Litigation and Trial - Max Kennerly : Philadelphia Trial Lawyer Max Kennerly : Business and Commercial Litigation : Civil Attorney : The Beasley Firm : Philadelphia Pennsylvania

Via Overlawyered, Eric Goldman and others favor HR 4364, the “Citizen Participation Act of 2009,” which would establish a federal anti-SLAPP law.

Around half the States have anti-SLAPP (i.e., Anti-"Strategic Lawsuit Against Public Participation") statutes which make it easier to dismiss suits allegedly filed to chill freedom of speech. If the lawsuit arises from the Defendants' exercise of their rights to free speech — which in the post-Citizens United era means virtually every time a corporation advances an agenda — then the Defendant can file, at the very beginning of the lawsuit, a "special motion" that requires the Plaintiff show concrete evidence proving each element of their claims.

The laws make sense, in theory. “The hallmark of a SLAPP suit is that it lacks merit, and is brought with the goals of obtaining an economic advantage over a citizen party by increasing the cost of litigation to the point that the citizen party’s case will be weakened or abandoned, and of deterring future litigation.” United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 972-73 (9th Cir.1999). The purpose of anti-SLAPP laws is to ensure the prompt dismissal of “legally meritless suits filed in order to obtain a political or economic advantage over the defendant, not to vindicate a legally cognizable right of the plaintiff.” Condit v. Nat’l Enquirer, Inc., 248 F. Supp. 2d 945, 952 (E.D. Cal. 2002)(internal quotation omitted). “The paradigm SLAPP suit is an action filed by a land developer against environmental activists or objecting neighbors of the proposed development.” Id.

All well and good. Indeed, anti-SLAPP Acts are sometimes used to dismiss bogus suits in which one side really was trying "to obtain a political or economic advantage" over someone with inadequate resources to defend themselves. See Melius v. Keiffer, 980 So. 2d 167, 170 (La. Ct. App. 2008)(granting motion to strike complaint brought by owners of a bar against area resident who had opposed an expansion of the bar); Lamz v. Wells, 938 So. 2d 792, 794 (La. Ct. App. 2006)(dismissing case filed one week before election by one judicial candidate against another); Darden v. Smith, 879 So. 2d 390, 393 (La. Ct. App. 2004)(dismissing case filed by public official against individual who filed a complaint with the Louisiana Board of Ethics).

Goldman gives his own example where an anti-SLAPP motion allowed a party with limited legal resources to avoid the cost and burden of full-fledged litigation:

All too often, vendors use actual or threatened litigation to take down content that criticizes their offerings. The proposed federal anti-SLAPP law applies to those lawsuits. Thus, if enacted, the federal anti-SLAPP law will help consumers share their true feeling about marketplace offerings with less fear of meritless lawsuits from vendors who would rather fight in court than compete.

BoingBoing’s recent resolution of a lawsuit brought by MagicJack nicely illustrates the virtues of anti-SLAPP laws. BoingBoing blogged some criticisms of MagicJack’s offerings, and MagicJack unwisely responded to that post with a lawsuit. Fortunately for BoingBoing, MagicJack sued it in California, which has a robust anti-SLAPP law. As a result, BoingBoing was able to end the lawsuit early (BoingBoing won its anti-SLAPP motion less than 3 months from complaint filing) and get the court to order MagicJack to pay its attorneys’ fees of over $50k.

But it's not always David using anti-SLAPP laws against Goliath; it's often the other way around.

Consider the BoingBoing case. Let's assume that, instead of suing BoingBoing, MagicJack retaliated by secretly hiring a spam company to inundate BoingBoing and other widely-read blogs with hostile comments questioning BoingBoing's motives and favorably referring to MagicJack.

BoingBoing, having no other options, sues MagicJack.

Would those allegations show MagicJack's "acts" were "in furtherance of the right of free speech?" Sure; MagicJack has just as much a right as BoingBoing to talk about other companies. So the anti-SLAPP Act would be available.*

At the beginning of the case, then, BoingBoing would be required to prove — prior to conducting any discovery, since HR 4364 automatically stays all discovery — that MagicJack was behind the posts, that the posts were false, that the posts were capable of a defamatory meaning, and that MagicJack was at "fault" in publishing the comments (defined in many states as "acting with malice or reckless intent").

How could BoingBoing prove all that immediately after filing suit? Most of that information would be in MagicJack's possession.

Odds are, BoingBoing wouldn't be able to do it. Their case would be dismissed, and MagicJack could continue to harass BoingBoing at will.

The law of unintended consequences, as they say.

Put simply, the problem with HR 4364 is that it's an extraordinarily powerful device — one that substantially increases the costs of bringing meritorious cases and will undoubtedly result in the inadvertent dismissal of many meritorious cases — with few limitations on its use.

Often the only means that "David" has to challenge "Goliath" is through a lawsuit, like when ordinary individuals are powerless to repair the damage caused by sloppy or sensationalized journalism. Yet, if Goliath wants to use the Act to dismiss David's lawsuit, he can and will.

- - -

* Don't think that the "commercial speech" clause in HR 4364 would help remove the case from the Anti-SLAPP law. As a defendant in one of my cases argued, and as MagicJack would argue:

There is no authority for [plaintiff's] allegation at paragraph 81 of his complaint that “The defendants’ motives in writing and propagating the false allegations [...] are economic; therefore, this commercial speech does not qualify for the heightened protections of the First Amendment.” See Compl. ¶ 81. To the contrary, the Supreme Court has squarely rejected it. See Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 67 (1983) (“an economic motivation ... would clearly be insufficient by itself to turn the materials [in question] into commercial speech”); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 501-02 (1952) (“That books, newspapers, and magazines are published and sold for profit does not prevent them from being a form of expression whose liberty is safeguarded by the First Amendment.”); see also New Kids on the Block v. News America Publishing, Inc., 745 F.Supp. 1540, 1544 (C.D.Cal. 1990) (“A profit motive ... is irrelevant to the inquiry of whether the content of ... speech ... is ... commercial [or otherwise]”). In sum, there is no support for [plaintiff's] suggestion that the article is not entitled the fullest protections afforded by the First Amendment.

I don't agree with the above analysis, but that's just my opinion. A judge could just as easily agree with every word.

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The producers of the Oscar-nominated The Hurt Locker, which Roger Ebert* deemed the second best film of the decade, were just sued by Sgt. Jeffrey Sarver, a former explosive ordinance disposal technician with the 788th Ordinance Company, with whom journalist Mark Boal — the writer of The Hurt Locker — was “embedded” on assignment for Playboy Magazine.

The complaint, filed in the United States District Court for the District of New Jersey (where Sgt. Sarver lived during the relevant times), gives some examples of the similarities:

The title “The Hurt Locker” – Plaintiff originated this term and said it often around colleagues while in Iraq. Defendant BOAL took interest in this phrase and asked Plaintiff what the phrase meant. Because Plaintiff was told Defendant BOAL was collecting information for the sake of documenting a factual report about Army EOD in general, Plaintiff acquiesced with BOAL’s request, which he said often while during his deployment in Iraq;

 “War is a Drug” – Another phrase Plaintiff used when talking to Defendant BOAL;

 “Will James”, played by Jeremy Renner” – Mr. Renner is essentially the same age and height; to personate Sgt. Sarver, Renner’s hair was dyed blonde, and Renner impersonated Sgt. Sarver’s persona down to the smallest detail, including the replication of Sgt. Sarver’s West Virginia accent, dialect, expressions, mannerisms, personality, and even dress habits (i.e. rolling his sleeves in the exact same manner as Sarver); succinctly stated, Renner acts and behaves just like Plaintiff5 throughout the movie;

Same Military & Family Background – Just like Plaintiff, character “Will James” is a former Army Ranger who has a young son who lives with his ex-wife back home; Renner is also referenced as a “red neck” and “trailer trash”;

Same EOD Missions – Most of the EOD missions depicted in the movie are identical to Plaintiff’s, including the same camps where the EOD team was based (ie Camp Victory), and the same manner in which they were handled - as documented in the Playboy Article;

[…]

Renner struggles with personal, family relationships just like, and in the same manner as, Plaintiff;

Renner drinking alcohol after successful missions;

Renner setting the record for the most IEDs disarmed by any single soldier;

As THR, Esq. notes,

According to legal experts on this topic, Sarver will need to overcome First Amendment protections that give broad protections on speech. Just putting someone's life story up on screen may not be enough.

