The elements of a defamation claim are (1) a publication that is (2) false, (3) defamatory, (4) unprivileged, and (5) has a natural tendency to injure or causes special damage. (Taus v. Loftus (2007) 40 Cal.4th 683, 720.) The elements for libel and slander differ slightly, but both require a false and unprivileged statement.

Laying out the elements as such, the caller will quickly respond, “I’m not a racist, so the statement is false.” And therein lies the rub. It may well be false, but is it provably false? What evidence could we offer to show that the caller is not a racist?

The sine qua non of recovery for defamation … is the existence of falsehood. Because the statement must contain a provable falsehood, courts distinguish between statements of fact and statements of opinion for purposes of defamation liability. Although statements of fact may be actionable as libel, statements of opinion are constitutionally protected. That does not mean that statements of opinion enjoy blanket protection. On the contrary, where an expression of opinion implies a false assertion of fact, the opinion can constitute actionable defamation. (Milkovich v. Lorain Journal Co. (1990) 497 U.S. 1, 18–19.) The critical question is not whether a statement is fact or opinion, but whether a reasonable fact finder could conclude the published statement declares or implies a provably false assertion of fact.

Wong v. Jing, 189 Cal. App. 4th 1354, 1370, 117 Cal. Rptr. 3d 747, 762 (2010).

A hypothetical tale of racism.

Let’s use an example from a recent caller (changing the facts slightly to protect privacy) to illustrate the conundrum.

The caller was checking out at a grocery store, and got into an argument with the cashier over something minor. The cashier immediately responded by calling the customer a racist, in front of other customers. When the customer asked to talk to the manager, the cashier again repeated the claim of racism to the manager.

This exchange appears to satisfy all the elements of a defamation claim, if it is true that the customer is not a racist. There was (1) a publication (just legalese meaning that the statement was communicated to a third party) that was (2) false, (3) defamatory, (4) unprivileged, and (5) had a natural tendency to injure (the fact that it damaged his reputation is enough).

But how do we prove that second element; that it was false? Who gets to decide when behavior is based in racism? The customer may be 100% confident that he is not racist, and may be able to offer as proof that his wife is a minority as are most of his friends. Heck, the customer might even be a minority. But the cashier may be equally confident that the customer would not have argued over the minor point but for a bias against minorities. What meter can we hold up to the people involved to determine which is correct?

This precise issue was addressed in the case of Overhill Farms, Inc. v. Lopez, and even there the three Justices could not agree on the law.

In Overhill Farms, the IRS informed the company that 231 of its employees were using bogus social security numbers, and that the company would face criminal prosecution if it permitted the situation to continue. Overhill investigated and determined that such was the case, and it terminated all those employees.

Some of the terminated employees participated in protests outside Overhill’s two plants and outside of one of Overhill’s customers’ place of business. Defendants’ protest efforts included issuing a press release, carrying signs, and handing out leaflets, flyers, and handbills which stated, among other things, that Overhill had used a “supposed discrepancy” in Social Security numbers as a pretext for employment terminations which were both racist and a targeted attack on older and more senior employees.

On its face, the claims were ridiculous. Overhill had hired all these same employees, and obviously had no issue with their race, nationality, age or gender, and only fired them because its hand was forced. As to the “supposed discrepancy,” the bulk of the employees had admitted that they were using false social security numbers.

Overhill sued defendants for defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, extortion, and unfair competition; all of Overhill’s claims were based on alleged defamatory statements made by defendants in the course of the protests. Although Overhill sought damages, it alleged that defendants are “virtually judgment proof,” and made clear that injunctive relief to prohibit future misconduct was its primary goal.

Defendants filed an anti-SLAPP motion to strike the complaint pursuant to Code of Civil Procedure section 425.16. The trial court granted the anti-SLAPP motion as to the unfair competition claim, but otherwise denied the motion. The court concluded that although Overhill’s claims arose out of protected conduct, Overhill had carried its burden of proving a probability of prevailing on the merits of all its claims except its unfair competition claim. Defendants appealed, claiming that none of their alleged statements were actionable, because none declared or implied a provably false assertion of fact under the totality of the circumstances.

What is necessary to show a provably false assertion of fact?

In determining whether a statement declares or implies a provably false assertion of fact, courts apply the totality of the circumstances test.

Under the totality of the circumstances test, ‘[f]irst, the language of the statement is examined. For words to be defamatory, they must be understood in a defamatory sense…. Next, the context in which the statement was made must be considered.’ (see Nygard, Inc. v. Uusi–Kerttula, 159 Cal.App.4th at p. 1049 [Court considers the totality of the circumstances “[t]o ascertain whether the statements in question are provably false factual assertions”].) Whether a challenged statement ‘declares or implies a provable false assertion of fact is a question of law for the court to decide, unless the statement is susceptible of both an innocent and a libelous meaning, in which case the jury must decide how the statement was understood.’ (Franklin, supra, 116 Cal.App.4th at p. 385.)

The term ‘racist’ is of course an exceptionally negative, insulting, and highly charged word—it is hard to imagine being called much worse. It is, however, also a word that lacks precise meaning, so its application to a particular situation or individual is problematic; indeed, defendants contend no court has ever found the use of the term ‘racist’ to be actionable defamation in a context similar to this one.

In Stevens v. Tillman, for example, the Seventh Circuit Court held that use of the term racist was not actionable under Illinois defamation law, observing (over 20 years ago) that the term lacked a precise meaning, can imply many different kinds of fact, and is no more than meaningless name calling. The appellate court further observed, ‘[t]he word has been watered down by overuse, becoming common coin in political discourse.’ We agree that general statements charging a person with being racist, unfair, or unjust – without more – such as contained in the signs carried by protestors, constitute mere name calling and do not contain a provably false assertion of fact. Similarly, references to general discriminatory treatment, such as that contained in the handbill and flyer here, without more, do not constitute provably false assertions of fact. (See, e.g., Beverly Hills Foodland v. United Food & Commercial Workers Union, Local 655 (8th Cir.1994) 39 F.3d 191, 196 [‘To use loose language or undefined slogans that are part of the conventional give and take in our economic political controversies – like ‘unfair’ and ‘fascist’ – is not to falsify facts.’)

Overhill Farms, Inc. v. Lopez, 190 Cal. App. 4th 1248, 1262.

So no defamation in our hypothetical? Well, in the Overhill case, two of the three Justices found what they considered to be a distinction from the general rule that calling someone a racist is just meaningless name calling.

In Overhill, the defendants did not merely accuse Overhill of being “racist” in some abstract sense. The press release contains language which expressly accused it of engaging in racist firings and decried the disparate impact the firings have had on “immigrant women.” Similarly, after discussing Overhill’s termination of one-fourth of Overhill’s work force, the leaflets explicitly asserted that the discrepancy in social security numbers was merely a “pretext” to eliminate certain workers, and referred to Overhill’s conduct as “racist and discriminatory abuse against Latina women immigrants.” Moreover, in almost every instance, defendants’ characterization of Overhill as “racist” is supported by a specific reference to its decision to terminate the employment of a large group of Latino immigrant workers. The assertion of racism, when viewed in that specific factual context, is not merely a hyperbolic characterization of Overhill’s black corporate heart – it represents an accusation of concrete, wrongful conduct.

The gist of the press statement, leaflets and flyers was that while Overhill was claiming the employment terminations were based strictly on the disparities in social security numbers, that claim was false, as the Social Security Administration had decreed that such discrepancies were not grounds for termination. Thus, defendants were clearly portraying the “supposed” discrepancies as merely convenient cover for Overhill’s true, racist, intent. Indeed, the leaflet explicitly characterizes the social security number discrepancies as a mere “pretext” for the firings. And a claim of racially motivated employment termination is a provably false fact. Indeed, that very fact is subject to proof in wrongful termination claims on a regular basis. If we were to conclude that an employer’s racist motivation for terminating an employee’s job were not “provable,” it would come as a great shock to the Fair Employment and Housing Commission.

