UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
July 8, 2008
TIMOTHY W. MOSER, AN INDIVIDUAL, PLAINTIFF,
TRIARC COMPANIES, INC., A DELAWARE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge
ORDER (1) DENYING DEFENDANT'S MOTION TO CALIFORNIA CODE OF CIVIL PROCEDURE § 425.16 AND (2) DENYING AS MOOT PLAINTIFF'S REQUEST FOR JUDICIAL NOTICE STRIKE PURSUANT TO (Doc. Nos. 25, 57)
On August 1, 2007, Triarc Companies, Inc. ("defendant") moved to strike both claims for relief in Timothy W. Moser's ("plaintiff") first amended complaint ("FAC"), pursuant to California Code of Civil Procedure § 425.16 ("anti-SLAPP"). (Doc. No. 25.) On November 2, 2007, plaintiff opposed defendant's motion to strike and filed a notice of lodgment. (Doc. Nos. 42 & 43.) On November 16, 2007, defendant replied to plaintiff's opposition and objected to the evidence supporting plaintiff's notice of lodgment.*fn1 (Doc. No. 49.) On May 16, 2008, plaintiff requested that the Court take judicial notice, pursuant to Federal Rule of Evidence 201, of documents which evidence correspondence between Encore Capital Group, Inc. ("Encore") and the Securities and Exchange Commission ("SEC"). (Doc. No. 58.) Defendant objected to plaintiff's judicial notice request on May 29, 2008. (Doc. No. 59.) On June 12, 2008, plaintiff replied to defendant's opposition. (Doc. No. 61.) For the reasons stated below, the Court DENIES defendant's anti-SLAPP motion, and DENIES AS MOOT plaintiff's request for judicial notice.
A. Factual Background
During the relevant period, defendant was allegedly a "major shareholder . . . own[ing] a significant percentage of the outstanding shares" of Encore. (FAC ¶ 9.) Defendant "beneficially owned or had voting and dispositive power over what is considered voting control of" Encore. (Id.)
In November 2000, the Plaintiff began working for Encore as an executive vice-president, general counsel, and secretary. (FAC ¶ 10.) Encore's business involves the purchase, sale, and servicing of consumer debt. (Id. ¶ 9.) In the spring of 2001, plaintiff reported accounting irregularities to Encore's board of directors and audit committee. (Id. ¶¶ 11-13.) Outside counsel conducted an investigation into the alleged irregularities and found no evidence of wrongdoing by Encore. (Id. ¶ 23.) Subsequently, Encore terminated plaintiff's employment on July 31, 2001. (Settlement Agreement & Mutual Release ("Agreement"), Recital No. II, June 21, 2002.)
On June 21, 2002, Encore and plaintiff entered the Agreement to resolve plaintiff's termination. The Agreement included two clauses at issue in this case. First, the Agreement stated that Encore did not terminate plaintiff "for cause." (FAC Ex. A, ¶ 1.1.2.) Second, the Agreement's confidentiality clause provided that the parties "shall not disclose any information regarding the terms of this Agreement to any third party . . . other than stating that all issues between the Parties 'have been resolved.'" (Id. ¶ 1.1.1.)
In September 2003, Encore filed a Form S-1 with the SEC, as required by law. See 15 U.S.C. § 77e. The Form S-1 is a registration statement that must be filed prior to the sale of securities. (FAC ¶ 21.). Encore filed the Form S-1 to "permit Encore and/or Triarc to sell shares of Encore stock." (Memo. ISO Motion, at 5.) The Form S-1 contained a section titled "Settlement with Former Officer" ("Officer Section") to summarize plaintiff's report of accounting irregularities, the investigation by outside counsel, and the finding of no wrongdoing by Encore. (Doc. No. 3 in 04cv2085, Exhibit B.) In the Officer Section, Encore stated that Moser "questioned the accuracy of its projections, liquidity position, adequacy of disclosure to the board of directors and auditors, etc." (Id.) The Officer Section explained that the outside counsel report had concluded:
[T]he former officer had not pointed to any facts that reflected a lack of integrity or competence in [Encore's] management or that led the law firm to conclude that [Encore's] 2000 Form 10-K contained any material misstatements or omissions. The law firm also concluded that none of the issues raised by [Moser] required any new or amended public disclosure or other further action by [Encore's] audit committee. (Id.) Further, the report explained that plaintiff was placed on administrative leave and then terminated. (Id.) Encore allegedly repeated these statements by incorporating them into subsequent prospectuses and forms filed with the SEC. (FAC ¶ 25.) Plaintiff alleges Encore's statement that he was placed on administrative leave is untrue and intentionally interfered with the Agreement's terms by suggesting he was terminated for cause. Additionally, plaintiff claims that defendant intentionally inflicted emotional distress on plaintiff, causing public embarrassment that prevented plaintiff from "engaging in the practice of law in the normal fashion". (FAC ¶¶ 49-51.)