Sarver's claims may be stronger if he, himself, had written about his experience in Iraq. Had Sarver written about his war stories, he might have been able to pursue a copyright claim that producers of "Hurt Locker" had violated his expression.

Sarver's best case may actually be if producers of "Hurt Locker" got things wrong. Potentially, Sarver could claim that "Will James" is just a thinly veiled depiction of him, but that they had put him in false light and defamed him with dishonest treatment about his character. We have seen these types of "libel-in-fiction" claims come up recently. 

Hence, the complaint continues:

Though the movie clings to the plaintiff’s likeness and personal circumstances throughout the movie, Plaintiff is also defamed in placed in a false light in several scenes, such as (1) the scene where Plaintiff explains to his young son that he essentially does not love him, and that the only thing plaintiff loves now is “war”. The movie ends by showing Plaintiff back in Iraq, starting another deployment mission; and (2) the portrayal of Plaintiff as a reckless, gung-ho war addict who has a morbid fascination with death which causes him to carelessly risk both his and his colleagues’ lives in the theater of war, simply to feel the thrill of cheating death.

The Complaint alleges seven counts:

• Misappropriation of Name & Likeness
• False Light Invasion of Privacy
• Defamation
• Breach of Contract
• Intentional Infliction of Emotional Distress
• Fraud
• Negligent Misrepresentation

As far as I can tell, Sgt. Sarver will have little trouble meeting most of the elements of misappropriation, with one exception:

In order that there may be liability under the rule stated in this Section, the defendant must have appropriated to his own use or benefit the reputation, prestige, social or commercial standing, public interest or other values of the plaintiff's name or likeness. It is not enough that the defendant has adopted for himself a name that is the same as that of the plaintiff, so long as he does not pass himself off as the plaintiff or otherwise seek to obtain for himself the values or benefits of the plaintiff's name or identity. Unless there is such an appropriation, the defendant is free to call himself by any name he likes, whether there is only one person or a thousand others of the same name. Until the value of the name has in some way been appropriated, there is no tort.

Restatement of the Law, Second, Torts, § 652, cmt c (emphases added); see Jeffries v. Whitney E. Houston Acad. P.T.A., 2009 N.J. Super. Unpub. LEXIS 1895, at *9 (App. Div. Jul. 20, 2009)("the purpose of an appropriation of likeness claim is to vindicate the property interest the plaintiff has in his or her name or likeness."). Misappropriation claims typically arise from false endorsements; here, however, Sarver certainly was not represented as directly endorsing the film. The challenge for his lawyers will be arguing that the use of his life story is sufficient "likeness" that it constitutes a de facto endorsement of the story.

False light and defamation are highly similar claims, and often analyzed together. As THR, Esq. said, there’s precedent out there for “libel-in-fiction,” and Sgt. Sarver’s case seems similar to the The Red Hat Club case linked above: taking an already incredible, but nonetheless real, story and scandalizing it some more. It’s a little bit harder for Sgt. Sarver here, though, since it seems that anyone who recognized him from the film would also know the differences between him and the character, and the complaint admits that he already had substantial family troubles and that he broke military regulations, such as drinking after missions. Those issues, however, are typically issues for a jury, not a judge, to decide.

The remaining claims are intriguing, though none are a good fit to the facts. Regarding breach of contract, it doesn’t appear that Sgt. Sarver was an intended third-party beneficiary to Boal’s “embedding” agreement with the U.S. Department of Defense, though he might be an implied third-party beneficiary. Without the contract in hand, it’s hard to say what will happen here. (One of the commentators at THR, Esq., linked to some of the Department of Defense embedding guidelines, which don't seem to be as strict as the complaint implies.)

The intentional infliction of emotional distress claim will likely go nowhere. The complaint essentially admits there’s no evidence the producers of the film intended to cause Sgt. Sarver harm. See Ortiz v. Ocean County Prosecutor's Office, 2005 U.S. Dist. LEXIS 29274, at *15–16 (D.N.J. Nov. 22, 2005)("To sustain such a claim, the conduct at issue must be 'so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency and to be regarded as atrocious, and utterly intolerable in a civilized community.”).

Similarly, the fraud and negligent misrepresentations claims will likely be dismissed. Most courts require some degree of explicit economic loss for these claims. McClellan v. Feit, 376 N.J. Super. 305, 313, 870 A.2d 644, 648 (App. Div. 2005)("Negligent misrepresentation constitutes an incorrect statement, negligently made and justifiably relied on, which results in economic loss."). It might be morally wrong to trick someone into revealing their personal story, but it’s not legally compensable as fraud or misrepresentation unless they're also tricked out of some money.

An interesting case to watch. Depending on Sgt. Sarver’s goals / demands, I’d expect a somewhat prompt settlement, though perhaps not until after the inevitable motion to dismiss is decided.  

- - -

* If you haven't yet read the profile of Roger Ebert in this month's Esquire, stop whatever else you're doing and read it now.

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[UPDATE: Welcome, Boing Boing readers! The below post was written before the South Korean edition of W Magazine was spotted out in the wild with Demi Moore's hip re-attached. As you can imagine, one of the most important parts of a retraction demand is that you get your facts straight.]

Lawyers are men and women of letters. Litigators, in particular, pride themselves on their correspondence; ask a litigator to show you their best work, and they will skip over dozens of briefs and transcripts to reveal a letter — maybe a settlement demand, a cease and desist for infringement, a spoliation warning, or a bad faith notice to an insurance carrier — that takes arms against a sea of troubles.

Among defamation lawyers, few letters are important as the first letter they send in a case, the demand for a retraction.

Under New York Times v. Sullivan, in order for the plaintiff in a defamation case to recover punitive damages, they must show "actual malice," i.e. the defendant's actual knowledge of falsity or reckless disregard for the truth. One way to show "actual malice" is to show that the defendant continued to publish the defamatory allegations even after the true facts were made known to them and a retraction was demanded. In some states, like California, a plaintiff must demand a retraction if they want to recover more than the specific monetary damage caused by the defamation.

All of which is to say: retraction demand letters are extraordinarily important in defamation cases. Each retraction demand letter, despite being only a few pages, is the product of hours of painstaking editing.  

Marty Singer is the go-to guy in Hollywood. For everyone in Hollywood.

He's written a few retraction demand letters in his time.

Which makes it hard to understand why he would end a retraction demand letter to a blogger (over the blogger's critique of an apparently photoshopped picture of Demi Moore) with this absurdity:

On behalf of Ms. Moore, we demand publication of an appropriate retraction and apology. We further request that you promptly remove from your website, twitter posts, and other site, all of the false and defamatory statements about my client and the cover photo, as well as any accompanying pictures of the W Magazine cover. We trust that now that the unequivocal facts have been established, that you will comply with these demands in order to set the record straight so that your readers/followers are not misled. If you fail to agree to the foregoing, then you will be exposed to substantial liability, and acting at your own peril.

Please govern yourself accordingly.

This does not constitute a complete οτ exhaustive statement of all of my client's rights or claims. Nothing stated herein is intended as, nor should it be deemed to constitute a waiver or relinquishment, of any of my client's rights or remedies, whether legal οr equitable, all of which are hereby expressly reserved. This letter is a confidential legal communication and is not for publication.

A threatening letter is not "a confidential legal communication" — whatever that means — just because some lawyer says so. Absent a confidentiality order, confidentiality agreement, or some other legal obligation to keep a confidence (e.g., trade secrets shown to an employee), a person has no duty to keep an unsolicited communication from a third party "confidential."

Unless, of course, Marty Singer is reading this post, in which case he should ignore the prior paragraph and consider this post a confidential legal blog post, not for publication.

Bluster — like a bogus "confidentiality" designation — is disturbingly common when powerful lawyers representing clients with essentially unlimited resources threaten unrepresented individuals. Singer's letter, however, is so full of bluster it might fail its essential purpose of establishing liability for punitive damages.

Ordinarily, the demand for a retraction is just that: a demand for an apology and retraction. There's nothing to which the defendant will "agree." Either the potential defendant retracts the publication or they don't.

The text of Singer's letter, however, does not demand a retraction, but instead apparently offers a settlement: "If you fail to agree to the foregoing, then you will be exposed to substantial liability ..." Presumably, then, if the blogger does "agree to the foregoing," then he will not be exposed to substantial liability. Indeed, the possibility of settlement is the only way that the letter could arguably be "confidential," since settlement offers are inadmissible (not the same thing as "confidential," but analogous) in court under Cal. Evid. Code § 1152.