Overhill Farms, Inc. v. Lopez, 190 Cal. App. 4th 1248, 1263.

For all these reasons, the Court of Appeal reversed the holding of the trial court, and found that the anti-SLAPP motion should have been denied entirely.

But one of the three justices was not persuaded, and dissented to the opinion. Justice Fybel stated:

The First Amendment to the United States Constitution guarantees a cherished freedom—the right to speak openly and freely. (U.S. Const., 1st Amend. [“Congress shall make no law … abridging the freedom of speech…”].) Within the past few years, the United States Supreme Court has broadly protected speech in a public forum in the analysis of permissible speech by candidates for judicial office (Republican Party of Minnesota v. White (2002) 536 U.S. 765), and of corporations in elections (Citizens United v. Federal Election Commission (2010) 558 U.S. 310). The anti-SLAPP (strategic lawsuit against public participation) statute provides that it should be construed broadly to protect against “lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.” (Code Civ. Proc., § 425.16, subd. (a).)

Defendants’ anti-SLAPP motion should have been granted because none of defendants’ statements contains actionable defamation. The statements describe Overhill Farms, Inc.’s (Overhill), firing of a large number of Hispanic and female employees as “racist” and “discriminatory” in the context of vigorous public protests. Overhill failed to produce evidence showing defendants declared or implied a provably false assertion of fact within the meaning of the First Amendment and defamation law jurisprudence (see Milkovich v. Lorain Journal Co. (1990) 497 U.S. 1, 19); thus, Overhill’s defamation claim fails as a matter of law. The majority opinion is an unprecedented and unwarranted extension of defamation law and is contrary to the First Amendment.

By this lawsuit, Overhill seeks to curb and chill employee protests. As acknowledged by the majority opinion, Overhill has “made clear that injunctive relief to prohibit future misconduct was its primary goal.” (See Nebraska Press Assn. v. Stuart (1976) 427 U.S. 539, 559 [“If it can be said that a threat of criminal or civil sanctions after publication ‘chills’ speech, prior restraint ‘freezes’ it at least for the time.”].) To illustrate this point, would it be actionable if the Los Angeles Times, the Orange County Register, Fox News, or MSNBC complained that actions by anyone were “racist” or “discriminatory”? Of course not. Employees complaining about their employer enjoy the same protection.

Considering defendants’ speech under the totality of the circumstances in this case, their speech too is constitutionally protected from a civil suit. In my view, Overhill is perfectly capable of ably presenting its side of the story in the public forum and has done so. Justice Brandeis’s statement in Whitney v. California is apt: “If there be time to expose through discussion the falsehood and fallacies, to avert the evil by the processes of education, the remedy to be applied is more speech, not enforced silence.” Defendants’ assertions might not be persuasive, but they are not actionable.

Overhill Farms, Inc. v. Lopez, 190 Cal. App. 4th 1248, 1272–73.

Interestingly, this precise fact pattern also arose in a case involving “Transformers” actor Shia LaBeouf. LaBeouf, who admits to having a drinking problem, was refused service by bartender David Bernstein at Jerry’s Famous Deli. Bernstein felt that LaBeouf was intoxicated, and under California law it is a violation to serve alcohol to someone who is intoxicated.

LaBeouf was having none of that, and as is common practice in today’s world, regardless of the absurdity of the claim, immediately screamed that Bernstein was a “fucking racist bitch.” Very classy. LaBeouf was removed from the premises.

Bernstein sued for defamation and assault (LaBeouf had allegedly threatened Bernstein with a bottle at some point).

Here’s where it gets fun (with a perfect anti-SLAPP tie-in).

I hate to see something like this turn into a lawsuit, and if I were Bernstein I would have simply written it off as a fun story to tell the grandkids. “See that wimpy guy fighting the Transformers, kids? I threw him out of my bar after he called paw-paw a fucking racist bitch.” It would soon become a tradition at family gatherings. “Paw-paw, please tell us that story about how Shia LaBeouf called you a fucking racist bitch, pleeeese!”

But I can also understand the desire to say enough is enough. LaBeouf (allegedly) has a string of inappropriate behaviors, and at some point someone needs to take him to the woodshed. Being called a “FRB” might be the time for a line in the sand.

So Bernstein sued, and LaBeouf’s attorneys come up with the brilliant idea to try and dispose of the case with an anti-SLAPP motion. While it is true that a situation involving a celebrity can turn the facts into a matter of public interest, and bring it under the anti-SLAPP statute, it is important to keep in mind who is making the statement. So, if Bernstein had been the one to call LaBeouf an FRB, and LaBeouf had sued for defamation, the public interest analysis might apply. The public might be interested in whether LaBeouf is an FRB.

But LaBeouf does not enjoy protection for every word coming out of his mouth, just because he is a celebrity. Quite properly, the Court found that LaBeouf’s statements did not even satisfy the first prong of the anti-SLAPP analysis. Nonethess, LaBeouf’s attorneys have appealed.

So what is the answer to our opening question? Is it defamatory to state someone is racist?

The answer 99% of the time will be no. In most every conceivable circumstance, the claim that someone is a racist will be considered nonactionable opinion.

The fact that Bernstein’s action against LaBeouf survived the anti-SLAPP motion does not mean that it has any merit; only that it did not satisfy the statute. At trial, if the law is followed, the defamation action should be decided in favor of LaBeouf. Stating that Bernstein is an FRB is simply not a verifiably false statement. (He could, however, still prevail on the assualt claim which has nothing to do with the speech.)

“But what about Overhill Farms?,” you ask. Thank you for engaging.

At best, Overhill Farms provides a very narrow clarification. If the statement is offered in the context of provably false statements, it might be actionable. In Overhill Farms, the claim was that the problem with the Social Security numbers was a “pretext” for the discriminatory terminations, and that added assertion was provably false. Perhaps if LaBeouf had shouted, “you know I’m not drunk and the only reason you are refusing to serve me is because you are an FRB,” then Bernstein could establish that the “not drunk” is a verifiably false statement.

Shia LaBeouf walks the red carpet.

Stormy Daniels’ Action Against Trump Goes Down in Flames

Stormy Daniels Complaint on Fire
As I discussed back in October, adult film star Stormy Daniels was originally suing Donald Trump under a declaratory relief action, seeking to invalidate a “hush” agreement she has signed and been paid for. Her attorney, Michael Avenatti, then tried to get cute by filing a defamation action. The alleged defamation resulted from an incident that purportedly occurred in a parking lot, where Daniels says she was threatened to keep her mouth shut. Trump referred to the story as a “con job,” and Avenatti on behalf of Daniels claimed that amounted to defamation since Trump was accusing Daniels of lying. I predicted at the time that the action would be thrown out on an anti-SLAPP motion, and that proved to be true. Daniels was hit with $293,000 in attorney fees.

But following the dismissal of the defamation action, I pointed out that still left the original declaratory relief action. Since the attorneys have presumably spent far more time on that matter than the ridiculous defamation claim, I said that Avenatti might get the last laugh as to attorney fees if he was able to prevail on that claim.

Avenatti isn’t laughing.

Today the judge threw out the declaratory relief claim as well, finding it was moot. You see, Trump had already stated that he was not going to sue to enforce the hush agreement, and in any event Daniels had already told the world about the alleged affair, so there was nothing left to decide.

In that sense, Daniels got what she was nominally seeking. She gets to talk about her relationship with Trump, without fear of being sued for breaching the hush agreement. But, as stated, that really wasn’t what she and Avenatti were after, as evidenced by the fact that they maintained the action long after Trump indicated he would not enforce the agreement. At that point, any reasonable attorney would have simply entered into a settlement, agreeing to dismiss the action in exchange for Trump agreeing not to enforce the agreement. That wasn’t done, presumably because Avenatti wanted to use the action to try and humiliate Trump, with depositions and such. With the dismissal, the action is entirely gone, with the only result being that Daniels now owes Trump $293,000 in attorney fees.

