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By Samson Habte
May 11 — California's fair report privilege protected a law firm from liability for allegedly defamatory statements in a “celebratory press release” touting a victory in a key phase of a multibillion-dollar lawsuit, the California Court of Appeal, Second District, held May 2.
The ruling highlighted California courts' broad reading of the state's statutory fair report privilege, which is recognized in some form by nearly all states.
The privilege protects individuals from liability based on public statements they make about things that occurred or were said in legislative, judicial or other official proceedings. The statute provides that a communication is privileged if it is “a fair or true report” of an “official proceeding” or “anything said in the course thereof.”
The plaintiff, J-M Manufacturing Co., argued that the privilege didn't apply to statements in a press release the law firm Phillips & Cohen LLP issued after winning a jury verdict in the liability phase of a whistle-blower action that accused J-M of defrauding state and municipal governments.
The press release said a jury found that J-M “committed fraud” when it “knowingly manufactured and sold to government entities substandard plastic pipe that was used in water and sewer systems—opening [J-M] up to potentially billions of dollars in damages.”
J-M sued Phillips & Cohen for defamation and trade libel, and a trial judge—in an order denying the law firm's anti-SLAPP motion to dismiss the suit—said she could not find as a matter of law that the press release was a “fair and true” report of the verdict.
Voting 2-1, the appellate court reversed. Justice Dennis M. Perluss said cases “liberally construing the fair report privilege” compelled the court to find that the statements in the press release were protected.
“Phillips & Cohen may be guilty of self-promotion and puffery; but its description of the evidence at trial and the jury's special verdict in [the] press release falls comfortably within the permissible degree of flexibility and literary license afforded communications to the media concerning judicial proceedings,” Perluss said.
A dissent said reading “the literary license doctrine” as broadly as the majority did would “operate to smother protections afforded by the defamation laws.”
In 2006 Phillips & Cohen filed a federal qui tam action on behalf of a number of states and municipalities against J-M, which describes itself as “the world's largest plastic pipe manufacturer.”
The complaint said J-M knowingly misrepresented that pipes sold to government entities were manufactured in compliance with industry standards for strength and durability. It cited alleged failures involving pipe explosions that caused serious injuries.
Trial proceeded in two phases. The first, focused on liability, ended with a November 2013 verdict against J-M. The jury found that J-M falsely represented that its pipes were manufactured in compliance with industry standards.
The day after that verdict, Phillips & Cohen issued the press release that prompted J-M's defamation and trade libel suit. The headline read “JM Eagle faces billions in damages after jury finds JM liable for making and selling faulty water system pipes.”
Phillips & Cohen moved to have J-M's complaint dismissed under California's anti-SLAPP statute, which provides a mechanism for obtaining accelerated dismissal of a lawsuit based on statements made or actions taken in furtherance of the right of petition or free speech.
To defeat the motion, J-M had to establish a likelihood of prevailing on its claims. That required J-M to show the statements in the press release were not protected by the “fair report” privilege in Cal. Civ. Code §47(d)(1)—which, “if applicable, bars J-M's claims for both defamation and trade libel,” Perluss wrote.
Perluss acknowledged that the question for the qui tam jury was whether J-M falsely represented that its pipes were tested in accordance with industry standards—and not whether J-M made and sold faulty pipes. But that doesn't mean the law firm's statements describing J-M's pipes as “faulty” or “substandard” were defamatory, the court said.
Quoting case law, Perluss said that “in measuring what constitutes a ‘fair and true report' the defendant is ‘permit[ted] a certain degree of flexibility/literary license.'” One case said the privilege applied to statements that may have been “overblown or exaggerated” but were “easily within the literary license” concept.
Perluss said “To describe the noncompliant and misrepresented pipe sold by J-M as ‘faulty' or ‘substandard' falls well within the acceptable margin of flexibility/literary license.”
Superior Court Judge Stanley Blumenfeld, sitting by assignment, said in dissent that jurors rather than judges must decide whether a publication is susceptible of a defamatory meaning.
Blumenfeld also disagreed with the majority's characterization of Phillip & Cohen's press release, and with the majority's application of the literary license doctrine.
Richard B. Kendall, Laura W. Brill and Nicholas F. Daum of Kendall Brill & Kelly LLP, Los Angeles, represented Phillips & Cohen.
Anthony Michael Glassman and Rebecca Nell Kaufman of Glassman, Browning, Saltsman & Jacobs Inc., Beverly Hills, Cal. represented J-M Manufacturing.
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