By: Jessica P.G. Newman, Cypress LLP

https://www.lexology.com/library/detail.aspx?g=265f25d9-4fb9-48a0-9aab-da0bed93f809

A business owner cannot rely on California’s Anti-SLAPP statute to shield it from slandering a competitor under the guise of “protecting consumers.”

Xu v. Huang involves two competing companies that specialize in life insurance products and wealth management services targeted to the same demographic of Chinese and Chinese-American communities. Tiffany Yan Xu sued competitor Haidi Wenwu Huang for defamation after Huang allegedly told independent insurance brokers and potential customers that Xu committed forgery, misled clients about risky financial products, had her license revoked, and committed fraud and financial crimes in China.

Huang filed an anti-SLAPP motion arguing that her statements were protected under the “catch-all” provision (CCP section 425.16(e)(4)) because they implicated a matter of public interest.  Huang claimed that she frequently was called upon to offer a professional opinion regarding other companies’ insurance policies. In light of her background, she asserted that she was providing “consumer information” about Xu’s business practices that was of “significant public interest” to the community of businesses and individuals to whom Xu provided services.

Unsurprisingly, Xu disagreed, arguing that Huang’s statements were nothing more than corporate slander in order to win business and that such disparagement fell outside of anti-SLAPP protections.

The trial court agreed with Huang’s reasoning and granted her special motion to strike.

Appellate Court Reverses

The Court of Appeal reversed, determining that the lower court’s ruling suffered two key flaws.

First, the trial court erred in skipping straight to an analysis of Section 425.16’s catch-all provision without first considering the exemptions enumerated in Section 425.17. Under the commercial speech exemption set forth in Section 425.17(e), “[a] defendant who makes statements about a business competitor’s goods or services to advance the defendant’s business cannot use the anti-SLAPP statute against causes of action arising from those statements.” This is true even if “the conduct or statement concerns an important public issue.”

The Court concluded that Huang’s alleged statements constituted commercial speech that was intended to increase her sales of services and products. The Court rejected Huang’s argument that the commercial speech exemption applies only to widely distributed speech such as an advertising campaign. Rather, Huang’s statements made to Xu’s customers (or a third party likely to repeat the statements to Xu’s customers) for the purpose of winning over business fell squarely within the commercial speech exemption.

Second, the lower court erred in concluding that Huang’s statements fell within Section 425.16’s catch-all provision protecting speech made “in connection with a public issue or an issue of public interest.” The Court admonished the trial court for focusing only on the content of the speech without considering the “functional relationship between the speech and the public conversation.”

According to the Court, “context matters.” The lower court must consider the intended purpose, reach, and audience of the speech. “Conduct ‘in furtherance of business considerations’ is less likely to qualify as protected activity under the catchall provision.” Huang’s statements were made in a private setting for the purposes of increasing her sales. She was not a neutral or disinterested third party, “but a direct competitor with a profit motive.” “[T]he trial court glossed over such contextual clues” in embracing “the mistaken proposition that maligning the honesty and integrity of a competing businessperson is automatically ‘protected activity’ because consumers have a general interest in avoiding dishonest businesspersons.” Viewed in context, Huang’s statements were not protected under the anti-SLAPP statute.

Takeaways

When it comes to speaking ill of competitors, context matters. Companies and employees may be on the hook for defamatory statements even if they believe the statements are in the consumers’ interests. In addition, negative statements about a competitor can lead to litigation even if made in a private setting. As Xu demonstrates, such statements will likely be viewed as made for the purpose of gaining business and likely fall outside of the protections of the anti-SLAPP statute. This means longer and costlier litigation even for a defendant that is ultimately successful.

Xu also provides important procedural guidance for lawyers in litigating anti-SLAPP cases. Movants and counsel should be prepared to address the exemptions under 425.17 first rather than resting on the catchall exemption. To this end, do not expect a broad interpretation of the catchall provision. The Court’s holding in Xu continues the trend over the last several years of narrowing the scope of the catchall provision.

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Case Information: Xu v. Huang – filed Dec. 16, 2021, publication ordered Jan. 11, 2022, Second District, Div. One Cite as 2022 S.O.S. 99 (https://www.courts.ca.gov/opinions/documents/B311883.PDF)

Author: Jessica P.G. Newman is an experienced trial lawyer at Cypress, LLP in Los Angeles, California, where she is a member of the firm’s Art Law, Business Litigation, and Intellectual Property and Technology practice groups.