But is that what Singer intended? Is a confidential settlement demand the functional equivalent of a retraction demand? How, exactly, does Singer intend to introduce at trial his own "confidential" letter requesting the defendant "agree" to terms to avoid "substantial liability" as evidence that a retraction was demanded? In other words, how can Singer try to admit the letter as evidence in court when the letter on its face proposes a settlement?

The target of the letter, photographer Anthony Citrano has responded with a retraction demand of his own: 

Mr. Singer: your demand that I retract my statements is a demand that I do further unwarranted and costly damage to a reputation you have already deliberately tarnished. Demanding an apology adds insult to this injury. Obviously, neither of these will be forthcoming.

On the contrary, I demand a complete retraction of all statements made or solicited by you, your client(s), and W that denied this retouching, and served to deliberately impugn my credibility and that of countless others who made similarly fair and accurate observations. I further demand a sincere and prominent public apology.

Touché.

Admissible in court, too.

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As I’ve written before, health care is “one of the ugliest businesses in America.” Health care litigation is often just as contentious.

Today’s example comes from Robotics v. Deviedma, No. 09-cv-3552, 2009 U.S. Dist. LEXIS 112077 (E.D. Pa. Nov. 30, 2009), which denied in part and granted in part Defendants’ motion to dismiss.

The facts:

Health Robotics, S.r.L. ("HRSRL") is an Italian company that designs, develops, markets and licences robotic medical preparation products. Plaintiff, Devon Robotics, signed two agreements with HRSRL for the distribution of two robotic medication preparation products for hospitals and health care facilities, i.v.Station and CytoCare. … At the time these agreements were negotiated and signed, Mr. DeViedma, one of the Defendants, served as General Counsel for HRSRL. These contracts between Devon Robotics and HRSRL contained an identical arbitration clause which requires all disputes arising from the agreement to be arbitrated in Switzerland.

Plaintiffs claim that on March 1, 2009, Mr. DeViedma was hired as Devon Robotics' Chief Operating Officer ("COO"). In his position as COO, DeViedma was solely responsible for the management of sales, marketing, support and installation of CytoCare robots on Devon's behalf. All of Devon Robotics' employees reported directly to DeViedma. Additionally, Mr. DeViedma served as the primary contact between Devon and HRSRL.

* * *

In December 2008, Devon Robotics began negotiating a contract with McKesson Corporation, another defendant, which would give McKesson the right to distribute CytoCare within a certain territory in the United States. DeViedma played a key role in negotiating the contract as Devon Robotics' COO. On December 22, 2008, Devon Robotics and McKesson entered into a Confidential Disclosure and Non-Competition Agreement prohibiting McKesson from divulging or using any confidential information for any purpose other than analyzing its deal with Devon. After executing the agreement, McKesson engaged in extensive due diligence. According to Plaintiffs, around March 2009, McKesson and Devon reached an oral agreement regarding the material terms of the Exclusive Distribution, Licensing, Services and Support Agreement. The only thing that was needed to finalize the agreement was to allow McKesson's due diligence of HRSRL in Italy. However, DeViedma, in his capacity as an officer of HRSRL, refused to permit McKesson representatives to visit Italy and complete the due diligence.

Later, after McKesson and Devon Robotics failed to come to an agreement, HRSRL terminated the CytoCare Agreement with Devon Robotics on July 30, 2009. Then on August 10, 2009, McKesson and HRSRL entered into a five year agreement granting McKesson distribution rights with regard to CytoCare in various areas in North America which had previously been controlled by Devon Robotics.

Naturally, Devon sued everyone, alleging breach of fiduciary duty, tortious interference with current and prospective contractual relations, defamation, and conspiracy.

Defendants first moved under Rule 12(b)(1) to dismiss on the grounds that the Devon/HRSRL agreements compelled arbitration:

[A]s this Court noted in Miron, the presumption of arbitrability has never been extended to claims by or against non-signatories. Miron v. BDO Seidman, LLP, 342 F. Supp. 2d 324 (E.D. Pa. 2004); see, e.g., Medtronic Ave Inc. v. Cordis Corp., 367 F.3d 147, 100 Fed. Appx. 865 (3rd Cir. 2004) (quoting Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress International, Ltd., 1 F.3d 639, 642 (7th Cir. 1993)). Because arbitration is a matter of contract, exceptional circumstances must apply before a court will impose a contractual agreement to arbitrate on a non-contracting party. AT&T Tech., 475 U.S. at 650. However, as this Court again noted in Miron, there are five established theories under which non-signatories may be bound to the arbitration agreements of others: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Thomson-CFS v. American Arbitration Association, 64 F.3d 773, 776 (2d Cir. 1995). Furthermore, where the party seeking enforcement of the arbitration clause is a willing non-signatory an alternative theory of reverse estoppel may apply. Thomson-CFS, 64 F.3d at 779.

The only theory under which DeViedma may be able to enforce the arbitration clause is the alternative estoppel theory. The alternative estoppel theory binds a signatory to arbitrate at a non-signatory's insistence where there is an obvious and close nexus between the non-signatories and the contract or the contracting parties. E.I. DuPont, 269 F.3d at 199. The two-part test for alternative estoppel requires a court to determine whether there is a 'close relationship between the entities involved,' and examine the 'relationship of the alleged wrongs to the nonsignatory's obligations and duties in the contract.' E.I. DuPont, 269 F.3d at 199 (citing Thomson-CSF, 64 F.3d at 779); see also Bannett, 331 F. Supp. 2d at 360. To satisfy the second part of the test, the non-signatory seeking enforcement of an arbitration agreement must show that the claims against them are 'intimately founded in and intertwined with' the underlying obligations of the contract to which they were not a party. E.I. DuPont, 269 F.3d at 199 (citing Thomson-CSF, 64 F.3d at 779).

The essential question in situations such as these is whether plaintiffs would have an independent right to recover against the non-signatory defendants even if the contract containing the arbitration clause were void. 'The plaintiff's actual dependence on the underlying contract in making out the claim against the nonsignatory defendant is therefore always the sine qua non of an appropriate situation for applying equitable estoppel.' Price Plaintiffs v. Humana Ins. Co., 285 F.3d 971, 976 (11th Cir. 2002) (rev'd on other grounds, PacifiCare Health Sys. v. Book, 538 U.S. 401, 123 S. Ct. 1531, 155 L. Ed. 2d 578 (2002)). In In re Humana, the Eleventh Circuit held that equitable estoppel was inappropriate where plaintiffs brought a RICO suit against a non-signatory defendant, because the RICO claims were based on a statutory remedy apart from any available remedy for breach of the underlying contract. In re Humana, 285 F.3d at 976."

Robotics v. Deviedma, No. 09-cv-3552, 2009 U.S. Dist. LEXIS 112077, at *11–13 (E.D. Pa. Nov. 30, 2009). Three strikes, one hit for the defendants:

It is not proper to dismiss this claim in favor of arbitration because the breach of fiduciary duty claim does not arise out of the various agreements between Devon Robotics and HRSRL. …

Plaintiffs' claim of tortious interference with current and prospective contractual relations is not subject to the arbitration clauses in the various agreements between Devon Robotics and HRSRL. Count V of Plaintiffs claim is based on DeViedma's alleged interference with various validation contracts. These contracts are not intimately intertwined with the i.v.Station and CytoCare agreements. …

Plaintiffs' claim of defamation is not subject to the arbitration clauses in the various agreements between Devon Robotics and HRSRL. …

To the extent that Plaintiffs' claim of conspiracy is based on the termination of the CytoCare agreement, their claim is dismissed. Plaintiffs' Complaint alleges that the Defendants conspired to wrongfully terminate the CytoCare agreement. The determination as to whether the agreement was wrongfully terminated will be intimately related to the terms of the agreement. Additionally, there is an extremely close nexus between the non-signatory parties and Devon Robotics.

Id. at 13–16.

Defendants next moved under Rule 12(b)(6) to dismiss the claims on the merits, with three strikes (on the breach of fiduciary duty, tortious interference with current contractual relations, and defamation claims) and hits on the rest. Most notably, “Devon Robotics has pled that it had several validation contracts with different hospitals, that DeViedma purposefully interfered with those contracts for his own benefit, without justification, and that as a result, Devon lost substantial amounts of business. These pleadings are sufficient to establish a claim for tortious interference with existing contractual relations.”