Which brings me to fees following anti-SLAPP motions.

Make no mistake; an anti-SLAPP motion is a big project. There are a number of cases holding that an anti-SLAPP motion should take about 50 hours to complete, from inception to oral argument, understanding that each case is unique, and that number can vary wildly depending on the circumstances. Subsequent cases criticized any “rule-of-thumb” approach to computing reasonable fees, but I have prepared and argued more anti-SLAPP motions than any other attorney in the country, from all indications, and I think that is a pretty good average for an attorney with little or no anti-SLAPP experience. Given my experience, I can typically prepare a motion in far less time.

So when Daniels lost her defamation action to Trump, I reported that the fees would be “at least” $50,000, figuring that Trump would likely have utilized $1,000 per hour attorneys for those 50 hours. But I suspected they would be much higher.

Recently, I was retained to provide my expert opinion on the reasonableness of a fee application following an anti-SLAPP motion. I am frequently retained for that purpose. The brief was just 11 pages long, and there were no circumstances that would make this motion particularly time-consuming, such as reopened discovery, or an appeal. By way of comparison, if I had been retained to prepare this motion, my fees would have been less than $20,000.

This large, Los Angeles law firm claimed it had incurred $400,000 in fees.

The time records were a sight to behold. The highfalutin attorneys had no experience with anti-SLAPP motions, so much of the time was spent just figuring out how to pursue one. Again, 50 hours is the rule-of-thumb for the entire process, but this firm had spent 80 hours preparing a memorandum on whether an anti-SLAPP motion should be pursued. Three attorneys spent a total of 50 hours preparing for the oral argument on the motion, even though only one attorney from each side is permitted to speak during argument. I guess they wanted to be sure that an attorney would be ready to argue even if two died on the way to court.

There is case law holding that if an attorney is found to have inflated the fee application, fees can be denied altogether since that reflects a lack of credibility. When I get extreme examples such as this, I always think this will be the one where I convince the court to deny the fees completely. It’s not that I want to deprive any attorneys of their reasonable fees, but the game has become that unscrupulous attorneys submit ludicrous fee applications, safe in the knowledge that the worse that will happen is that the court will reduce them. If courts followed the law and denied fees altogether when an obviously inflated application is submitted, that would go a long way toward keeping the claimed fees reasonable.

Inflated fee applications create at least three problems. First, if all applications are inflated, then judges will come to believe anti-SLAPP motions require far more than 50 hours, and it becomes a self-fulfilling prophecy.  Conversely, if judges become jaded and come to believe that attorneys all double their fees, then when an honest attorney like me submits a real fee application, that already reflects a significant discount based on the efficiency I have gained from doing so many of these motions, it will nonetheless be cut and my client will not be fully reimbursed for the fees he, she, or it paid to me. Thus, it becomes almost mandatory that attorneys inflate their fees in anticipation of the reduction.

I saw this back in the days when I handled Chapter 11 bankruptcies. When the going rate for attorneys was about $395 per hour, bankruptcy attorneys were all charging rates completely above the market, like $795 per hour. There was no justification for this – bankruptcy work is no more challenging than any other practice area – but the attorneys inflated their hourly rates in anticipation of the judges cutting the fees by 50%.

But worse, there are a lot of lazy judges, who rubber-stamp fee applications. So the attorneys who inflate their fees have the chance that they will hit the lottery, or at worst will get reduction that will bring them down to what they really charge.

In the case of the aforementioned $400,000 fee, based on my expert opinion the judge reduced the fees by $100,000, but in response to my argument that the fees should be denied altogether in recognition of the insane billing of 80 hours for a memo and 50 hours for oral argument prep, the judge responded, “That’s just what big firms do.”

Obviously, not having seen the invoices, I can’t opine specifically on the $293,000 awarded to Trump’s attorneys, but can say that my fees would have likely been less than one-tenth that amount.

SLAPP027 – When a Motion to Dismiss is a Better Strategy than an Anti-SLAPP Motion

President Trump is never short on controversy, and said controversy leads to some interesting cases. In Episode 27 of the California SLAPP Law Podcast, we will discuss two Trump cases — one First Amendment and one anti-SLAPP — arising from the words and tweets of our sneerless leader. We’ll also discuss when a motion to dismiss can be a better option than an anti-SLAPP motion.

The first case is Nwanguma v. Donald Trump, arising from his comments at a political rally before he was elected. When hecklers tried to shout him down, he said “get ’em out of here.” The crowd heeded his words and bodily removed the protesters, who then sued for battery and incitement. They claimed that by saying “get ’em out of here,” Trump incited the crowd to riot. Trump moved to dismiss, arguing that his words were mere hyperbole. How did the court rule? Listen to Episode 27 and find out!

Next comes the infamous case of Stormy Daniels v. Donald Trump. Daniels sued Trump in two different forums for two different claims. In one, she is simply trying to get out the contract whereby she was paid for her silence. In the other, she had stated during a press conference that she had been threatened by a man who told her to be quiet about sleeping with Trump, even showing an artist’s rendering of the allege suspect from many years prior. Trump felt compelled to tweet that the story was a total “con job.”

Her attorney, Michael Avenati, who would have known better if he listened to the California SLAPP Law Podcast, decided to sue for defamation for Trump’s usage of the phrase “con job.” As any regular listener would know, “con job” is just too imprecise to support a defamation claim. It is not verifiably false, and without a verifiably false statement, there can be no defamation. Trump brought an anti-SLAPP motion, which was granted.

Not a good week for Avenati. In the same week that the court granted Trump’s anti-SLAPP motion, finding that Daniels would therefore be liable for all of Trump’s attorney fees, Avenati was found personally liable for a multi million dollar judgment by a former associate at his firm, and was given an eviction notice from his law offices for failure to pay rent.

And stay around for the after show, where I discuss the happenings with Bell v. Feibush, some precedent I created six years ago.

Daniels’ Defamation Action Against Trump was Doomed from the Start

I have frequently warned about the path defamation claims can take, and it was illustrated once more by the kerfuffle between Donald Trump and Stormy Daniels.

Here is the pattern.

Way outside every controlling statute of limitations, a woman states she was assaulted by a man, and the man responds by going on social media or stating to the press that the assault never occurred. The woman then sues for defamation, claiming that by denying the assault, the man is calling her a liar. As a variation, the accused man sometimes comes right out and says she is lying.

It’s a tough situation for the accused. If he fails to deny the charge, then it will be assumed that it must be true, but if he does deny it, then he buys himself a defamation action. He was safe from legal action, but his words started a whole new statute of limitations on the defamation claim. This is precisely what happen when Bill Cosby denied raping various women, which lead to very different conclusions.

Defamation claims against Bill Cosby.

In one case, Katherine Mckee sued Cosby for defamation after his attorney denied to the press that Cosby had ever raped her. There, the case was dismissed and the First Circuit upheld the dismissal. That one has a weird twist, because the dismissal was based in large part on finding that Mckee was a limited public figure, and then finding that she had failed to show malice by Cosby for his attorney’s statements. It’s disconcerting that a possible victim can become a limited public figure just because she reports the offense at a time when others are reporting similar events against the same celebrity.

The case of Janice Dickinson versus Cosby followed the exact same pattern, but that case did manage to survive dismissal, because the letters by Cosby’s attorney, Marty Singer, were so unrelated to any litigation and so beyond the pale, that the court concluded Dickinson could establish a case for defamation and denied the anti-SLAPP motion.

The Trump variation.

