Corporate Press Release not exempt from SLAPP under CCP 425.17, subd.(c)

 Hawran v. Hixon (2012) 209 Cal.App.4th 256

    This is the "Corporate press release/CFO Defamation" case.

    Hawran ranks up there with City of Colton, previously discussed in my 8/27/12 blog, as one of the more significant SLAPP cases of 2012.  This case is a treasure trove of commercial speech, defamation, and privilege law combined with a heavy twist of meticulous "gravamen" analysis.  Moreover, the trial judge was the Hon. William S. Dato, perhaps, the brightest sitting trial judge in San Diego.  The Appellate Opinion was penned by Justice O'Rourke, undoubtedly one of the brightest sitting Justices on our Courts of Appeal, along with the brain team of concurring Justices McIntyre and Irion.  Judgment affirmed.

    Sequenom is a publicly traded diagnostic testing and genetics analysis company, whose common stock trades on NASDAQ.  Hawran was its CFO from April 2007 to his resignation on September 25, 2009.  In the Spring of 2009, Sequenom publicly admitted that previously reported research and development results for a certain diagnostic test for fetal Down's Syndrome (Trisomy 21 or "T21") were mishandled by employees on the Sequenom science team.  Thereafter, Sequenom's stock price declined, derivative and securities suits were filed, and Sequenom commenced its own internal investigation, led by a special litigation committee (SLC).  In April 2009, sequenom issued its first press release concerning the delay in the launch of the T21 test due to the mishandling and, a day later, filed a Form 8-K reporting to the SEC Sequenom's formation of the SLC.   In June 2009, Sequenom was alerted the SEC had commenced an investigation into matters related to the T21 issue. 

    In September 2009, defendants Sequenom and its Directors, Hixon, Lerner, and Lindsay made Hawran an offer that if he resigned as CFO, he would not be associated with the mishandling and would be separated from others involved in the test data mishandling.  In reliance on those representations, Hawran resigned on September 25, 2009. 

    In September 2009, Sequenom filed another Form 8-K and issued a second press release announcing the completion of the SLC's independent investigation.  In part, the September press release stated Sequenom had failed to put in place adequate protocols and control for the conduct of studies related to the program but that the Board of Directors had begun to implement various remedial measures.  The Company has terminated the employment of its president and CEO and its vice President of R & D effective immediately.  The portion of the press release subject to Hawran's claims read as follows:

    "The company has obtained the resignation of its CFO, Paul Hawran, and one other officer.  While each of those officers and employees has denied wrongdoing, the SLC's investigation has raised serious concerns, resulting in a loss of confidence by independent members of the company's board of directors in the personnel involved."

    In August 2012, Hawran sued Directors Hixon, Lerner, and Lindsay and then filed a First Amended Complaint (FAC), a week later, adding Sequenom as a defendant.  The First Amended Complaint sets forth causes of action for defamation, invasion of privacy/false light, negligent and intentional interference with prospective economic advantage, violation of the UCL, and negligent and intentional misrepresentation. 

    Hawran alleged Sequenom used the T21 test mishandling to constructively fire him for his prior complaints to the Board members about improper tax reporting.  Hawran alleged his personal and professional reputation was irreparably damaged, and his ability to earn a living impacted, by the September press release, which falsely stated he had denied any wrongdoing, blamed him for the data mishandling, and directly and implicitly called into question his ethics, management capabilities, and performance as Sequenom's CFO.  He alleged the press release defamed him and painted him in a false light, and substantially interfered with his prospective employment opportunities and that he had been unable to find alternative employment due to defendant's interference. 

    Defendants moved to strike the first amended complaint under section 425.16.  They argued section 425.16 applied to each cause of action because the September press release was issued in connection with an SEC investigation and also addressed a matter of public concern rendering it a protected writing under subdivisions (e)(2), (e)(3), and (e)(4).  On appeal, Hawran did not challenge the trial court finding that his causes of action were based on the press release, which was connected to issues under review in the SEC proceeding under subdivision (e)(2). 

    COMMERCIAL SPEECH EXEMPTION UNDER CCP 425.17, SUBD. (c)

    Hawran's main contention was that section 425.16 did not apply to his claims because the commercial speech exception under CCP § 425.17, subd. (c) applied to bar defendants' SLAPP motion.  The commercial speech exception of section 425.17, subd. (c) exempts a cause of action from a special motion to strike under section 425.16 when all of the following conditions are satisfied: (1) the cause of action is against a person primarily engaged in the business of selling or leasing goods or services; (2) the cause of action arises from a statement or conduct by that person consisting of `representations of fact' about `that person's or a business competitor's' business operations, goods, or services'; (3) the statement or conduct was made either for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions, in the person's goods or services or in the course of delivering the person's goods or services; and (4) the "intended audience" for the statement meets the definition set forth in  CCP § 425.17, subd.(c)(2) [i.e. an actual, or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer]          

    Hawran contended, the September press release, the subject of each cause of action, concerned Sequenom's business operations in that it was devoted almost exclusively devoted to explaining what went wrong in its operations concerning the development and testing of a new genetic product and the operational steps defendants were taking to address the problem, and to announce a conference call to discuss these matters with investors, customers, and other interested parties.  Moreover, Hawran introduced evidence as to the intent and purpose of Sequenom's press releases generally and explained Sequenom's custom and practice as to its distribution.   Evidence was produced that the September press release was intended for the consumer and designed to maintain and increase sales and profits.       

