Hawran sued Sequenom and its directors Hixson, Lerner, and
Lindsay over a press release about Sequenom’s internal investigation into its
handling of test data, which it issued on the same day it filed a legally
required disclosure to the SEC. Hawran
was Sequenom’s CFO from April 2007 until his resignation in September
2009. In spring 2009, Sequenom publicly admitted
that previously reported results for a diagnostic test for fetal Down Syndrome
were mishandled by employees on its science team. The stock price went down, lawsuits were
filed, and Sequenom commenced an internal investigation led by a special
litigation committee (SLC). In April
2009, Sequenom issued a press release concerning the delay in the launch of the
test due to the mishandling, and a day later filed a required form reporting to
the SEC Sequenom's formation of the SLC and related information. In June 2009, the SEC told Sequenom that it
had had started an investigation.
In September, defendants “made Hawran an offer that if he
resigned as chief financial officer, he would not be associated with the
mishandling and would be separated from others involved in the test data
mishandling,” and he resigned in reliance on those representations. Three days later, Sequenom filed another form
and issued another press release announcing the completion of the SLC's independent
investigation. This release said that
Sequenom had failed to put into place adequate protocols and control for
studies, but that the board had begun implementing remedial measures. It continued that Sequenom had terminated its
president/CEO and its senior VP of R&D.
And it said that Sequenom had obtained Hawran’s resignation along with
one other officer. “While each of these
officers and employees has denied wrongdoing, the special committee's investigation
has raised serious concerns, resulting in a loss of confidence by the
independent members of the company's board of directors in the personnel
involved.” The relevant part of the SEC
filing said the same thing. Hawran
alleged that this was defamatory (etc.) and that he’d actually been
constructively fired for raising red flags related to tax reporting and board
members’ fiduciary obligations.
Defendants moved to strike because the statements related to
a matter of public concern and were connected to an SEC investigation; in
addition, they argued that the statement that he denied wrongdoing was not
defamatory and that the statement of lost confidence was opinion, as well as
raising additional defenses. As part of
his argument that the press release was commercial speech not subject to the
anti-SLAPP law, Hawran presented declarations indicating that Sequenom used
press releases as promotional materials provided to the sales department,
customers, investors, etc.
The trial court granted the anti-SLAPP motion in part,
finding that Hawran’s causes of action arose communications covered by the
anti-SLAPP law; the commercial speech exception didn’t apply. But, as to Hawran's defamation, invasion of
privacy and UCL causes of action, Hawran had demonstrated a probability of
prevailing on those claims, and defendants had not established the
applicability of any privileges. The
court of appeals affirmed.
The most notable part of the ruling is the interpretation of
the commercial speech exception. When a
defendant meets the threshold burden of showing its speech is covered, the
plaintiff must then show that the commercial speech exemption applies (or
establish a probability of prevailing on the underlying claims). Here, defendants’ speech was protected as a
writing “made in connection with an issue under consideration or review by ...
any other official proceeding authorized by law ....” However, the anti-SLAPP law does not apply to
a cause of action arising from commercial speech when
(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 or conduct [is 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].
This exemption is narrowly construed.
Here, the court of appeals agreed that Hawran didn’t show
that the allegedly defamatory
portions of the press release were representations of fact about Sequenom’s business operations, goods,
or services. Hawran argued that the
press release was “almost exclusively devoted to explaining what went wrong in [Sequenom’s]
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.” Thus,
Hawran said the press release was commercial speech as in Kasky v. Nike.
Defendants argued that the press release was made in order
to comply with mandatory NASDAQ reporting requirements and that the allegedly
defamatory comments within it didn’t satisfy (2)-(4) of the exception’s
requirements.
The broad purposes of the press release didn’t matter: the
question was whether the allegedly defamatory portions of the press release
were “representations of fact about [Sequenom's] ... business operations,
goods, or services.” Merely being
accompanied by factual representations about the defendant’s business
operations isn’t sufficient to put a statement inside the exemption. Hawran’s
claims were based on the statements concerning his resignation and purported
denial of wrongdoing, not the statements about the deficiencies of Sequenom's
test protocols and controls, or Sequenom’s remedial measures. What about the statements that Sequenom
obtained Hawran’s resignation and that he denied wrongdoing? They “arguably may broadly concern or relate
to Sequenom's corporate events or business decisions,” but the exemption should
be construed narrowly, so they still weren’t about Sequenom’s business
operations, goods, or services. The same
was true of the statement that the investigation resulted in a “loss of confidence
… in the personnel involved.” That was “about”
the SLC’s investigation and the board’s reaction. Nike v.
Kasky was not to the contrary, being a case about the meaning of commercial
speech under the First Amendment and not under the anti-SLAPP statute.
Because failure on one element meant there was no exemption,
Hawran had to show a probability of prevailing on the merits, which he did at
this stage for his defamation, invasion of privacy, UCL, and breach of contract
claims. (This is a “minimal merit”
standard requiring only enough for the plaintiff to go forward, not a summary
judgment-type standard.) Defendants’
claim to absolute privilege for either a fair and true report of an official
proceeding to a public journal or a statement made pursuant to an official
proceeding failed; the press release was neither even though it tracked
statements required to be made to the SEC.
It was also not covered by the conditional privilege for statements made
without malice on subjects of mutual interest, since it was distributed widely,
not just to the investing public or those with a proprietary interest.
Since the statements had a per se defamatory meaning that
was plain on the face of the document, proof of harm to reputation was
unnecessary. Defendants argued that the
statement that Hawran denied wrongdoing was not defamatory, and that the other
relevant statements (the investigation raised serious concerns, and those
concerns resulted in a loss of confidence by the independent members of the
board in “the personnel involved”) were opinion. But in context, there was a defamatory meaning,
and the statements weren’t just opinions, mere impressions, or evaluative
statements made, for example, in the context of an employee performance review. They were “statements of matters that can be
proven or disproven concerning Sequenom's business decisions and the
consequences of the SLC's investigation.”
And they were made in a press release supplementing mandatory SEC
disclosures. “Such formalized statements
in press releases are usually intended to be factual, as opposed to rhetorical,
persuasive, or evaluative.” Given the
context of Sequenom’s trouble with substantiation and supervision in its
research program, and the remedial measures and other terminations reported, an
average person reading the whole press release would see the damaging
implication that “Sequenom sought and obtained Hawran's resignation because
Hawran was among the group of officers and employees somehow involved or
responsible for the identified failures and deficiencies of the … program and
failed company procedures. The
statements suggest that Sequenom possessed undisclosed, and provably false,
facts concerning what Hawran actually did or did not do at Sequenom to implicate
him in the wrongdoing.”
Defendants also argued literal truth: “Hawran ultimately
admitted in opposition to the motion that it was literally true that Hixson
told him in a meeting that Sequonom's board had lost confidence in him.” But there was still a potentially false
implication. Hawran denied any
involvement with mishandling scientific data, and Sequenom’s filing with the
SEC didn’t directly suggest that he was among the personnel in whom Sequenom lost
confidence. This, combined with Hawran’s
allegations about his prior whistleblower-type complaints, suggested that
Sequenom’s motives may have been unrelated to the scientific misconduct; that’s
the type of dispute that can’t be resolved at this stage. The evidence didn’t establish
truth as a matter of law.
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