The Trump situation is a slight variation on the theme. There is no claim of assault, and I don’t recall if he is even denying having sex with Daniels, but as to her claim that some unidentified man tried to intimidate her into silence, Trump tweeted, “A sketch years later about a nonexistent man. A total con job, playing the Fake News Media for Fools (but they know it)!” Daniels’ attorney, Michael Avenatti, grabbed onto the “con job” language and used that as a basis to file a defamation action.

Here is the actual allegation from Daniels’ defamation action, to show how the attempt is made to turn the denial into defamation (Stormy Daniels’ real name is Stephanie Clifford):

17. Mr. Trump’s statement falsely attacks the veracity of Ms. Clifford’s account of the threatening incident that took place in 2011. It also operates to accuse Ms. Clifford of committing a crime under New York law, as well as the law of numerous other states, in that it effectively states that Ms. Clifford falsely accused an individual of committing a crime against her when no such crime occurred. Mr. Trump’s statement is false and defamatory. In making the statement, Mr. Trump used his national and international audience of millions of people to make a false factual statement to denigrate and attack Ms. Clifford. Mr. Trump knew that his false, disparaging statement would be read by people around the world, as well as widely reported, and that Ms. Clifford would be subjected to threats of violence, economic harm, and reputational damage as a result.

Stormy Daniels leaves court

But that defamation action by Daniels against Trump met its quick and predictable fate; it was dismissed by way of an anti-SLAPP motion. The scenario is different from the Cosby cases, because Trump’s response was so tepid (not a word that is often associated with Trump) and nonspecific.

You see, as Avenatti would have known if he’d had the simple sense to read this blog, language like “con job” is considered hyperbolic, and is too imprecise to create a verifiably false statement of fact. Without a verifiably false statement of fact, there can be no defamation. At best, the statement would be one of opinion, and therefore non-actionable. Judge S. James Otero concluded that Daniels had failed to establish a prima facie case for defamation.

The Court agrees with Mr. Trump’s argument because the tweet in question constitutes ‘rhetorical hyperbole’ normally associated with politics and public discourse in the United States. The First Amendment protects this type of rhetorical statement.

The judge then offered a definition of “rhetorical hyperbole,” defining it as “extravagant exaggeration employed for rhetorical effect” and stated that Trump’s tweet displayed “an incredulous tone, suggesting that the content of his tweet was not meant to be understood as a literal statement about Plaintiff. Instead, Mr. Trump sought to use language to challenge Plaintiff’s account of her affair and the threat that she purportedly received in 2011. As the United States Supreme Court has held, a published statement that is ‘pointed, exaggerated, and heavily laden with emotional rhetoric and moral outrage’ cannot constitute a defamatory statement.”

Rookie move.

Avenatti’s decision to bring the defamation action was a rookie move. He hates Trump, and no doubt thought that bringing the defamation action would be one more way to get in his face. In reality, it gives Trump a win against Daniels (although her declaratory relief action still remains), and now makes Daniels responsible for (no doubt) significant attorney fees.

It also exposes Avenatti to a malpractice claim by Daniels, should she decide she is not happy with this result. In my opinion, the fact that this defamation claim would not survive an anti-SLAPP motion was so apparent that it was below the standard of care to pursue it. As a result, Daniels is now on the hook for probably no less than $50,000 in attorney fees to Trump. [Update: $293,000!] Daniels works in the adult film industry, and according to an article by CNBC, likely makes around $1,000 per sex scene. I have to believe that Daniels won’t keep Avenatti around much longer. [Update: March 12, 2019 — Avenatti no longer represents Daniels.]

Stormy Daniels with Michael Avenatti

Avenatti did not take the loss well. Like a kid in the school yard who loses at tether-ball and cries, “yeah, well no one likes you,” Avenatti responded with an equally mature tweet, stating, “@realDonaldTrump – tens of millions of Americans are tired of your fraud, lies, and corruption. They are equally tired of your attacks on women, especially the ones who you have had sex with while cheating on your wives. We (and the UN) are laughing AT YOU, not with you.”

For their parts, Trump referred to Daniels as “Horseface” and Daniels implied that he has a “tiny” penis. It’s all very classy.

As to Avenatti’s tweet, in reality, at least for today, he is the one receiving the laughter. But remember, this is not the end of the legal claims by Daniels against Trump. This originated from the non-disclosure agreement she signed and is now seeking to invalidate, and ¶ 8.2 of that agreement contains an attorney fees provision. If she ultimately prevails on that action, Avenatti could have the last laugh, at least as regards attorney fees. [Au contraire mon frere! See March 7, 2019 update below and article here.]

[UPDATE: Oct. 22, 2018] Not a great week for Michael Avenatti. A week after his very public and foolish loss in Daniels v. Trump, a judge ordered him to pay $4.85 million to a former lawyer from his office — a lawyer he had claimed actually owed him money. Avenatti’s firm had already been ordered to pay $10 million to the attorney, but with today’s ruling, Avenatti was made personally liable for $4.85 million. It represented a loss within a loss, because Avenatti had sought removal of the action to Federal Court, but the court denied the motion, concluding that the motion had no merit and was designed only to delay the ruling.

Within hours of that ruling, another judge found in favor of Avenatti’s landlord, ordering the eviction of Avenatti and his staff from Avenatti’s law offices in Fashion Island in Newport Beach, California. According to the complaint, Avenatti’s firm has not paid rent for four months.

A copy of the complaint by Jason Frank against Avenatti can be found here.

[UPDATE: March 7, 2019] Trump’s attorney, Charles J. Harder, was kind enough to send me an email with the latest news about the case. Remember, the case by Daniels (Clifford) contained the defamation claim, which was stricken, and the declaratory relief action, whereby Daniels was seeking a determination that the ‘hush” contract was unenforceable. Today, the court threw out that claim as well.

On the one hand, this is kind of a “push” for Trump, but on the other it is a major win. It is a push because it leads to the result Daniels was supposedly seeking. She wanted out of the hush agreement, and Trump basically argued that since he was not seeking to enforce the agreement, and since Daniels had been ignoring the agreement in any event, the entire case was moot. The court agreed, and that was the basis for the dismissal. But on the other hand, Trump still prevailed on the case, thereby depriving Avenatti of any attorney fees. I had said that Avenatti might get the last laugh if he could prevail on the claim and then seek attorney fees, but there is no joy in Mudville — Avenatti has struck out. I wrote about this latest turn here.

[UPDATE: March 25, 2019] Michael Avenatti was arrested for extortion, and faces up to 97 years in prison. He allegedly threatened to hold a news conference if shoe company Nike didn’t pay his client, an AAU basketball coach in California who alleged the company was paying families of high school prospects, and hire Avenatti to conduct an internal investigation of the company.

SLAPP026 – Don’t Sue for Defamation Unless the Statements Really are False

Canada, eh? Those hosers in Ontario didn’t get around to passing an anti-SLAPP statute until 2015, and they’re still trying to figure it out.

In this episode of the California SLAPP Law Podcast, we travel to the great white north to examine an anti-SLAPP motion that was denied by the trial court, but granted by the appellate court. It beautifully illustrates the most fundamental point of a defamation case that oh so many attorneys still don’t understand. A statement is not defamatory unless it is false, no matter what the quantum of harm it may cause.

SLAPP025 – Anti-SLAPP Motion Defeats Gone With the Wind Actress

de Havilland v. FX Networks, LLC

If you sell t-shirts bearing the images of the Three Stooges, can you be sued for violating their right of publicity?

And if you create and broadcast an 8-part docudrama centering on Bette Davis and Joan Crawford, can Olivia de Havilland sue you for including the details of HER life in that story?

Well, the just decided case of de Havilland v. FX Networks, LLC answers both those questions.

I enjoyed this anti-SLAPP case because it beautifully illustrates how some judges just don’t understand precedent.