Though the Court “grant[ed] Plaintiffs leave to amend their tortious interference with prospective contractual relations to include any claims related to the McKesson negotiations,” it added the caveat that “Although the Court granted leave to amend the tortious interference claim and Plaintiffs may choose to attempt to amend their conspiracy claim, it should be noted that the Court likely lacks jurisdiction over any underlying torts asserted in support of the conspiracy claim based on the CytoCare or i.v.Station agreements due to the arbitration clauses in the agreements.”

A big win for Devon Robotics and a guide for future plaintiffs — in the face of an arguably applicable arbitration agreement, they kept alive the core of their suit: breach of fiduciary duty, tortious interference, and defamation.

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The Recorder reports:

Michael Ross was fired and blamed for two corporate scandals at Atmel Corp. -- but now the former general counsel is fighting back.

Ross has filed a lawsuit, claiming the San Jose, Calif., semiconductor company ruined his reputation when it pointed the finger at him and others for the company's stock option backdating problems, which led to a $125 million financial restatement. Having been fired along with other Atmel executives in 2006 after an investigation into the misuse of travel funds, Ross became an easy scapegoat when the company faced a mounting backdating mess a year later, his lawyers say.

Many lawyers in Ross' position bore the brunt of the blame for the backdating scandal that swept Silicon Valley's tech companies. They were fired; they were pursued by the government for overseeing the illegal practice of fudging dates to grant stock options at low prices and not properly accounting for it. But few have fought back with lawsuits like this.

* * *

When it released the results of its internal probe to the world, it laid the blame squarely on Perlegos and Ross in an April 2007 press release.

"Mr. Ross was aware of, and participated in the backdating of, stock options," the release blared, although the company's audit committee conceded that Ross may have not understood the tricky accounting implications of backdating until 2002. It also leveled accusations that Ross backdated his own stock options.

In his lawsuit, Ross said the press release damaged his career and counts as defamation: "As a result of the reckless, false and misleading comments made by Atmel regarding Ross' culpability in Atmel's stock option troubles, Ross has had significant difficulty obtaining employment commensurate with his experience and background."

As the story continues, after the travel investigation, Atmel went through one of the most bitter corporate struggles for control in recent Silicon Valley memory, resulting in the ouster of the brothers who founded the company, with whom Ross was close.

Most interesting to me, however, is how Atmel covered its bases dealing with the travel scandal, but not the backdating scandal. Take note:

An internal investigation of Davani led to the Perlegos brothers, Ross and another executive.

Daniel Bergeson and his team found that the executives had been paying small amounts in return for lots of travel on the company's dime ...

In the end, the executives contested the travel scandal findings, claiming it was a ploy to oust the management. The company got Morrison & Foerster to double-check Bergeson's investigation -- and the MoFo lawyers concluded it was fair.

"Double-check." Reminds me of a recent derivative suit here in Pennsylvania, which the company got dismissed because it had hired outside counsel to conduct an independent investigation.

Which is exactly what Atmel did for the travel funds but not, apparently, for the backdating. Now, they might pay the price.

Hiring independent counsel for an investigation is expensive. It's inconvenient. It may end up being unnecessary, or it may end up revealing troubling facts and recommending painful remedies. But it is, bar none, the best prophylactic a company can take when it finds itself in trouble.

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All's fair in love, war and litigation:

An arbitrator cannot sue a lawyer for wrongful use of civil proceedings, the 3rd U.S. Circuit Court of Appeals has ruled, even if the lawyer allegedly lodged false accusations in court papers to have the arbitrator disqualified, because lawyers enjoy an "absolute privilege" that immunizes them from liability over any communication made in the course of litigation.

The five-page unpublished opinion is available here. It says:

The underlying litigation in this case began in 1995 when Anthony Patterson, a
member of the Church of the Lord Jesus Christ of the Apostolic Faith in Philadelphia, filed an action in state court against church leaders alleging that they had looted millions of dollars from the church’s bank accounts. In November 2006, the parties agreed to submit the case to binding arbitration. The parties selected Edward Naythons (“Naythons”), a retired United States Magistrate Judge in the Eastern District of Pennsylvania, as the neutral arbitrator. . . .

Naythons issued the final adjudication in October 2006, but dated it July 25, 2006,
the date he completed it. In November 2006, Stradley filed a motion to vacate the final arbitration award. In December 2006, Stradley filed a petition for a hearing on their petition to vacate, as well as their previous petition for recusal.

About ten months later, Naythons filed a complaint against Stradley. In it, Naythons alleged abuse of process and wrongful use of civil proceedings due to the “scorched earth” litigation strategy Stradley employed and the accusations Stradley leveled against Naythons in the course of making arguments for his recusal. Stradley moved to dismiss the case because Naythons, a non-party to the underlying litigation, lacked standing.

The Third Circuit agreed in a single paragraph of analysis:

Under Pennsylvania law, the District Court correctly dismissed Naythons’s claims
of abuse of process and wrongful use of civil proceedings. Stradley did not “use legal process” against Naythons. Naythons was the arbitrator in the state proceeding, not a party to the action, and the fact that he was named as a respondent in one of the state court petitions is of no import. Permitting Naythons to sustain either of these claims against Stradley would abrogate the doctrine of judicial privilege, whereby “pertinent and material” communications made in in the context of judicial proceedings are absolutely privileged from civil liability. Moses v. McWilliams, 549 A.2d 950, 956 (Pa. Super. Ct. 1988) (citing Post v. Mendel, 507 A.2d 351, 355 (Pa. 1986)). The proper recourse for any unethical conduct on behalf of Stradley is through judicial review of the arbitration proceedings, which could result in sanctions against Stradley if their conduct was as egregious as Naythons alleged in his complaint.

The claims were obviously a long shot -- an arbitrator isn't a party to the case they hear, so nothing is "used" or "initiated" against them.

Why didn't Naythons allege defamation? 

Ask his lawyer, George Bochetto. Bochetto was the plaintiff in the most recent Pennsylvania Supreme Court opinion on "judicial privilege," Bochetto v. Gibson,  which reaffirmed Post:

 Pursuant to the judicial privilege, a person is entitled to absolute immunity for 'communications which are issued in the regular course of judicial proceedings and which are pertinent and material to the redress or relief sought.' Post v. Mendel, 510 Pa. 213, 507 A.2d 351, 355 (Pa. 1986) (emphasis in original). This privilege is based on the 'public policy which permits all suiters, however bold and wicked, however virtuous and timid, to secure access to the courts of justice to present whatever claims, true or false, real or fictitious, they seek to adjudicate.' Id. As we explained in Post, 'to assure that such claims are justly resolved, it is essential that pertinent issues be aired in a manner that is unfettered by the threat of libel or slander suits being filed.' Id. Notably, this privilege is extended not only to parties so that they are not deterred from using the courts, but also to judges so that they may 'administer the law without fear of consequences,' 'to witnesses to encourage their complete and unintimidated testimony in court, and to counsel to enable him to best represent his client's interests.' Binder v. Triangle Publications, Inc., 442 Pa. 319, 275 A.2d 53, 56 (Pa. 1971).

Bochetto v. Gibson, 580 Pa. 245, 251, 860 A.2d 67, 71 (2004).

The Pennsylvania Supreme Court held the privilege did not apply to the facts alleged by Bochetto, however, as the defendant attorney had faxed a copy of the allegedly defamatory complaint to a reporter (at The Legal Intelligencer). Such faxing was not "in the regular course of judicial proceedings."

The lawyers at Stradley Ronon no doubt paid heed the lesson of Bochetto v. Gibson and kept all their allegations within the confines of the litigation. Hence Naythons' and Bochetto's creativity.

I don't know the merits of the allegations either way. Assuming, for a moment, that Naythons' allegations were true and Stradley injured him through "scorched earth " litigation tactics, the immunity granted to them from suit by Nathons is all the more reason that the district court needs its hands free to deal with lawyers and parties who misbehave, the exact issue pending before the Third Circuit in Grider v. Keystone Health.

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Among the many creative “legal” ideas floating around on the internet is:

If you set up an LLC for yourself and conduct all your business through it, the LLC will be liable in a lawsuit but you won't.

Last week, I was asked if this "asset protection strategy" worked.

No, it doesn't.

Conducting your personal business through an LLC provides no protection against a tort verdict, the type of liability that most people are worried about. The use of corporate forms -- like LLCs, S-Corporations, or Incorporation -- has many important purposes, but avoiding personal tort liability for your own conduct is not one of them.