Defendant controlled Encore "at the time it directed Encore to file the first Form S-1, and thereby breach the terms of the [Agreement]."*fn2 (FAC ¶ 28.) Defendant allegedly benefited from the filing of the S-1 by obtaining a higher price for Encore's stock and being relieved of Encore's debt. (Id.)
B. Procedural Background
On October 18, 2004, plaintiff filed a separate action against Encore and individual defendants, alleging various causes of action in tort and contract. (See Case No. 04cv2085.) In that case, the Hon. Larry A. Burns denied all of defendants' anti-SLAPP motions. (Doc. Nos. 73, 156 in 04cv2085.) Encore's appeal of the denial of these motions is currently pending before the Ninth Circuit Court of Appeals. (Doc. No. 159 in 04cv2085.)
On September 7, 2005, plaintiff initiated the present action against the defendant. (Doc. No. 1.) In the FAC filed on January 6, 2006, plaintiff alleged causes of action for intentional interference with contractual relations and intentional infliction of emotional distress. (Doc. No. 3.) The plaintiff based these causes of action on the statements contained in the Form S-1 that defendant caused Encore to file with the SEC.
On June 30, 2006, defendant moved to dismiss the FAC, arguing that plaintiff's claims were barred by the statute of limitations and limitation-of-liability principles favoring shareholders. (Doc. Nos. 12 & 13.) Judge Burns denied that motion on March 29, 2007. (Doc. No. 21.) Defendant then filed its anti-SLAPP motion on August 1, 2007. (Doc. No. 25.) Rather than file an opposition to the motion to strike, plaintiff instead moved for leave to conduct discovery, pursuant to Federal Rule of Civil Procedure 56(f). (Doc. No. 27.) On August 28, 2007, Judge Burns granted the parties' joint motion to continue the anti-SLAPP motion so the Court could first decide the discovery motion. (Doc. No. 30.) On October 16, 2007, this Court*fn3 denied plaintiff's discovery request, finding that the anti-SLAPP motion challenged the legal adequacy of plaintiff's complaint, rather than the sufficiency of plaintiff's evidence. (Doc. No. 39.)
Plaintiff argues that the law of the case doctrine bars the Court from considering defendant's anti-SLAPP motion. The law of the case doctrine precludes a court from reconsidering an issue "that has already been decided by the same court, or a higher court, in the identical case." United States v. Alexander, 106 F.3d 874, 876 (9th Cir. 1997). The doctrine is not a limitation on a court's power, but a guide to discretion. Id. The court retains "discretion to consider its prior, non-final decisions." Pyramid Lake Paiute Tribe of Indians v. Hodel, 882 F.2d 364, 369 (9th Cir. 1989). A court may depart from the law of the case if "1) the first decision was clearly erroneous; 2) an intervening change in the law has occurred; 3) the evidence on remand is substantially different; 4) other changed circumstances exist; or 5) a manifest injustice would otherwise result." Alexander, 106 F.3d at 876.
The law of the case doctrine does not preclude review of defendant's motion to strike for two reasons. First, Triarc was not a party to the Court's earlier motion to strike rulings. Instead of jointly suing Encore and Triarc, Moser sued Triarc separately in this action after the Court denied Encore's motion to strike. The cases are similar, but do not involve identical parties. Second, the Court retains discretion to review its prior decisions. Assuming, arguendo, the motion involves identical parties and issues, the Court may exercise its discretion and review defendant's anti-SLAPP motion.
"[D]efendants sued in federal courts can bring anti-SLAPP motions to strike state law claims." Verizon Del., Inc. v. Covad Comm'ns Co., 377 F.3d 1081, 1091 (9th Cir. 2004). The motion to strike "may be filed within 60 days of the service of the complaint or, in the court's discretion, at any later time upon terms it deems proper." Cal. Civ. Proc. Code § 425.16(f).
Given the two similar motions currently on appeal in the Ninth Circuit, the Court exercises its discretion to hear defendant's anti-SLAPP motion. Deciding the merits of the current motion limits the possibility of a contradictory result and potentially allows for a consolidated appeal.