Olivia de Havilland, who is now 102 years old, did not like the way she was protrayed in the FX docudrama, “Feud: Bette and Joan,” centering on deceased actresses Bette Davis and Joan Crawford.

In case you don’t recognize the name, de Havilland portrayed Melanie in Gone With the Wind. She was the one Scarlett was always jealous of, as I recall.

She sued FX, claiming the portrayal of her in the show amounted to the unauthorized use of her name and likeness for commercial gain.

FX responded with an anti-SLAPP motion.

The trial court, Judge Holly Kendig presiding, denied the anti-SLAPP motion, relying in large part on a California Supreme Court decision called Comedy III Productions v. Gary Saderup, Inc.

FX appealed. Listen to Episode 25 to see how it all turned out.

What is the current status of the requirement that an anti-SLAPP motion be heard within 30 days of filing?

Previously, Fair Political Practices Commission v. American Civil Right Coalition, Inc. and Decker v. U.D. Registry had held that the 30-day requirement was jurisdictional. Now Karnazes v. Ares holds that it is the clerk’s burden to set the hearing within 30 days. But does that mean counsel is safe if a hearing is outside the 30-day deadline. Listen to find out.

The Morris Plan – How to Force Yelp (and other sites) to Remove Defamatory Reviews

Removing defamatory reviews.

What you are about to read is a completely untested but viable approach to forcing Yelp to remove a false and defamatory review, based on recent legal developments. It is on the bleeding edge of the law, and as that name implies, it may not be without pain as it works its ways through the courts. No nasty emails if it doesn’t work for you.

This approach arises from Yelp’s irrational need to create bad precedent, as evidenced by the Yelp v. McMillan case, and most recently the Supreme Court matter of Hassell v. Bird, wherein Yelp argued that the content posted by third parties is its content.

To those unfamiliar, in Hassell v. Bird the defendant Bird defamed a law firm – the Hassell Law Group – in a Yelp review. Hassell sued Bird, and the court found that the Yelp “review” by Bird was false and defamatory, and ordered Bird to take it down. But then comes a twist unique to this case. Knowing that Bird would be unlikely to comply with the order, the court also ordered Yelp to remove the review, even though Yelp had never been a party to the action.

It is not uncommon for court orders to include persons or entities who were not parties to the action, if some action by those third parties is necessary to effectuate the order. In a typical renter eviction action, for example, only the known tenant will be named in the action, but the eviction order will apply to anyone occupying the residence, in case the tenant allowed others to move in, subleased the property, etc.

Here, the trial court felt that it was reasonable to require Yelp to take down the false review, even though it was not a party to the action. The review had been deemed to be defamatory, and it was not Yelp’s speech that was being attacked, so certainly Yelp would have no horse in the race. Indeed, presumably Yelp wants the reviews posted on its site to be as truthful as possible, so it should welcome an order that would result in the removal of a false review.

But Yelp’s business model depends on negative reviews, so it cried foul. Even after the trial court and the Court of Appeal agreed that the review was false and defamatory, and even after the Court of Appeal found that the judge’s order was entirely proper, Yelp went to the Supreme Court to fight for the right to publish false and defamatory reviews.

A Federal law called the Communications Decency Act (“CDA”) does not allow a direct action against sites such as Yelp for the comments of third parties, so Hassell did exactly the right thing in failing to name Yelp in the action. Had it named Yelp, Yelp would have filed an anti-SLAPP motion, and Hassell ultimately would have been responsible for the attorney fees incurred in bringing that motion. By simply including Yelp in the injunctive relief, that was avoided.

But in its appeal briefs, both to the Court of Appeal and the Supreme Court, Yelp argued that it WANTS to be named in actions such as this. It candidly admitted at oral argument before the Supreme Court that it would then argue that it should not have been named and would bring an anti-SLAPP motion to be dismissed from the action, but gosh darn it it should at least be NAMED.

In fact, Yelp was given notice of the legal action, and had every opportunity to intervene if it felt that Bird’s review was not defamatory and should be protected. The complaint was sent to Yelp, explaining that the review was defamatory and asking Yelp to remove it. But Yelp argued that it wants to be a real party, not some afterthought. In this one instance, Yelp may actually have a valid stance.

During oral argument in front of the Supreme Court, the Chief Justice used the analogy of all the threats of legal action against her as the Chief Justice. Many people who have no concept of judicial immunity think they will scare the Justices into changing the law with threats of lawsuits. “Dear Chief Justice, you did not recognize my right to carry a concealed surface to air missile, so I’m going to name you in a legal action for violation of my constitutionals rights.” As she pointed out, she does not feel compelled to intervene in every such action, and quite reasonably Yelp could not be expected to intervene in this action. Just as with the colorful example of the Chief Justice, while Yelp was technically put on notice of the action and afforded a chance to intervene, it is a bit of a stretch to expect that Yelp would do so.

But the facts of the case and the argument of counsel for Yelp make clear that the level of notice is a meaningless distinction. Remember, Yelp argued that even if it had been given “official” notice in the form of being named in the action, it would have just brought an anti-SLAPP motion arguing that it should not be included in the action. In other words, fail to name it in the action, and Yelp will argue it should have been named. Name it in the action, and Yelp will claim it can’t be named.

The Morris Plan

So how do we untie this Gordian knot? Thankfully, Yelp has provided (albeit unintentionally) the map that allows us to navigate the narrow straights between the prohibition against naming it as a party, on the one hand, and the concerns of the Supreme Court that Yelp be given the opportunity to object, on the other. And therein arises The Morris Plan.

When suing the person who posted the false and defamatory review on Yelp, the prayer of the complaint should include a specific request for injunctive relief against the defendant and, in the alternative, Yelp, requiring that the defamatory review be removed. The complaint should then be personally served on Yelp, and that personal service should be reflected in the proof of service.

With this procedure, Yelp will legally be put on notice that it may be asked to take down a review if (1) the court first determines that the review was false and defamatory, and (2) the defendant then fails to comply with the court order to remove the defamatory review. Yelp is then free to intervene to its heart’s content, to protect the truly bizarre right to publish defamatory content that it tried to argue in front of the Supreme Court.*

How will Yelp respond?

Here is what I predict will happen as attorneys implement The Morris Plan. The first few times Yelp is served with a complaint in this manner, it will test the waters with an anti-SLAPP motion. It will argue that the CDA protects if from liability, and although it is not officially named as a party to the action, and the complaint alleges no liability as to Yelp, it is nonetheless being “brought into” the action by way of the prayer.

This argument will be unsuccessful, because the eventuality is just too attenuated. Yelp need not respond to the complaint unless it voluntarily elects to do so. And here is the fun part. In opposition to any anti-SLAPP motion by Yelp, counsel for Plaintiff can now attach the record from the Supreme Court, wherein Yelp argued that it WANTED to be provided notice of this sort of action to afford it the opportunity to intervene. It would be logically and legally inconsistent for Yelp to now argue that complying with its own request runs afoul of the CDA.

This approach should be more than sufficient to satisfy the concerns of the Supreme Court, because Yelp is afforded two opportunities to defend its self-proclaimed “right to post defamatory reviews.” It can intervene in the action upon service of the complaint, or it can wait for the determination by the court that the review was false and defamatory, wait to see if the reviewer complies with the court order and removes the content, and only then challenge the court’s order as to Yelp.

The best way to look at this conceptually is that Yelp is the one seeking affirmative relief, and therefore it does not violate the CDA to make it go to court to seek that relief. Allow me to make an analogy to illustrate the point.