To see why, let's start with some background.

What's a "tort?"

"Tort" is the Norman word for "wrong." There are three main types of legal wrongs: criminal wrongs, contractual wrongs, and tort wrongs.

A "criminal" wrong is an offense against the state: we as a society made it illegal to smoke pot, you did it anyway, here's your punishment. A "contractual" wrong is a failure to do something you agreed to do: I gave you $20 to mow my lawn, you didn't do it, I want my money back.

Everything else is a "tort" wrong. The most common tort is "negligence," which includes most lawsuits, like car accidents, medical malpractice, or slip and fall. In negligence, you had a general duty to do something in a reasonable way (like drive your car safely) and you messed up, so you have to pay for the harm you caused. Another type of "tort" is an intentional tort, like defamation or tortious interference with business relations: you purposefully hurt me, so you should pay for the damage.

When most people say they're worried about "getting sued," they're usually talking about being responsible a large tort verdict arising from a catastrophic injury or wrongful death.

What's an LLC?

A limited liability company is a type of business association recognized by state and federal governments as a legal entity independent of its owners and employees. On behalf of the owners, the company can, for example, own property and enter into contracts.

For our purposes here, we do not need to go into the differences between a limited liability company, an S-corporation, full incorporation, or a limited partnership. (I exclude general partnership and sole proprietorship because neither claims to limit liability at all.) All of them serve the same basic purpose, which is to protect investors from incurring any liability greater than the amount they invested into the company. The Economist described the purpose of limited liability a couple years ago:

Before limited liability, shareholders risked going bust, even into a debtors’ prison maybe, if their company did. Few would buy shares in a firm unless they knew its managers well and could monitor their activities, especially their borrowing, closely. Now, quite passive investors could afford to risk capital—but only what they chose—with entrepreneurs. This unlocked vast sums previously put in safe investments; it also freed new companies from the burden of fixed-interest debt. The way was open to finance the mounting capital needs of the new railways and factories that were to transform the world.

How does tort liability work in the context of an LLC?

Most everyone knows, although not by name, "vicarious liability" and "the doctrine of respondeat superior." If, in the course and scope of your employment, you cause someone else harm, then your employer is liable for your conduct. 

Here's what you probably don't know:

An agent is subject to liability to a third party harmed by the agent's tortious conduct. Unless an applicable statute provides otherwise, an actor remains subject to liability although the actor acts as an agent or an employee, with actual or apparent authority, or within the scope of employment.

Restatement of the Law, Third, Agency § 7.01 (emphasis added).

(An aside about The Restatement: The Restatement is an intense effort of lawyers, professors and judges organized by the American Law Institute to reduce to writing the legal community's consensus regarding general principles of law applied across the country. "Agency" is the subject of this particular Restatement, and "Third" means it's the third version, which was published in 2006. For reference of how intense these efforts are, the Second version was published in 1958. In case you're wondering, the Second version also said “[a]n agent who does an act otherwise a tort is not relieved from liability by the fact that he acted at the command of the principal or on account of the principal …")

An "agent" is a broader definition of "employee:" it's anyone acting on behalf of the company.

Let me reiterate what that all means: the general legal rule across the country is that individuals acting on behalf of a company are personally liable for their tortious conduct, even if they did so on behalf of the company.

Don't believe this "Restatement?" Want some case law? Here's a case from the Virgin Islands less than a month ago, noting in passing the cases it found with minimal research:

Terr. of the U.S.V.I. v. Goldman, Sachs & Co., 937 A.2d 760, 794 n.153 (Del. Ch. 2007) ('Officers and directors may be held individually liable for personal participation in tortious acts even though performed solely for the benefit of the corporation[.]') (quotation omitted); Armed Forces Ins. Exch. v. Harrison, 2003 UT 14, 70 P.3d 35, 41 (Utah 2003); Miller v. Keyser, 90 S.W.3d 712, 717 (Tex. 2002); Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 788 A.2d 268, 273 (N.J. 2002); Haupt v. Miller, 514 N.W.2d 905, 909 (Iowa 1994); Camacho v. 1440 Rhode Island Ave. Corp., 620 A.2d 242, 246-47 (D.C. 1993); Weir v. McGill, 203 Ga. App. 431, 417 S.E.2d 57, 59 (Ga. 1992); Hecker v. Ravenna Bank, 237 Neb. 810, 468 N.W.2d 88, 95 (Neb. 1991); Ingram v. Machel & Jr. Auto Repair, Inc., 148 A.D.2d 324, 325, 538 N.Y.S.2d 539 (N.Y. App. Div. 1989); Mississippi Printing Co. v. Maris, West & Baker, Inc., 492 So. 2d 977, 978 (Miss. 1986); Wyatt v. Union Mortg. Co., 24 Cal. 3d 773, 157 Cal. Rptr. 392, 598 P.2d 45, 52 (Cal. 1979); Jabczenski v. Southern Pac. Memorial Hosp., 119 Ariz. 15, 579 P.2d 53, 57 (Ariz. Ct. App. 1978); Taylor v. Alston, 79 N.M. 643, 447 P.2d 523, 525 (N.M. Ct. App. 1968); New Eng. Box Co. v. Gilbert, 100 N.H. 257, 123 A.2d 833, 835 (N.H. 1956)."

Addie v. Kjaer, 2009 U.S. Dist. LEXIS 36110, at *21–12 (D.V.I. Apr. 28, 2009)(noting, "The Court has come across no jurisdiction that applies a contrary rule.").

Insurance and employee indemnification are so common today that this distinction is not often appreciated, but it's still the law. If Warren Buffet defrauded Mom and Pop’s Ice Cream Stand wholly for the benefit of Berkshire Hathaway, he would personally be on the hook for the damage just the same as Berkshire.

Let's go back to your personal LLC. Assume you hit a pedestrian with a car, defame someone in a blog post, or cause a building fire. It doesn't matter if you were "employed" by your LLC when you did it -- you will still be personally liable, as will the LLC that "employed" you.

Thus, in order to "protect your assets," you need to put enough money into the LLC that it can completely pay any tort judgment against you, or else the injured person can go for your assets long after it has bankrupted the LLC. That just defeats the nominal purpose of the LLC (to avoid liability), since you'll have to pay the same amount anyway, just through the LLC.

Again, there are plenty of reasons for setting up an LLC, such as protecting investors, limiting contractual liability, limiting liability arising from employee's conduct, and a host of business and tax uses, but avoiding personal liability for your own conduct isn't one of them.

There's an easier and more effective way. Buy good personal liability insurance and buy an umbrella liability insurance policy. If you're running a business, buy a good business insurance policy (including liability) and an umbrella policy for it, too. If your business is unusual, or you're worried about a particular risk, look for risk-specific insurance, like media policies which cover defamation. Don't skimp -- get at least $1 million in coverage, or more depending on your own risks.

Then you'll be covered for most tort verdicts (keep in mind some states prohibit insuring intentional conduct, and insurance policies can carve out whatever exceptions / exemptions they want).

No trickery needed, just some money and foresight.

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Fresh off the presses is Acumed LLC v. Advanced Surgical Servs., 2009 U.S. App. LEXIS 5854 (3d Cir., March 20, 2009), a charming setup in the insanely hostile and competitive world of medical devices:

Acumed is a manufacturer of surgical implants and related devices, and appellant [Morris] and [Advanced Surgical Services] are in the business of distributing surgical implants and other medical devices for various manufacturers, including Acumed, to hospitals and surgeons. ... At the trial, Ryan Crognale, a sales representative for appellant, explained his view of the events that Casey described at Nazareth Hospital. Crognale testified that Morris directed him to deliver the implants to Nazareth and to attend the surgery. He then stated that after his earlier delivery of Acumed implants, he returned to the hospital and saw Casey in the operating room and observed that the physician doing the procedure was "not using my stuff anyway." Consequently, Crognale took the tray of instruments he previously had delivered and left the operating room. Thus, it appears that the physician performing the procedure used materials Acumed supplied through Surgical, its authorized representative.

As Crognale was leaving the surgery center, he encountered Casey, and an argument between the two representatives ensued. Appellant contends that during the argument Casey loudly accused Crognale of illegally selling Acumed inventory, an incident that appellant contends led Dr. Robert Frederick, a doctor at Nazareth, to stop doing business with it. Moreover, appellant contends that because of Dr. Frederick's connection with a large group of physicians in Philadelphia, the confrontation was a factor in a decision by Jefferson Hospital in Philadelphia to exclude Morris from its operating theater for one year. As a result of the incident at Nazareth Hospital, Acumed sent another notice to its customers stating that Surgical was its only authorized representative in eastern Pennsylvania and southern New Jersey.