California's anti-SLAPP statute creates a special motion to strike "[a] cause of action against a person arising from any act . . . in furtherance of the person's right of petition or free speech . . . in connection with a public issue." Cal. Civ. Proc. Code § 425.16(b)(1). The statute protects "any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law."*fn4 Briggs v. Eden Council for Hope & Opportunity, 19 Cal. 4th 1106, 1113 (Cal. 1999) (internal quotations omitted). The California legislature enacted the statute to stem "a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech[.]" Cal. Civ. Proc. Code § 425.16(a). For policy reasons, § 425.16 is construed broadly. Id.
Deciding an anti-SLAPP motion requires a two-step analysis. First, the court decides if the defendant "has made a threshold showing that the challenged cause of action is one arising from protected activity." Equilon Enters. v. Consumer Cause, Inc., 29 Cal. 4th 53, 67 (Cal. 2002). If the defendant meets this burden, then, second, the Court "determines whether the plaintiff has demonstrated a probability of prevailing on the claim." Id.
The statute's protection extends to communications intended to report wrongdoing or trigger an investigation. Hagberg v. Cal. Fed. Bank FSB, 32 Cal. 4th 350, 368 (Cal. 2004). The "official proceeding privilege applies to a communication intended to prompt an administrative agency charged with enforcing the law to investigate or remedy a wrongdoing." Id. at 362. It protects communications to "government officials which may precede the initiation of formal proceedings." Id. at 361 (internal quotations and citations omitted). The "critical question is the aim of the communication, not the forum in which it takes place. If the communication is made in anticipation of or designed to prompt official proceedings, the communication is protected." Id. at 368 (internal quotations, citations, and alterations omitted).
Based on public policy considerations, the privilege applies to complaints of wrongdoing or requests for investigation. The privilege promotes freedom of communication between citizens and the public officials charged with investigating and remedying wrongdoing. The benefit of allowing this freedom of communication "outweighs the occasional harm that might befall a defamed individual. Thus the absolute privilege is essential." Id. at 364-65 (internal quotations, citations, and alterations omitted).
Courts consistently apply the privilege where the communication reported or complained about a wrongdoing or was intended to trigger an investigation. See, e.g., Kashian v. Harriman, 98 Cal. App. 4th 892, 926-27 (Cal. Ct. App. 2002) (letter to the Attorney General urging an investigation into a health care provider's tax-exempt status); Wise v. Thrifty Payless, Inc., 83 Cal. App. 4th 1296, 1303 (Cal. Ct. App. 2000) (unfounded report to the DMV that a person was unfit to drive because of drug use); Passman v. Torkman, 34 Cal. App. 4th 607, 616-19 (Cal. Ct. App. 1995) (letter to District Attorney intended to prompt a criminal prosecution); Tiedman v. Superior Ct., 83 Cal. App. 3d 918, 924-26 (Cal. Ct. App. 1978) (letter to IRS accusing a person of tax fraud); Martin v. Kearney, 51 Cal. App. 3d 309, 311 (Cal. Ct. App. 1975) (parents' letter to a school principal seeking action regarding a teacher's poor performance); King v. Borges, 28 Cal. App. 3d 27, 31-34 (Cal. Ct. App. 1972) (letter to the Department of Real Estate regarding an agent's failure to release escrow funds).
The anti-SLAPP statute specifically protects communications made to trigger an investigation by a government agency. In ComputerXpress, Inc. v. Jackson, the defendants sent a complaint letter to the SEC, alleging that certain press releases issued by plaintiff's corporate predecessor distorted or exaggerated facts in order to drive up stock prices and report unrestricted stock issued without proper disclosure. 93 Cal. App. 4th 993, 1008 (Cal. Ct. App. 2001). The court found that filing a complaint with the SEC "qualified at least as a statement before an official proceeding" pursuant to § 425.16(e)(1). Id. at 1009. The court reasoned, "the purpose of the complaint was to solicit an SEC investigation. . . . [T]he term 'official proceeding' has been interpreted broadly to protect communications to or from government officials which may precede the initiation of formal proceedings." Id. (citation and emphasis omitted). "Communication to an official administrative agency designed to prompt action by that agency is as much a part of the 'official proceeding' as communications made after the proceeding has commenced." Id. (internal citations and quotations omitted, emphasis added).
