Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02556/USCOURTS-caed-2_05-cv-02556-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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These motions were determined to be suitable for decision *

without oral argument. L.R. 78-230(h).

The caption has been changed to reflect the Court’s Order **

filed April 11, 2006, which remanded to state court the City of Rio

Vista’s suit against ECO Resources Inc.’s and Steven E. Richardson.

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

ECO RESOURCES, INC., a Texas

Corporation, )

) 2:05-cv-2556-GEB-DAD

Counter-claimant, )

)

v. ) ORDER*

)

CITY OF RIO VISTA, a California )

municipality, )

) 

Counter-Defendant. )

**

)

Pending are the City of Rio Vista’s (the “City”) motion to

dismiss all or part of ECO Resources Inc.’s (“ECO”) Counterclaim, and

the City’s alternative motion to strike ECO’s counterclaims for trade

libel and defamation. ECO opposes the motions.

BACKGROUND

On October 30, 2003, the City and ECO entered into a

contract entitled, “City of Rio Vista Water and Wastewater System

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Service Contract” (the “Contract”) wherein ECO agreed to furnish

services necessary for the operation and maintenance of the City’s

wastewater and water production facilities. Subsequent to the

execution of the Contract, disagreements arose between the parties

concerning the management, operation, and maintenance of certain

wastewater facilities. These disagreements ultimately resulted in the

City cancelling the Contract and replacing ECO with a third party on

August 1, 2005.

On November 10, 2005, the City filed a Complaint against ECO

in Solano County Superior Court alleging various claims concerning

ECO’s management, operation, and maintenance of certain wastewater

facilities under the Contract. ECO removed the action to federal

court on December 14, 2005, based on diversity of citizenship. After

removal, ECO filed a Counterclaim against the City which includes

claims for trade libel and defamation. ECO alleges that prior to

terminating the Contract, the City through its city manager Bradley

Baxter (“Baxter”) and its fire chief Mark Nelson (“Nelson”), published

false statements to third parties regarding ECO’s performance under

the Contract.

DISCUSSION

The City argues dismissal of all or part of ECO’s

Counterclaim is appropriate for two reasons. First, the City argues

it should be dismissed for lack of subject matter jurisdiction.

Second, the City argues the counterclaims for trade libel and

defamation should be dismissed because they are impermissible under

California law.

I. Subject Matter Jurisdiction

The City’s motion to dismiss the counterclaim for lack of

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subject matter jurisdiction is premised on the remand of the City’s

suit against ECO and Steven E. Richardson. The City argues that

because this Court no longer has jurisdiction over its original suit,

the Court does not have subject matter jurisdiction over the

Counterclaim brought by ECO. The remand of the City’s suit, however,

does not necessarily divest this Court of subject matter jurisdiction

over ECO’s Counterclaim; a counterclaim persists where it is supported

by an independent ground of federal jurisdiction regardless of whether

the original suit is properly before the court. Pioche Mines Consol.,

Inc., v. Fidelity-Philadelphia Trust Co., 206 F.2d 336, 336-37 (9th

Cir. 1953).

In this instance, diversity jurisdiction provides an

independent basis for federal subject matter jurisdiction over ECO’s

Counterclaim. ECO’s Counterclaim clearly states that subject matter

jurisdiction over the counterclaim is premised on diversity, rather

than supplemental jurisdiction. (Counterclm. ¶ 1.) Proper diversity

jurisdiction is invoked when the amount in controversy exceeds 75,000

dollars excluding costs and fees, and when there is complete diversity

of citizenship between plaintiffs and defendants. 28 U.S.C. § 1332.

ECO’s Counterclaim sets forth that ECO is organized and has its

principal place of business in Texas, that the City is a California

municipality, and that the amount in controversy exceeds 75,000

dollars. Thus, the parties to the Counterclaim are diverse and the

amount in controversy exceeds 75,000 dollars. Therefore, this Court

has subject matter jurisdiction to adjudicate ECO’s Counterclaim.

