Friday, July 29, 2016

ADR website was commercial speech for purposes of client's false advertising lawsuit

JAMS, Inc. v. Superior Court of San Diego County, No. D069862, --- Cal. Rptr. 3d ----, 2016 WL 4014068 (Cal. Ct. App. Jul. 27, 2016)

Kevin Kinsella sued JAMS, an ADR provider, and the Honorable Sheila Prell Sonenshine (Retired), alleging that he relied on misrepresentations and omissions on the JAMS website about Sonenshine’s background in stipulating to hiring her to resolve divorce issues.  Defendants filed an anti-SLAPP motion to strike, and the trial court found the action exempt from the anti-SLAPP procedure because it involved commercial speech.  The court of appeals functionally affirmed (procedural details omitted).

JAMS allegedly promotes the hiring of neutrals for ADR, collecting a fee for its services. JAMS provides biographies of its neutrals on its Web site and represents its family law neutrals are “ ‘trusted’ experts.” According to the complaint, the JAMS Web site stated “ ‘[JAMS ensures] the highest ethical standards’ and ‘[e]verything we do and say will reflect the highest ethical and moral standards. We are dedicated to neutrality, integrity, honesty, accountability, and mutual respect in all our interactions.’”  Kinsella alleged that he agreed to hire Sonenshine to resolve his over-eight-figure divorce which included assets from venture capital partnerships he managed.  He alleged that he carefully reviewed the JAMS website, and agreed to Sonenshine because of her alleged business experience enabling her to understand his separate property holdings and private venture capital funds.

However, after Sonenshine began conducting hearings, Kinsella alleged he “became alarmed by what he saw and doubted that she possessed the business accomplishments her resume led him to believe she possessed.” He began to look into her background and discovered information causing him to question her integrity.  JAMS allegedly touted Sonenshine’s business success surrounding the co-founding and management of two companies when “the history of those two ventures is full of adverse and unfavorable accusations” against Sonenshine and her son in a class action lawsuit for fraud, and JAMS stated that she founded an equity fund when “the equity fund existed in name only as it never raised any equity capital and was, therefore, never funded” and never operated “as a functioning investment entity.”

Kinsella sued for violations of the CLRA, fraud, negligent misrepresentation, and state-law false advertising.  Defendants argued that the statements on the JAMS Web site and in Sonenshine’s online biography weren’t within the commercial speech exemption to the anti-SLAPP law because (1) the exemption applies to “ ‘representations of fact’ “ not to omissions or nonfactual representations such as puffery, and (2) Sonenshine’s biography was not purely commercial speech because it was also used for noncommercial purposes such as for litigants to evaluate potential conflicts of interest or for dissemination to bar groups for noncommercial events.

The commercial speech exemption was added to curb abuse of the anti-SLAPP statute.  It exempts actions 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 was a commercial audience.  This exception is to be narrowly construed.

The court of appeals held that the commercial speech exemption covered more than “positive assertions of facts.”  Likely success on the merits was not an element of whether the exemption applied.  Rather, the legislative history showed an exemption aimed squarely at exempting false advertising claims.  The exemption was designed to track Nike v. Kasky, focusing on the speaker (someone who’s selling stuff), the content of the message (representations of fact meant to induce sales), and the intended audience (actual or potential buyers).  However, Kasky and the legislative history didn’t require affirmative or positive representations, as opposed to omissions or half-truths.  Kasky specifically noted that unfair competition law and false advertising law “prohibit ‘not only advertising which is false, but also advertising which[,] although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public.’”

Statements on the JAMS website about Sonenshine’s background and qualifications to provide ADR services as well as general statements about how JAMS conducts its business in providing ADR services were thus commercial speech. The representations in her biography were factual; their truth or  misleadingness was a matter for the merits, not for the exemption. Statements that JAMS ensured “ ‘the highest ethical standards,’” that “ ‘[e]verything we do and say will reflect the highest ethical and moral standards’” and that JAMS is “ ‘dedicated to neutrality, integrity, honesty, accountability, and mutual respect in all our interactions’” were also representations of fact “for purposes of analyzing the commercial nature of the speech.”  They were “specific statements representing how JAMS conducts its operations,” and were “certainly intended to be relied upon by customers of its services, otherwise they would serve no legitimate purpose.” The court noted that violation of these standards could lead to bar discipline for lawyers.  Further, posting Sonenshine’s biography in conjunction with these statements “may have implicitly represented JAMS adopted her representations about her credentials and ratified them as reflecting ‘integrity, honesty, [and] accountability.’”  But the court of appeals didn’t finally reach the issue of whether these statements were true, false, or otherwise nonactionable.  The court distinguished cases involving mere promises of future action.

Defendants also argued that the website statements might be used for multiple purposes, such as to comply with Sonenshine’s judicial duty of disclosure, and that the causes of action arise from postretention conduct, not commercial speech. The court of appeals rejected these arguments; first, all the website statements Kinsella challenged were there in order to be viewed by actual or potential ADR buyers or customers, or attorneys representing actual or potential buyers or customers of ADR services. Kinsella used them for that purpose. “Therefore, the statements or conduct from which Kinsella’s causes of action arise is more ‘commercial speech’ than anything else. Whether or not the statements may be used for other purposes does not change the analysis.”

References to Sonenshine’s postretention statements in the complaint also didn’t defeat the commercial speech exemption.  Those allegations were about how Kinsella found out there were problems, not about the speech that allegedly misled him to his detriment.  If he did allege claims based on noncommercial speech, that could be taken care of later.

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