At least one purpose of the communication must be to prompt an investigation. In Fontani v. Wells Fargo Investments, LLC, Wells Fargo terminated a broker-dealer employee and filed a Uniform Termination Notice for Securities Industry Regulation ("Form U-5") with the National Association of Securities Dealers ("NASD"), as required by NASD by-laws. 129 Cal. App. 4th 719, 726 (Cal. Ct. App. 2005), criticized on other grounds by Kibler v. N. Inyo County Local Hosp. Dist., 39 Cal.4th 192 (Cal. 2006).*fn5 In the Form U-5, Wells Fargo stated that the termination was for "violation of company policies by misinterpreting information in the sale of annuities, not being properly registered and firm procedures regarding annuity applications." The filing resulted in an NASD investigation of the former employee. Id. Even if no review actually took place, "an NASD investigation is at least one potential consequence of a Form U-5 filing that contains allegations of improper conduct by a broker-dealer." Id. at 731. The court held that § 425.16(e)(1) protected the statements made in the Form U-5 because it was a communication to an official body "designed to prompt official action." Id. at 731-32.
On the other hand, "[s]section 425.16 does not accord anti-SLAPP protection to suits arising from any act having any connection, however remote, with an official proceeding." Blackburn v. Brady, 116 Cal. App. 4th 670, 677 (Cal. Ct. App. 2004). In Blackburn, the plaintiff alleged that the defendant made fraudulent statements at a sheriff's foreclosure sale, with the intent to discourage other bidders and drive up the amount the plaintiff would have to bid to acquire the property. Id. at 698-99. The defendants filed an anti-SLAPP motion, claiming that the statements were protected because they were made at the sheriff's sale. Id. at 700-01. Without deciding whether the sheriff's sale was an official proceeding authorized by law, the court concluded that the statements were not made in connection with an issue under consideration or review in the proceeding, so as to implicate protected free speech or petition activity. Id. at 701. Specifically, "[t]he ministerial event of a Sheriff's sale or auction simply does not concern an issue under review or determine some disputed matter as contemplated under the anti-SLAPP law" and does not involve "any determination based on the exercise of one's free speech or petition rights." Id; see Paul v. Friedman, 95 Cal. App. 4th 853, 867-69 (Cal. Ct. App. 2002) (injecting an "issue into [the underlying official proceeding authorized by law] does not render the issue relevant, nor can the attempted injection of an irrelevant matter transform it into an issue 'under consideration or review' in the proceeding").
The defendant argues that Plaintiff's's action is barred because it arises out of and is based on communications in furtherance of their right of petition or free speech, since the offending statements were made in a Form S-1 filed with the SEC. The Court disagrees.
The anti-SLAPP statute does not protect defendant's statements made to authorize the sale of its stock because the "critical question is the aim of the communication." Hagberg, 32 Cal. 4th at 368 (internal citations omitted). Unlike ComputerXpress or Fontani, defendant's statements were not made to prompt an SEC investigation or report wrongdoing. The Form S-1 was filed to "permit Encore and/or Triarc to sell shares of Encore stock." (Memo. ISO Motion, at 5.)
Although the SEC has authority to initiate a quasi-judicial proceeding, defendant filed the Form S-1 to sell stock. Unlike a complaint letter to the SEC or Form U-5, each of which is intended to report some wrongdoing or trigger an investigation, defendant did not intend, and indeed would not welcome, an SEC investigation because it would delay the sale of its stock, which was its stated purpose for filing the Form S-1.
In addition, the statements regarding Moser's employment were not relevant to the SEC's determination. Similar to Blackburn, the specifics of the employment dispute between Moser and Encore were irrelevant to the SEC's determination whether defendant may sell securities more than two years after the employment dispute. Defendant cannot transform the statements into an issue under consideration or review in a proceeding by including them in the Form S-1. Accordingly, the anti-SLAPP statute does not protect defendant's statements and the Court need not consider whether the plaintiff has demonstrated a probability of prevailing on the claim.
To oppose the anti-SLAPP motion, plaintiff requested that the Court take judicial notice of correspondence between the SEC and Encore. Plaintiff offers the documents to prove that defendant knew the SEC would not actually review the Form S-1. Since the Court has concluded that California's anti-SLAPP statute does not protect defendant's statements because defendant did not intend to prompt an investigation or report wrongdoing, the Court need not decide whether the documents may be judicially noticed.
Defendant's purpose in filing the Form S-1 with the SEC was not to trigger an investigation, and the statements regarding Moser's employment were not relevant to the SEC's determination whether to approve defendant's sale of securities. Therefore, the Court finds the defendant failed to demonstrate that the acts of which the plaintiff complains were taken in furtherance of the defendant's right of petition or free speech. Accordingly, the Court DENIES defendant's anti-SLAPP motion. Having denied the anti-SLAPP motion, the Court DENIES AS MOOT plaintiff's request for judicial notice.
IT IS SO ORDERED.