Can you guess what happened next?

Appellees filed the complaint in this action against appellant in the District Court charging it with violation of the Lanham Act, 15 U.S.C. § 1125, violation of Pennsylvania's Anti-Dilution statute, 54 Pa. Cons. Stat. Ann. § 1124 (West 1996), unfair competition, breach of a non-disclosure provision in the Advanced-Acumed Agreement, conversion, unjust enrichment, and tortious interference with existing or prospective contractual relationships.

...

Appellant filed a four-count counterclaim against appellees. In counts I, II, and III appellant charged that Acumed breached its contract with appellant by not providing timely notice of termination of their relationship and by failing to pay the contractually required buy-out fee that became due to appellant when Acumed terminated their relationship. In addition, appellant charged that Acumed's failure to pay the buy-out fee violated the Pennsylvania Commissioned Sales Representatives statute, 43 P.S. §§ 1471 et seq. (West 1991). In count IV ("counterclaim IV") appellant alleged that Acumed and Surgical ". . .converted property belonging to Advanced, defamed and disparaged Advanced maliciously and falsely, intentionally interfered with Advanced's contractual and business relationships and competed unfairly against Advanced."

After a little more than a week of trial...

The jury returned a verdict on March 21, 2007, finding for appellees on their count against appellant for tortious interference with existing or prospective contractual relationships with appellees' customers. The jury, however, rejected appellees' claim that appellant had tortiously interfered with Acumed's and Surgical's contractual relationship between themselves and also rejected appellees' other claims, including appellees' Lanham Act claims. The jury also found against appellant on the portions of its counterclaims that had survived the District Court's dismissals, i.e., the claims predicated on breach of contract and violation of the Pennsylvania Commissioned Sales Representatives statute. The jury awarded $ 20,000 in compensatory damages to Surgical and $ 0 in compensatory damages to Acumed on the tortious interference claim but found that both Acumed and Surgical were entitled to punitive damages. ... The jury then returned a verdict awarding $ 1 in nominal damages to Acumed and punitive damages to both Acumed and Surgical Resources in the amount of $ 100,000 each.

Uh oh.

As we indicated above, to recover on a tortious intentional interference with existing or prospective contractual relationships claim in Pennsylvania, a plaintiff must prove that the defendant was not privileged or justified in interfering with its contracts: "While some jurisdictions consider a justification for a defendant's interference to be an affirmative defense, Pennsylvania courts require the plaintiff, as part of his prima facie case, to show that the defendant's conduct was not justified." Triffin v. Janssen, 426 Pa. Super. 57, 626 A.2d 571, 574 n.3 (Pa. Super. Ct. 1993) (citing Thompson Coal 412 A.2d at 471 n.7); Silver v. Mendel, 894 F.2d 598, 602 n.6 (3d Cir. 1990). We hasten to add, however, that our conclusion does not depend on the allocation of the burden of proof on the privilege issue, as we would reach our result even if appellant had the burden of proof to establish the privilege as a defense, because the evidence established conclusively that appellant did so.

Pennsylvania has adopted section 768 of the Restatement (Second) of Torts, which recognizes that competitors, in certain circumstances, are privileged in the course of competition to interfere with others' prospective contractual relationships. See Gilbert v. Otterson, 379 Pa. Super. 481, 550 A.2d 550, 554 (Pa. Super. Ct. 1988). The law necessarily recognizes this privilege because if more than one party seeks to sell similar products to prospective purchasers, both necessarily are interfering with the other's attempt to do the same thing. Moreover, even if an entity has an existing contractual relationship with another entity, a stranger to the relationship must be privileged to seek to replace one of the entities lest competition be stifled. Thus, under section 768: "[o]ne who intentionally causes a third person not to enter into a prospective contractual relation with another who is his competitor or not to continue an existing contract terminable at will does not interfere improperly with the other's relation if: (a) the relation concerns [*37] a matter involved in the competition between the actor and the other; (b) the actor does not employ wrongful means; (c) his action does not create or continue an unlawful restraint of trade; and (d) his purpose is at least in part to advance his interest in competing with the other."

...

Comment e to section 768 elaborates on the type of conduct that constitutes wrongful means: "If the actor employs wrongful means, he is not justified under the rule stated in this Section. The predatory means discussed in § 767, Comment c, physical violence, fraud, civil suits and criminal prosecutions, are all wrongful in the situation covered by this Section." Courts relying on comment e have interpreted the wrongful means element to require that a plaintiff, to be successful in a tortious interference action, demonstrate that a defendant engaged in conduct that was actionable on a basis independent of the interference claim. See Brokerage Concepts, 140 F.3d at 531 (citing DP-Tek, Inc. v. A T & T Global Info. Solutions Co., 100 F.3d 828, 833-35 (10th Cir. 1996)). Moreover, we noted in 2000 that even though the Pennsylvania courts have not interpreted the "wrongful means" element of section 768, it is likely that the Pennsylvania Supreme Court would adopt this meaning, that is, for conduct to be wrongful it must be actionable for a reason independent from the claim of tortious interference itself. See Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 858 (3d Cir. 2000); see also CGB Occupational Therapy, Inc. v. RHA Health Servs. Inc., 357 F.3d 375, 389 (3d Cir. 2004). Nothing in later Pennsylvania Supreme Court decisions to which the parties have directed our attention or of which we are aware leads us to change our view of this issue.

I'm sure you can imagine what happened next.

We therefore will reverse the District Court's order of May 21, 2007, to the extent that it denied appellant a judgment as a matter of law on the tortious interference claim, and will remand the case to the District Court for it to enter judgment as a matter of law in favor of appellant on that claim and to set aside the prior judgment on the claim. As a result, we also will reverse the jury's award of compensatory and punitive damages against appellant and the District Court's grant of an injunction in appellees' favor.

That's why business contingent fee cases demand such a high fee and why commercial litigators have to be so selective in the cases they take. On the most basic level, appellees won in the District Court and at trial and post-trial after years of complicated, intense litigation and trial.

How complicated? The Third Circuit Court of Appeal's opinion is a whopping 18,785 words, about one-fifth the length of a typical paperback novel. The briefs from the complaint to the appeal no doubt exceeded 100,000 words.

And the plaintiffs walked away with nothing.

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The San Francisco Chronicle writes,

The Web 2.0 movement, which ushered in an interactive Internet, sought to put power in the hands of the people by tapping the so-called wisdom of the crowds to change the world - and to keep such a digital democracy in check.

A decade later, as defamation lawsuits have begun to mount, some are questioning the wisdom of the crowds, and wondering if it hasn't turned into mob rule.

"I don't know why this has taken so long," said Andrew Keen, author of a controversial book, "The Cult of the Amateur: How Today's Internet is Killing Our Culture." "The Internet is a culture of rights rather than responsibilities. We have no coherent theory of digital responsibility. The issue has broken through, broken out of Silicon Valley - now it affects real people with real reputations to defend."

I guess I'm supposed to be impressed by the "rights" and "responsibilities" distinction. I'm not. Every legal "right" is an enforceable legal "responsibility" upon another.

Take the First Amendment. The right to free speech imposes on the government the responsibility -- whether the government wants it or not -- to let you speak freely.

But back to the subject at hand, defamation law:

Meanwhile, the review site Yelp, based in San Francisco, has found itself in the crosshairs of the free e-speech debate.

Yvonne Wong, a pediatric dentist in Foster City, recently sued Los Altos couple Tai Jing and Jia Ma after they criticized her treatment of their son in a posting on Yelp. They questioned her use of laughing gas and said they were angry she had used fillings containing mercury.

Wong's lawyer, Marc TerBeek of Oakland, said the review is false, and Yelp has since taken it down.

That reminds me of a Pennsylvania case, a lawsuit brought by another physician who felt he had been slandered with regard to his methods:

There were four counts in the declaration.

1st count. "He, (the plaintiff,) is not a physician, but a two-penny bleeder."

2d count. "He, (the plaintiff,) was called to a man near the new bridge, who had injured his leg, and by his (plaintiff's) bad treatment the man must have been lame for life had not I, (defendant, Dr. Small,) been called to him."