There is a very disturbing trend occurring in Canada and England, where the governments are mandating certain speech from its citizens. Although free speech is often viewed as a western concept, in fact it is only America that has a guarantee of free speech in its Constitution. So let’s say that this trend spreads to America, and it is decided that the terms “Chinese food” and “Chinese restaurant” are offensive, and therefore illegal. The citizenry is instead mandated to use the terms “Asian food” and “Asian restaurant.” This concerns Yelp, because it knows many of its users will post reviews about Chinese restaurants and Chinese food, and it wants to protect them from the speech police. Any attempt by Yelp to challenge the law would be on its own and would have nothing to do with the CDA, even as it users were dragged off to the Gulags. It should be remembered that by its own terms, the CDA provides that it in no way impacts state laws unless they are contrary to the CDA. So, for example, California has statutes that define libel, and there is no prohibition against determining that a review posted on Yelp is defamatory, and ordering that it be removed. Doing so is not contrary to the CDA.

Thus, when Yelp contends that it wants an opportunity to be heard on whether a review that it did not write or post is defamatory, it is asking for affirmative relief, and it is not placing any improper burden on Yelp to require that it pursue such affirmative relief.

Lest it be argued that Yelp’s inclusion in the takedown order is not necessary since the court has full contempt power against the original reviewer, the Supreme Court saw right through that claim by Yelp. First, some just don’t care about contempt orders. We have all heard stories about husbands and wives who voluntarily go to jail rather than to comply with some aspect of a court’s divorce decree. But even more persuasively, one Justice pointed out that Yelp’s own Terms of Use provide that it can block reviewers from removing their own reviews. An order that the reviewer must remove the false and defamatory review would be meaningless if Yelp won’t permit the reviewer to do so. And that shows the wisdom of the decision by the trial court and Court of Appeal in concluding that Yelp could be included in the takedown order.

This technique will be especially effective against Yelp, since it asked for it.

This approach may well work with any review site, but it will be especially effective as against Yelp since it is officially on record as requesting that it be named in any action that might require it to take down a defamatory review. Further, the outcome of Hassell v. Bird will likely have no negative impact on The Morris Plan. If the court concludes simply that Yelp can be included in any takedown order, all the better. But if the court holds that in this particular case Yelp was not afforded sufficient due process, this approach deals with that issue.

Again, no promises, but thanks to Yelp, this approach seems unassailable.


* The CDA protects websites from any liability for content posted by third parties, specifically because it is not the websites’ own content. Yelp argued that the review posted by Bird was also Yelp’s content, and Yelp therefore had an independent right to protect. As an example, it cited to its star review system and algorithm. The reasoning is hard to follow, so bear with me a moment.

Say nine people posted five-star reviews about Hassell, and Bird then posted a one-star review (no doubt using the cliche, “I wish I could post a zero-star review”). This results in a ranking of 4.6 stars for Hassell. But if Yelp is required to remove that false, one-star review, Hassell would end up with a five star average based on the remaining nine reviews. By the reasoning of Yelp, that is why the content is also “Yelp’s content,” because removing it will impact its ranking system. As I’m sure I don’t need to explain (but the point apparently eluded Yelp), yes, it does impact the overall ranking, but only to make it more accurate since it removes the false review. Under the same false logic, Yelp contended that it also impacts its algorithm, because the algorithm failed to flag the review as a false review, and therefore concluded that Hassell should get a 4.6 star ranking. Unless and until Yelp’s algorithm deems the review to be false, it must remain, or at a minimum Yelp must be permitted to defend it, Yelp argued.

SLAPP024 – Supreme Court Clarifies Whether Amended Complaint Resets 60-Day Clock for Anti-SLAPP Motion

In Episode 24 of the California SLAPP Law Podcast, we tackle two important anti-SLAPP issues.

Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism

The conventional wisdom until now, as expressed in cases such as Yu v. Signet Bank/Virginia, was that an amended complaint creates an new 60-day period to file an anti-SLAPP motion. Then along came the Court of Appeal decision of Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism. In that case, the plaintiff originally sued on two causes of action, to which the defendant demurrered. When the plaintiff filed a third amended complaint, which added two new causes of action, the defendant finally filed an anti-SLAPP motion, challenging all the claims, including the two that had been there all along. The trial court refused to consider the challenge to the previously existing claims, stating they were past the 60 days since they could have been previously challenged. The Supreme Court agreed.

This is a quantum shift in the prior case law, but will the consequences be as severe as the holding seems to indicate? Listen to Episode 24 to find out, and for the best strategies for dealing with the Newport Harbor reasoning.

Dowling v. Zimmerman

Certainly not a new case, but we use it to discuss whether an appeal stays collection of costs and attorney fees following a successful anti-SLAPP motion.

 

You CAN Join an Anti-SLAPP Motion Brought by Another Party

I remember sitting in court – Judge Banks’ court in Orange County to be specific – and he called a motion for summary judgment that was on calendar, noting that another party had “joined” the motion. I see this all the time. One party files a demurrer, or a motion for summary judgment, or whatever, and an attorney representing a different party says, “hey, that’s a great idea,” and files a “notice of joinder” on the motion. You may have engaged in the behavior yourself.

But as Judge Banks explained to the unfortunate attorney, it doesn’t work that way. As he put it, “when you ‘join’ in a motion, it means only that you are cheering from the sideline, ‘go team go.’” The court has no power to bestow the requested relief on your client.

The reason should be self-evident. The evidence that is offered in support of a motion for summary judgment for one client may have no applicability to another. The missing elements that would justify sustaining a demurrer as to one party may not apply to another. If “joinder” were permitted, then the non-movant would be placed in a terrible quandary. He, she, or it would have to speculate on why the same arguments would apply to the joining party, and try to oppose them.

But with all that said, an anti-SLAPP motion presents a different analysis. Because of the two prong analysis, a defendant can ride on the coattails of another moving defendant. If the movant successfully argues that the conduct falls under the anti-SLAPP statute, the burden then shifts to the plaintiff to show a likelihood of success. The second prong can then be decided without any evidence from the defendant who joined the motion.

In the case of a motion for summary judgment, for example, the moving defendant must present evidence sufficient to establish a complete defense to the targeted claims, or to show that the plaintiff will be unable to prove an essential element. Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 851. Simply joining the motion of another party does not satisfy this requirement.

But on a special motion to strike, the moving defendant need only demonstrate that the action arises out of protected First Amendment activity. Paul for Council v. Hanyecz (2001) 85 Cal.App.4th 1356, 1365. In Barak v. Quisenberry Law Firm (2006) 135 Cal.App.4th 654, 660-661, the Court concluded that so long as one defendant met that burden, others could join.

But don’t take this too far. Obviously, if the complaint alleges different types of wrongdoing by the defendants, the court may not be able to rule as to the joining defendant. Complicating matters further, there were problems with the plaintiff’s opposition in Barak.

Nonetheless, if you find yourself in a situation where one of the other defendants has filed an anti-SLAPP motion, take a hard look to determine if it would make sense to join in the motion.

Mandated Arbitration Does Not Create a “Protected Activity”


A decision that involves both beer and anti-SLAPP law is right up my alley, so I had to bring you the details of Mission Beverage Company v. Pabst Brewing Company, LLC out of the Second District.

The importance of this case is the lesson it teaches in focusing on whether the conduct in question is indeed “protected activity” such that it satisfies the first prong of the anti-SLAPP analysis. As I have stated here before, the scope of the anti-SLAPP statute has grown and grown, but attorneys must not give short shrift to the first prong.

I. Facts

Defendant and appellant Pabst Brewing Company, LLC (Pabst) is a brewer of beers; among others, Pabst brews such American classics as Pabst Blue Ribbon (a beer I will occasionally enjoy on a hot day), Colt 45 Malt Liquor (good only for cleaning spark plugs), Old Milwaukee (not as bad as Budweiser, but something I would drink only if I had not had a cold beer for over a year and nothing else was available), Schlitz (I don’t recall if I liked it), and Stroh’s (I’ve never tried it).