    The court rejected Hawran's commercial speech argument and held that CCP 425.17(c) did not exempt his causes of action from defendant's anti-SLAPP motion because Hawran's interpretation of the September press release was overbroad.  The is where the court engaged in meticulous "gravamen/arising from prong" analysis to focus solely on that portion of the press release that is alleged to form the basis of defamation liability.  In so doing, the court analogized to the recent High Court decision in Simpson-Strong-Tie v. Gore, which rejected Simpson's contention that the exemption should apply so long as the statement giving rise to the cause of action was `accompanied' by factual representations about the defendant's business operations, goods, or services. In Hawran, the Court found that the "allegedly defamatory portions" of the press release are not representations of fact about "Sequenom's" business operations, goods or services.  Instead, each cause of action specifically references and is based upon the assertedly false and defamatory statements in the September press release concerning Hawran's resignation and purported denial of wrongdoing.  "They do not arise from the press release's other statements concerning the deficiencies of Sequenom's test protocols or controls, or the remedial measures taken." 

    The court reasoned, in accord with Simpson, that "section 425.17's commercial speech exemption is not triggered by the presence of other representations of fact concerning sequenom's business operations or services contained in the press release, if Hawran does not seek to impose liability based on those statements."

    "Though the targeted statements that Sequenom "obtained the resignation of" Hawran and that he "has denied wrongdoing" arguably may broadly concern or relate to Sequenom's corporate events or business decisions, `NARROWLY CONSTRUING THE EXEMPTION AS WE MUST, WE CANNOT SAY THESE STATEMENTS ARE `ABOUT' SEQUENOM'S BUSINESS OPERATIONS, GOODS, OR SERVICES."   

    Given that the Legislature has expressly declared that section 425.16 "shall be construed broadly", the logical corollary illustrated by the Hawran case is that CCP § 425.17, and any other exemptions from SLAPP, must be narrowly construed.   See our High Court opinion in Club Members for an Honest Election v. Sierra Club (2008)  45 Cal.4th 309. 

                   PRONG TWO

        FAIR AND TRUE REPORT PRIVILEGE CC § 47(d)

    On prong two, the court found that Hawran presented sufficient evidence that the individual director defendants were, in part, responsible for the publication of the press release.  But defendants argued that the fair and true report privilege of CC § 47, subd. (d) for fair and true reports in, or made to, a public journal of statements made in the course of an official proceeding.  The Court squarely rejected this argument.  Assuming the press release was disseminated to a Newswire (a public journal), this does not mean the press release constitutes a communication "of" or "about" the SEC investigation or of anything said in the course thereof.  Indeed, the September press release does not even mention the SEC investigation, much less capture its substance, gist, or sting.  While the Form 8-K filing with the SEC may constitute a writing "before" an official proceeding, the Form 8-K is not itself an official proceeding.     The fact information in the press release was also disclosed to the SEC in the legally required Form 8-K does not transform the press release into a report "about" the SEC proceeding or statements made in the course thereof.

            LITIGATION PRIVILEGE OF CC § 47(b)
   
    For similar reasons, the court rejected defendant's litigation privilege argument based on the Form 8-K filing with the SEC.  The argument failed because the press release, unlike the Form 8-K was published to the public at large beyond the participants necessary to promote the truth seeking function of the SEC proceeding.  Secondly, Hawran's causes of action are not based on statements made in the Form 8-K but on those made in the September press release, which differ from those made in the Form 8-K. 

            COMMON INTEREST PRIVILEGE OF CC § 47(c)

    The Court then rejected defendant's qualified common interest privilege of CC § 47, subd. (c) primarily because the press release was disseminated to a newswire that made the release available to the general public worldwide, which greatly exceeded the group of interested parties - investors and prospective investors in Sequenom.   
   
    Aside from the privilege defenses, Hawran was able to establish a probability on each of his claims.  The challenged statements about Hawran in the press release were provable false factual assertions about Hawran's professional competence and ethics.  Hawran produced evidence of falsity, malice, intent, causation and damages to support each of his claims.  Ironically, while the court's painstakingly narrow construction of the press release defeated Hawran's commercial speech exemption, that same narrow interpretation of the press release also saved his claims from the clutches of defendant's various privilege defenses enabling him to show a probability of prevailing with the admissible evidence he produced in support of his case-in-chief.
 
The "corporate press release/CFO defamation" case in Hawran is truly a phenomenal opinion to read.