II. State Law Grounds

The City argues that ECO’s trade libel and defamation

counterclaims should be dismissed because the counterclaims are barred

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by California law. Specifically, the City argues: (1) it cannot be

liable in tort because there is no statute assigning such liability,

(2) it may not be sued for misrepresentations made by its employees

under California Government Code section 818.8, (3) California Civil

Code section 47(a) and California Government Code section 820.2 bar

ECO’s counterclaims, and (4) the right of “fair comment” bars ECO’s

counterclaims.

A. No statutory basis for tort liability

The City argues ECO may not sue it for trade libel or

defamation because “there is no tort liability for California

governmental entities absent a statute or constitution provision

creating or accepting liability.” (Pl.’s Mem. Supp. Mot. Dismiss

Strike Counterclms. (“Pl.’s Mot. Dismiss”) at 3.) ECO contends that

it may sue the City for trade libel and defamation under California

Government Code section 815.2, which states “[a] public entity is

liable for injury proximately caused by an act or omission of an

employee of the public entity within the scope of his employment if

the act or omission would, apart from this section, have given rise to

a cause of action against that employee or his personal

representative.” Since California Government Code section 815.2

provides a theory of liability for ECO to sue the City for trade libel

and defamation based on the conduct of its employees, Baxter and

Nelson, the City’s motion to dismiss based on the absence of a statute

providing for liability is denied. Nadel v. Regents of Univ. of Cal.,

28 Cal. App. 4th 1251, 1259 (1994) (holding public entity’s liability

for defamation under section 815.2 is coextensive with employee’s

liability).

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B. Immunity from suit based on misrepresentations of an

 employee

The City argues ECO’s counterclaims for trade libel and

defamation are barred by California Government Code section 818.8

(“section 818.”), which states “[a] public entity is not liable for an

injury caused by misrepresentation by an employee of the public

entity, whether or not such misrepresentation be negligent or

intentional.” The City contends that because trade libel and

defamation necessarily require a misrepresentation, it enjoys immunity

from these torts under section 818.8. ECO argues that while section

818.8 provides immunity for certain fraudulent statements, it does not

provide immunity for the specific torts of trade libel and defamation.

“[T]he legislature employed the term ‘misrepresentation’ [in

section 818.8] in a narrow, rather than expansive sense . . . .”

Michael J. v. L.A. Dept. of Adoptions, 201 Cal. App. 3d 859, 868

(1988). Consequently, “[s]ection 818.8 [only] immunizes [a public

entity] from liability for misrepresentation or deceit, a ‘tort

distinct from the general milieu of negligent and intentional wrongs,

[and which] applies to interferences with financial or commercial

interest.’” Bastian v. County of San Luis Obispo, 199 Cal. App. 3d

520, 533 (1988) (quoting Johnson v. State of Cal., 69 Cal. 2d 782, 800

(1968)). The torts of trade libel and defamation are not encompassed

by section 818.8 because they involve reputational harm for which the

legislature did not intend to grant immunity. See Nadel, 28 Cal. App.

4th at 1261 (suggesting case law has rejected an interpretation of

818.8 which would allow a statutory privilege or immunity for

defamation); Sandborn v. Chronicle Pub. Co., 18 Cal. 3d 406, 410

(1988) (finding a public entity did not have any privileges or

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immunities for defamation under California law). Since trade libel

and defamation are not encompassed by section 818.8, the City’s motion

to dismiss based on immunity under section 818.8 is denied.

C. Privilege under section 47(a) and immunity under

 section 820.2

The City argues statements made by Baxter and Nelson

regarding ECO’s performance and responsibility for mismanaged water

treatment facilities are privileged under California Civil Code

section 47(a) (“section 47(a)”) and were discretionary acts under

California Government Code section 820.2 (“section 820.2"); and

therefore, ECO’s counterclaims for trade libel and defamation must be

dismissed. Section 47(a) provides that “[a] privileged publication or

broadcast is one made in the proper discharge of official duty.”

Section 820.2 provides immunity for acts and omissions resulting from

an “exercise of discretion” by a public employee. Cal. Gov. Code §

820.2. ECO argues that neither section applies because Baxter and

Nelson were not acting in a policy making capacity when they issued

their statements.

The inquiries under both section 47(a) and 820.2 are

closely related. McQuirk v. Donnelley, 189 F.3d 793, 801 (9th Cir.