3d count. "Foster had given a child stuff to butcher it."

4th count. "He, (the plaintiff,) had butchered a child."

That case was Foster v. Small, 3 Whart. 138 (Pa. 1838)(upholding directed verdict for defendant because "Now though words which impute professional ignorance are certainly actionable, yet to say of a physician that he is a two-penny bleeder, imputes not want of professional skill, but want of professional dignity manifested by a petty attention to the humbler employments of the art. They are, in fact, words of mere contempt.").

Did you catch the year? That virtually identical doctor-slander case was decided one-hundred and seventy-one years ago, long enough ago that calling a doctor a "bleeder" -- one who treated by bleeding the patient -- was a sufficiently accepted practice that it wasn't defamatory to accuse a doctor of being a "bleeder."

Defamation -- whether written ("libel") or spoken ("slander") -- is among the oldest claims recognized by the legal system, dating back to ancient Rome and likely before.

The law isn't changing. People aren't changing. Only one thing is changing: people are more connected.

Here's an example. Based on a suggestion from Robert Scoble, whom I've never met, I search Friendfeed for "defamation" posts (with 5 comments and 5 "likes") and find a Twitter post (with about 50 comment and 50 "likes") from Mona L, who I've never met, that says:

“Should you be held accountable for what you publish online? - Cnet "Yelp user faces lawsuit over negative review" http://tinyurl.com/7uwtom”

The link is to a story on a different Yelp defamation suit. We don't even have to consider the story to see how powerful the internet is at spreading commentary -- the tweet and the Friendfeed post alone were viewed by hundreds, more likely thousands, of people.

With every single off-the-cuff comment about that story effectively permanent, broadcast-worldwide, and easily accessible world-wide.

But that's it. People haven't become more disgruntled with one another, nor more prone (or able) to sue, nor have we suddenly left a responsible and respect world for "mob rule." The allegedly defamatory comments just spread faster, travel farther and last longer.   

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Above The Law refers us to Newsday's coverage of the ugly mess that has become of the Martin Garbus, Esquire vs. Samantha Ronson vs. Perez Hilton suits, which now stand a good chance of becoming far more embarrassing for Lindsay Lohan than the blog post which prompted the original defamation suit.

Here are the facts in the underlying dismissed Ronson vs. Perez suit:

At the bottom of the failed libel suit and the pending malpractice action is a one-car crash: Lohan's Mercedes-Benz versus some shrubs in Beverly Hills on May 26, 2007. Police reported finding a small amount of cocaine in her car. The actress eventually entered rehab and pleaded guilty to driving under the influence.

About a week later, according to the libel suit, Hilton, whose real name is Mario Lavandeira, posted an item on his blog linking to a juicy story on an another blog called Celebrity Babylon. Citing unnamed sources, Celebrity Babylon reported the cocaine belonged to Ronson. Additionally, according to the suit, the story said Ronson "has accumulated a substantial side income taking her pal in front of paparazzi cameras for money."

"With friends like Samantha Ronson, Lindsay doesn't need enemies," Hilton blogged. Two weeks later, he posted a picture of himself on perezhilton.com wearing a sweatshirt emblazoned with "Blame Samantha" and referred to her as a "lezbot dj", according to the libel suit.

There's fodder there for a defamation suit, but not much. Hilton didn't post the original defamatory facts, he linked to them with some of his own comments. As a journalist -- and Hilton absolutely is a journalist, he reports more than full-time with substantial resources for investigation -- Hilton has some duties to assess in his own mind the likely veracity of the story, but he doesn't have to confirm it's entirely true unless he gives the story's facts his own stamp of approval. As far as I can tell, he didn't, he linked to it. (In an affidavit, he asserted his own good faith in linking to the story based upon dozens of reports he had received of Ronson's drug use).

"Blame Samantha" sure is obnoxious, but it's hard to see what defamatory facts are implied there given the context of Hilton publishing the story as coming from a separate source.

First, a word on the unusual and apparently excessive fees here. I typically represent defamation plaintiffs on a contingent fee basis; doing so presents a substantial risk of losing money given the nature of defamation cases (more on that later), but it's also par for course. Ronson hired Garbus at $750 an hour. Based on the little bit that comes through the article, Garbus seems to have billed her at least $142,000 without even getting to the anti-SLAPP hearing (part of California's preemptive strike against wrongful use of civil proceedings) or taking Perez Hilton's deposition.

Which is to say, Garbus charged her a boatload for nothing, as he did not even get past the very first hurdle in the case, the anti-SLAPP hearing, the equivalent of a motion to dismiss in other state courts.

Garbus also allegedly promised the whole case would cost $75,000; I suppose that's possible at $750 an hour (i.e., 250 hours once you consider that an associate at half the price will be doing two-thirds of the time) if you streamline the process and the other side doesn't go crazy with motions or discovery. Given the parties and issues here, I don't see how that would have been possible. Obviously, Hilton's lawyers are going to go straight to the drug use and will do their best to dig into Ronson and Lohan's personal lives (as Garbus himself is now doing). For comparison, Hilton's attorneys made it up to $85,000, or at least that's how much Ronson was ordered to pay for Hilton's attorneys' fees.

Second, what did Garbus and Ronson, respectively, expect to happen? Perez Hilton did not originate the story, Celebrity Babylon did, and Ronson was arguably at least a limited-purpose public figure (and/or Lohan was with regard to the source of the cocaine found in her car), making it much harder to prove the requisite intent ("malice") to get by First Amendment protections.

So it was a tough case from the start, which Garbus should have known and should have told Ronson. Given Hilton's hearsay repetition of the actual defamatory facts, odds were high he'd get out on anti-SLAPP, which Garbus should have told Ronson. Moreover, Ronson should have been told that, even if she had "won," she could have "lost" once Hilton started digging into her personal life and, perhaps worse, Lohan's personal life.

Maybe Garbus did tell her all of that. Yet, in the article, Hilton's lawyer is quoted as saying that Garbus' anti-SLAPP motion response was garbage. There are also references to Garbus not "worrying" about Ronson's case until Hilton's lawyers filed their motions. If true, those cast doubt on Garbus' whole story, since he should have recognized the anti-SLAPP problems from the start and should have been preparing for that from the start. If I had pursued Ronson's case here in Pennsylvania, from day one I would have been working on my First Amendment arguments.

But let's give Garbus the benefit of the doubt and assume that the truth lies somewhere in the middle between Garbus and Ronson's allegations. If so, there still seems to be a fundamental problem that Ronson, no matter what she was told, did not recognize just how tenuous the case against Hilton was. Nothing else explains her conduct, even if she was at times out of touch or hard to reach.

Which brings me to the main point here: defamation cases present a unique problem in client relations for trial lawyers, as they are among the hardest cases to win and usually involve the most emotionally-invested clients.

Defamation cases frequently lose. Indeed, sometimes even when they win, they lose, in the form of lost privacy or nominal jury verdicts.

Did Ronson know that? Regardless of what Garbus told her, the facts strongly suggest that she didn't get it, and that this whole mess could have been avoided if she had a better understanding of the issues and the case from the start. That presents a lesson for all of us trial lawyers -- do your clients really get what's going on?

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Legal Blog Watch points us to an interesting development:

A project spearheaded by the Media Bloggers Association will provide bloggers access to first-of-its-kind liability insurance along with free training in media law. The insurance program, called BlogInsure, will provide coverage for claims against bloggers involving defamation, invasion of privacy and copyright infringement. According to the MBA's announcement, its members will be eligible to purchase liability insurance at a "significant discount." Offered through Media/Professional Insurance, a division of AXIS Insurance, the policy will cover costs and damages for claims against bloggers and will parallel coverage offered to tradition media organizations.

In conjunction with this announcement, the MBA has partnered with The Poynter Institute's News University and the Berkman Center's Citizen Media Law Project to create a free e-learning course on media law designed specifically for bloggers and other online publishers. Bloggers wishing to join the MBA and take advantage of its insurance program will be required to take this course and take a test on what they learn (and pay an MBA membership fee of $25). But the course is open to anyone to take, free of charge, by registering at News University.

It is usually good for everyone involved when previously uninsured parties become both insured and educated in how not to to cause damage in the first place.

Of course, there is a flip side: there will likely be a substantial increase in the number of defamation suits filed against bloggers.