In January 2009, Pabst entered into a written Distributor Agreement (Agreement) with Mission Beverage Company (Mission). Pabst granted Mission the exclusive right to distribute many of its beers within specifically delineated boundaries within Los Angeles County. In turn, Mission promised to “aggressively promote, encourage, and increase” the sales of, and “customer satisfaction” with, those beers. The parties’ powers to terminate the contract were not the same: Mission could terminate the contract with 60 days’ notice and irrespective of cause, while Pabst could terminate the contract only for one of ten enumerated reasons and then only if it gave Mission an opportunity to cure. One of those ten reasons, memorialized in section 8.2.10 of the Agreement, permits Pabst to terminate the Agreement if Pabst has a “right to terminate” under “applicable state or federal law, statute or regulation.” The Agreement also provides that any and all litigation should occur in court, and contemplates that Mission recover attorney’s fees if it prevails in litigation against Pabst.

In November 2014, Pabst came under new ownership. Three months later, in February 2015, Pabst sent Mission a letter “commencing termination” of the Agreement “pursuant to section 25000.2 and Section 8.2.10 of the Agreement.” Pabst stated that Classic Distributing & Beverage Group, Inc. (Classic) and Beauchamp Distributing Company (Beauchamp) would be replacing Mission as Pabst’s distributor. (I’m sure that would hurt from an economic standpoint, but I have to believe there would be some relief in no longer having to purvey Colt 45 Malt Liquor.) Pabst did not cite any other basis for terminating the Agreement.

The liquor industry is highly regulated, and section 25000.2 provides that when a brewer who acquires the right to manufacture beer “cancels an existing beer wholesaler’s rights to distribute a product,” that successor brewer’s designated replacement distributors must negotiate in good faith – and, failing that, arbitrate – with the existing distributor “to determine the fair market value of the affected distribution rights.” Pretty sweet protection. The brewer can fire you, but you get the fair market value for the distribution rights. Adhering to these procedures, Pabst’s designated distributors tried to negotiate with Mission, but Mission would not go quietly into that good night. It would not agree to a price so in March 2015, Pabst’s sent Mission a letter initiating arbitration.

II. Procedural Background

The following month, Mission responded by suing Pabst for (1) breach of contract, and (2) declaratory relief. Specifically, Mission alleged that Pabst breached the Agreement by “attempting to terminate” the Agreement on the basis of section 25000.2, which did not “provide an independent right to terminate ” Mission also sought a declaration that there was no valid “termination” of the Agreement.

So that left Mission with two litigation fronts – the arbitration and the litigation. Mission made several attempts to halt the ongoing arbitration between itself and Pabst’s newly designated distributors, all to no avail. Mission made an ex parte motion to stay the arbitration, but that motion was denied “without prejudice” to filing a noticed motion. Mission thereafter filed a noticed motion, but that motion was also denied. Not deterred, Mission also asked the arbitrator to dismiss the arbitration, but the arbitrator refused.

The arbitrator issued a final award in October 2015. In the award, the arbitrator made clear that his order “contained no findings, declarations or damages determinations regarding Mission’s pending civil cause of action that Pabst breached the Agreement.” This is an important point, because it made clear that the arbitrator viewed the arbitration and litigation as separate and distinct, with different issues presented. But as to the arbitration, the arbitrator fixed the fair market value of the distributorship rights conferred by the Agreement. Mission did not appeal the award, and Classic and Beauchamp thereafter paid Mission the amount fixed by the arbitrator.

For its part, Pabst refused to recognize the distinction being made by the arbitrator, and filed a motion to strike Mission’s lawsuit under the anti-SLAPP statute. Pabst argued that the “linchpin” of Mission’s lawsuit was Pabst’s “invocation of the statutorily-mandated arbitration process under section 25000.2,” which Pabst asserted was “protected activity” under the anti-SLAPP statute. Pabst further contended that Mission’s lawsuit lacked minimal merit because no “legally viable or non-duplicative remedy” remained once Mission had accepted the payment reflecting the fair market value of its distributorship rights from Classic and Beauchamp.

The theory was not as crazy as it may appear at first blush. Remember, “protected activity” under the anti-SLAPP statute includes activities related to “official proceedings” such as “statutorily required arbitration.” This wasn’t some contract requiring arbitration, but rather was a statutory scheme that forced arbitration, and here Mission was suing Pabst for following that mandated process, according to Pabst’s argument.

But the trial court disagreed and denied the anti-SLAPP motion. It concluded that Mission’s lawsuit was separate and distinct from the arbitration: The lawsuit was “for breach of the contract between Mission and Pabst,” while the arbitration was “between the distributors,” and the primary issue in the lawsuit – “whether the Agreement was validly terminated” – is “an issue separate from (and prerequisite to) the arbitration, not part of it.”

Despite the seemingly clear logic of the trial court’s conclusion, and the obvious problems that will be discussed below, Pabst appealed.

III. A Primer on Beer Law

To fully understand the reasoning of the Trial Court and Court of Appeal, a primer on beer law is required. The Alcoholic Beverage Control Act (Act) divides up the distribution chain for alcohol into three tiers – namely, (1) “manufacturers,” (2) “wholesalers” or distributors, and (3) “retailers”; and generally prohibits each from having an ownership interest in the others.

Section 25000.2 dictates the procedures to be followed when a “successor beer manufacturer acquires the rights to manufacture” held by a brewer, and then “cancels any of the [brewer’s] existing beer [distributor’s] rights to distribute the product.” The successor brewer “cancels” a distribution contract if it “terminates, reduces, does not renew, does not appoint or reappoint, or causes any of the same.” The pertinent procedure is as follows. First, the successor brewer must “notify” the existing distributor of its “intent to cancel any of the existing distributor’s rights to distribute the product.” Second, the entity the new brewer wants to be its new distributor – whom the Act calls the “successor beer manufacturer’s designee” – is required to “negotiate in good faith” with the existing distributor to “determine the fair market value of the affected distribution rights.” “Fair market value” is defined as “all elements of value, including, but not limited to, goodwill.” If the existing distributor and the successor brewer’s preferred distributor can “agree to the fair market value,” then the successor brewer’s preferred distributor “shall compensate the existing” distributor “in the agreed amount.” If they “are unable to mutually agree,” then the successor brewer’s preferred distributor “shall initiate arbitration to determine the issue of compensation for the fair market value of the affected distribution rights” following the time lines set forth in the statute, and if the existing distributor does not appeal the arbitration award, the successor brewer’s preferred distributor must pay the existing distributor that amount.

IV. Analysis

A. What conduct is the basis for the challenged claim(s), and does that conduct constitute protected activity?

Pabst argued that the trial court erred in concluding that Mission’s breach of contract and declaratory relief claims did not arise from protected activity because (1) those claims are based upon Pabst’s letter purporting to cancel the Agreement, and (2) that letter invokes section 25000.2’s procedures and is accordingly preparatory to statutorily mandated arbitration, which constitutes an official proceeding within the meaning of Code of Civil Procedure section 425.16, subdivision (e)(1) and (2).

1. What conduct by Pabst is Mission challenging?

A claim is subject to the anti-SLAPP statute only if conduct constituting protected activity “itself is the wrong complained of.” Park, 2 Cal.5th at p. 1060. Thus, where a plaintiff’s claim is based upon “an action or decision” of the defendant, it is not enough that some protected activity by the defendant precedes that action or decision, that some protected activity is the means of communicating that action or decision, or that some protected activity constitutes evidence of that action or decision. To fall under the anti-SLAPP statute, the challenged action or decision itself must be protected activity.

This is where so many attorneys go wrong. As occurred here, the attorney will see that a mandated action precipitated the complaint, and therefore jump to the conclusion that the complaint is arising from that protected activity. Close, but no cigar. The attorney needs to take one more baby step back to get a slightly larger view of the issue. The protected activity may be what lead to the complaint, but it does not necessarily follow that the complaint is challenging the protected activity. Where a plaintiff’s claim attacks only the defendant’s decision to undertake a particular act, and if that decision is not itself protected activity, that claim falls outside the ambit of the anti-SLAPP statute.