Is that necessarily a bad thing? No. Given how truth is an absolute defense to defamation, and the burden rests with the plaintiff to prove falsity, defamation suits are by and large only filed in the most egregious cases, when a defendant knowingly lies about someone else and refuses to correct the mistake. As such, defamation suits serve an important counterbalance to the ease with which rumor and innuendo can spread in the modern age.

I think the real impact of this policy will be to provide costs of defense for generally honest bloggers, thereby protecting them from meritless suits filed solely to intimidate them into silence, suits which could crush (or at least distract) those without insurance coverage. And that's a good thing.

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Congratulations, Paul:

The estate of legendary sports announcer John Facenda has scored another major victory in its court battle with NFL Films that centers on whether Facenda's distinctive voice -- known in football circles as the "Voice of God" -- was improperly used in a promotional film for a John Madden video game.

In its 60-page opinion in Facenda v. NFL Films Inc., a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals ruled Tuesday that NFL Films violated Pennsylvania's "right of publicity" statute.

Now the only issue left to be decided on that claim is how much Facenda's estate should be awarded in damages.

The panel rejected NFL Films' argument that the "standard release" contract Facenda signed was a "complete defense," noting that while the release gave the NFL the right to use Facenda's voice in future film projects, it also explicitly prohibited any use that would "constitute an endorsement" of any product.

"Facenda consented to participation in films documenting NFL games, not an advertisement for a football video game," 3rd Circuit Judge Thomas L. Ambro wrote in an opinion joined by Judges Michael A. Chagares and Robert E. Cowen.

...

The NFL's lawyer, Bruce P. Keller of Debevoise & Plimpton in New York, argued that the 22-minute film, titled "The Making of Madden," was a documentary and was therefore a work of artistic expression entitled to First Amendment protection.

But Paul A. Lauricella of The Beasley Firm, who represented John Facenda Jr., argued that the film was nothing more than an "infomercial" for the video game "Madden NFL 06," and was therefore purely commercial speech.

In the lower court, Hart sided with Lauricella and concluded that the film was not a documentary because it "lacks the journalistic independence typical of the maker of a documentary" and because NFL Films had a "direct financial interest" in the success of the video game.

Ambro agreed with Hart, saying "like an infomercial, the program focuses on one product, explaining both how it works and the source of its innovations, all in a positive tone."

As a result, Ambro concluded that the NFL's First Amendment defense failed.

Although "commercial speech does receive some First Amendment protection," Ambro said, the Lanham Act "customarily avoids violating the First Amendment, in part by enforcing a trademark only when consumers are likely to be misled or confused by the alleged infringer's use," he wrote.

Opinion's worth the read if you're in the copyright, right of publicity, or misleading advertising fields. The NFL ran the full gambit of defenses, from preemption to "actual confusion," and lost on all of them.*

* Technically, the Third Circuit moved one issue back from summary judgment to the jury. Here in plaintiff's land, when something goes to the jury, we call it a win.

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The Nevada Accident & Injury Law Blog describes how a Nevada Jury Awards Las Vegas Man $60 Million:

A federal jury in Nevada last week awarded $60 million to a Las Vegas man who alleged Paul Revere Life Insurance Co. and the Unum Group denied in bad faith his claim for disability benefits.

This is one of those “be careful what you wish for” cases. In a previous trial, a jury awarded Plaintiff $11.6 million but it was overturned on appeal. So the case was tried again and the second jury awards five times what the first jury awarded.

I see that a lot, particularly in tort cases with verdicts over $1 million, and I don't think it's a coincidence.

At a tort (negligence, malpractice, breach of fiduciary duty, wrongful death, etc.) trial, the defendant usually holds most of the cards. They generally know which stones you overturned on discovery and which ones you did not, and they know which evidence that you have his most embarrassing and which evidence you do not have is most absolving.

More importantly, they were there. They really know what they did and did not do, and what they were thinking when they did it, and they certainly know what they intend to say.

It does not matter how many depositions you took -- you could have had people testifying for days -- and how much written discovery you collected, trial will still be full of surprises. Even if no new facts are revealed, you will see facts presented in a new light, often at odds with the light they were presented in pleadings and during discovery. (And you will have to quickly react to this new version of the truth: don't even try to argue to the jury that a fact was "presented in a different light during discovery.")

Trial makes the defendant show their cards, clearing away their natural advantage in a tort suit. You will see the strongest defense arguments and the most favorable defense evidence. More importantly, while you can always run a mock jury and see how neutral non-lawyers react to your evidence, you will never get a chance, pre-trial, to practice cross examining a defendant to see what evidence makes them squirm, babble, or obviously lie. A deposition will give you hints, but it will never show you what will really make a defendant fold or what they'll do when the chips are down.

My view is that these big cases aren't 50-50 or longshots, they're slam dunks if you have all the evidence, know where the defendant wants to go, and know where the defendant doesn't want to go. That's how a "big" verdict becomes a "blockbuster" verdict the second time around.

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West Virginia Business Litigation details an interesting case:

The lawsuit alleges that Frank, a former West Virginia Grand Master, was expelled from the Masons as a result of his successful efforts to reform the organization and eliminate practices that were, at best, anachronistic and, at worst, illegal ...

Plaintiff Haas' goal was to make Masonry more tolerant, friendly, decent and accepting of everyone regardless of nationality, race, religion or disability. ...

The lawsuit raises questions about membership in a fraternal organization, such as whether a member is entitled to due process if he is to be expelled from the membership, and, if so, what type of due process.  

But I think the more important question presented by the action is the public policy aspect: can an organization, even one that is private and fraternal, take punitive action against a member for activities that are intended to rid the organization of illegal or unethical practices?  I would hope the answer is no, but that’s what the lawsuit will decide.

At least in Pennsylvania, the Pennsylvania Human Relations Act holds:

§ 953. Right to freedom from discrimination in employment, housing and public accommodation.

The opportunity for an individual to obtain employment for which he is qualified, and to obtain all the accommodations, advantages, facilities and privileges of any public accommodation and of any housing accommodation and commercial property without discrimination because of race, color, familial status, religious creed, ancestry, handicap or disability, age, sex, national origin, the use of a guide or support animal because of the blindness, deafness or physical handicap of the user or because the user is a handler or trainer of support or guide animals is hereby recognized as and declared to be a civil right which shall be enforceable as set forth in this act.

Would the Masons count as a "public accommodation?" That generally depends on if it's open to the public, a question much harder to answer than you'd think. Here's Wikipedia on admission:

Generally, to be a regular Freemason, a candidate must:^[20]

• Be a man who comes of his own free will.
• Believe in a Supreme Being. (The form of which is left to open interpretation by the candidate)
• Be at least the minimum age (from 18–25 years old depending on the jurisdiction).
• Be of good morals, and of good reputation.
• Be of sound mind and body (Lodges had in the past denied membership to a man because of a physical disability, however, now, if a potential candidate says a disability will not cause problems, it will not be held against him).
• Be free-born (or "born free", i.e. not born a slave or bondsman).^[50] As with the previous, this is entirely an historical holdover, and can be interpreted in the same manner as it is in the context of being entitled to write a will. Some jurisdictions have removed this requirement.
• Have character references, as well as one or two references from current Masons, depending on jurisdiction.

Deviation from one or more of these requirements is generally the barometer of Masonic regularity or irregularity. However, an accepted deviation in some regular jurisdictions is to allow a Lewis (the son of a Mason),^[51] to be initiated earlier than the normal minimum age for that jurisdiction, although no earlier than the age of 18.

Seems awfully public to me, which would make the law apply. Eagle-eyed law students, though, will note that Boy Scouts of America v. Dale interprets the First Amendment as superseding these "public accommodations" laws where necessary to protect expressive freedom, and on the face of it I can't see how the Masons' discrimination would be different from the Boy Scouts'.

The same analysis would thus likely apply to West Virginia -- making the Masons' original conduct that Haas tried to reform protected, rather than illegal, and they can say they fired him for deviating from their expressive message. Similarly, the United States Constitution, where applicable, trumps Haas' state-law tort claims (defamation, etc).

 

I underline "where applicable" to emphasis that, just because there's a Constitutional right in the vicinity of the facts at issue doesn't automatically mean the conduct is protected. The Masons could very well have gone beyond mere protection of their expression into intentionally harmful conduct, which isn't protected at all.

Indeed, the Boy Scouts are a good example -- their victory in Dale translated into the City of Philadelphia revoking the free rent they had enjoyed on Philadelphia City property. Again, the right to express yourself doesn't automatically translate into, say, the right to enjoy a tax break.

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