For example, in Park (above), the California Supreme Court held that the anti-SLAPP statute did not apply to a claim challenging a university’s decision to deny tenure to a professor, even though the decision was communicated in writing and even though the university dean’s comments supplied evidence of discriminatory animus. In Ulkarim v. Westfield LLC (2014) 227 Cal.App.4th 1266, 1275-1276, 1279, the court held that the anti-SLAPP statute did not apply to a claim challenging a landlord’s decision to terminate a tenancy, even though the landlord subsequently served a notice to quit and filed an unlawful detainer lawsuit. And in McConnell v. Innovative Artists Talent & Literary Agency, Inc. (2009) 175 Cal.App.4th 169, 176-177, the court held that the anti-SLAPP statute did not apply to a claim challenging an employer’s decision to wrongfully terminate employees, even though the employer later sent a letter terminating those employees. Only when the decision that the plaintiff attacks is itself protected activity will the anti-SLAPP statute apply.

In this case, Mission’s breach of contract and declaratory relief claims challenge Pabst’s decision to terminate the Agreement. That is because both claims challenge Pabst’s right to terminate the Agreement and, in particular, Pabst’s assertion that section 25000.2 provides such a right. Pabst’s subsequent letter merely communicated Pabst’s decision to terminate, but “that communication does not convert [Mission’s] suit into one arising from such speech.” (Park, supra, 2 Cal.5th at p. 1068.)

2. Is that conduct protected activity?

The Court of Appeal properly concluded that Mission’s claims did not involve protected activity for two reasons. First, Mission’s claims are based upon Pabst’s decision to terminate the Agreement – not Pabst’s subsequent letter communicating that decision. That decision precedes and is unconnected with any official proceeding. Second, that letter did not qualify as protected activity. Although section 25000.2’s mandatory arbitration undoubtedly qualifies as an official proceeding under the governing precedent, Pabst’s letter is not preparatory to such an arbitration. That is because section 25000.2 first contemplates that the existing distributor and successor brewer’s designated distributors negotiate in good faith and resort to arbitration only if negotiations fail. Like the insured who files a claim not knowing whether the insurer will pay the claim or fight the claim in litigation, Pabst had “no reason to believe” that arbitration “will follow” from its letter because Mission, Classic, and Beauchamp could well have negotiated a settlement and obviated any need for arbitration.

B. Do Mission’s Claims Have Minimal Merit?

Since the first prong of the anti-SLAPP analysis was not met, the second prong becomes moot, but for fun let’s analyze that as well.

Pabst argued that Mission’s two claims lacked the minimal merit necessary to withstand its anti-SLAPP motion. Specifically, Pabst asserted that Mission could not prove (1) any breach of contract because section 25000.2 independently confers upon brewers a right to terminate a distribution contract, or (2) any damages arising from any breach because Mission was made whole by Classic’s and Beauchamp’s payment reflecting the fair market value of Mission’s distribution rights. Because any breach of contract claim requires proof of a contractual duty, breach of that duty, causation, and damages, and because Mission’s declaratory relief claim that there was no valid termination in effect seeks a declaration that Pabst breached the contract, Mission was required to make out a prima facie case that Pabst breached the Agreement and that Mission was damaged by that breach.

The trial court did not bother to analyze the second prong, but the Court of Appeal took the opportunity, as permitted by Schwarzburd v. Kensington Police Protection & Community Services Dist. Bd. (2014) 225 Cal.App.4th 1345, 1355 and Roberts v. Los Angeles County Bar Assn. (2003) 105 Cal.App.4th 604, 615-616), on the grounds that an analysis of section 25000.2 was important.

1. Has Mission made a prima facie showing that Pabst breached the Agreement?

Because Pabst’s termination of the Agreement rested solely on its position that section 25000.2 confers upon brewers an independent right to terminate a distribution contract, whether Mission has made out a prima facie case for the element of breach turns on whether section 25000.2 confers such a right. This is a question of statutory interpretation, which the court reviewed de novo. (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1247.)

It concluded that the text of section 25000.2 sets forth the procedures that must be followed when a “successor beer manufacturer acquires the rights to manufacture a product” and “cancels any of the existing distributor’s rights to distribute the product.” The statute prescribes what happens after the successor brewer cancels, but nothing in the statute’s text expressly grants the successor brewer the precursor right to cancel distribution rights. More to the point, nothing in the statute’s text expressly grants the successor beer manufacturer the further right to cancel distribution rights regardless of its contractual obligations with the existing distributor.

Nor could the Court infer an implied right to cancel distribution contracts – with or without impunity – from section 25000.2’s legislative history.

“To begin, section 25000.2 was sponsored by the California Beer and Beverage Distributors. It seems highly unlikely that an organization representing distributors would sponsor legislation that would deprive their members of their negotiated contractual rights. Moreover, section 25000.2 was enacted to address a specific problem: Brewers were buying up and consolidating more and more brands of beer and then seeking to use their own network of distributors, so there was a need for “an authorized and structured process to insure the timely payment of fair and market-based compensation for the transfer of brands between” distributors. Solving this problem does not require brewers to be granted an unvarnished right to terminate their distributorship contracts.”

Thus, Pabst’s argument was built entirely on a false premise. It claimed that having notified Mission that its rights were being terminated, arbitration naturally followed, and both were protected activities. But it still remained to be determined if Pabst had the right to terminate to begin with under the terms of the Agreement.

The Court goes on to list several more reasons that Pabst’s argument fails, but one in particular was the sort that before I was through the first pages of the decision, I was scratching my head wondering how Pabst could not see this point or chose to ignore it.

Pabst argued that section 25000.2 must be read to foreclose any lawsuit by an existing distributor against the brewer because such a lawsuit will always be either unripe or moot. Here was the reasoning of Pabst, which can be a little difficult to follow.

Under the scheme of section 25000.2, at least as Pabst interpreted it, (1) the termination notice is sent, (2) but the original distributor goes right on distributing until, (3) the new distributor pays the fair market value for the distributorship, whether that number is determined by agreement or arbitration. Thus, according to Pabst, there is no harm no foul to the prior distributor. It continued to make its profits up to the time it was paid in full for the distributorship.

I’m sure you begin to see the flaws in that argument. By that reasoning, no business is harmed by an unauthorized takeover, so long as it is paid the fair market value of the business.

According to the reasoning of Pabst, once the distributor is paid, any lawsuit instantly becomes moot because the payment makes the distributor whole and makes any declaratory relief redress for a “past wrong.”

The Court of Appeal saw the flaws as well, finding that Pabst was incorrect that a distributor’s claim for breach of contract is not ripe as long as it continues to distribute the brewer’s beer because, quite simply, the distributor may sue for anticipatory breach. It also concluded that Pabst was incorrect in arguing that a distributor’s claim is moot once the newly designated distributors remit the fair market value of the distribution rights because, additional damages may be available if there is a wrongful breach and there remains a live “actual controversy” warranting declaratory relief regarding those additional damages and the wrongful breach that caused them.

Perhaps Pabst can be forgiven for thinking there would be no future profits from the distribution of its beer, because of the Colt 45 component.

So, to summarize, when considering an anti-SLAPP motion, always examine the “protected activity”. Mission was suing for breach of contract and declaratory relief, arising from Pabst’s termination of the contract. Even if Pabst was 100% confident that it had the unfettered right to terminate the contract (a position that turned out to be incorrect), this remained a contract claim and did not involve any protected activities within the meaning of the anti-SLAPP statute.

Aaron Morris, Attorney
Aaron Morris
Morris & Stone, LLP

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Tustin, CA 92780

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