1999). For statements to be privileged under section 47(a) the

statement must have been made “while the official was exercising his

policy-making function and was acting within the scope of his official

duties.” Neary v. Regents of the Univ. of Cal., 185 Cal. App. 3d

1136, 1141 (1986). Similarly, to be entitled to immunity under

section 820.2, Baxter and Nelson must have “consciously exercised

discretion in connection with” the statements made. Elton v. County

of Orange, 3 Cal. App. 3d 1053, 1058 (1970) (citing Johnson, 69 Cal.

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2d at 794-95). In either case, the burden is on the City to establish

the existence of the privilege or immunity. See Neary, 185 Cal. App.

3d 1136, 1145 (reversing lower courts entry of summary judgment for

the defendant because the defendant failed to establish that section

47 applied); Johnson, 69 Cal. 2d at 795 n.8 (“[T]o be entitled to

immunity the state must make a showing that such a policy decision,

consciously balancing risks and advantages, took place.”).

The City argues in a conclusory manner that section 47(a)

and section 820.2 apply and bar ECO’s counterclaims. (Pl.’s Mot.

Dismiss at 5, 7.) The City, however, has not provided sufficient

evidence to meet its burden of showing that either section 47(a) or

section 820.2 apply to the statements of Baxter and Nelson.

Therefore, the City’s motion to dismiss based on section 47(a) and

section 820.2 is denied.

D. “Fair comment”

The City argues the defense of “fair comment” bars ECO from

bringing trade libel and defamation counterclaims against it because

the subject statements were criticisms made to “newspapers, television

stations, and news crews,” and were about a matter of public interest.

“Statements of opinion, although of a defamatory nature, are

privileged in California” as fair comments. Maidman v. Jewish Pub.

Inc., 54 Cal. 2d 643, 652 (1960). However, “[t]he defense of fair

comment is not absolute. . . . [T]here is no absolute right to destroy

a person’s name and reputation by publication of defamatory criticisms

and opinions merely because the victims’ activities are a matter of

legitimate public interest.” Id. Accordingly, “[a]llegations that

the comments were not published for a bona fide purpose, but were

published because of malice, renders the publisher liable for his

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comments, opinions, and criticisms that are defamatory.” Id. Since

ECO has alleged the City published defamatory statements “with malice,

oppression, and/or fraud,” the right to fair comment does not bar ECO

from bringing its trade libel and defamation counterclaims against the

CIty. (Counterclm. at ¶¶ 52-53,63-64.) Therefore, the City’s motion

to dismiss based on fair comment is denied.

III. The City’s Motion to Strike Counterclaim

The City moves to strike ECO’s counterclaims for trade libel

and defamation under California’s Anti-SLAPP (Strategic Lawsuits

Against Public Participation) statute, California Code of Civil

Procedure section 425.16. California enacted its Anti-SLAPP statute

to protect parties from oppressive litigation primarily filed to chill

Constitutionally protected speech. Avril v. The Superior Court of

Orange County, 42 Cal. App. 4th 1170, 1174 (1996). Accordingly, a

“cause of action against a person arising from any act of that person

in furtherance of the person’s right of free speech under the United

States or California Constitution in connection with a public issue”

is subject to a special motion to strike. Cal. Civ. Proc. Code §

425.16(b). To prevail on an Anti-SLAPP motion to strike, the movant

must initially make a prima facie showing that “the [non-movant]’s

cause of action arises from the [movant]’s free speech or protected

activity.” Rogers v. Home Shopping Network, Inc., 57 F. Supp. 2d 973,

976 (C.D. Cal. 1999). Protected speech under section 425.16(e)(2)

includes “any written or oral statement or writing made in connection

with an issue under consideration or review by a legislative,

executive, or judicial body, or any other official proceeding

authorized by law.”

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The City argues it has made the required prima facie showing

because ECO’s trade libel and defamation counterclaims arise from

protected speech under section 425.16(e)(2) of the Anti-Slapp statute.

(Pl.’s Mot. Dismiss at 8.) ECO argues that the City has not shown

there was an issue being considered by a legally authorized proceeding

at the time the statements were made; the City counters that the

statements were made by Baxter and Nelson in connection with the the

City’s determination “to terminate ECO’s contract” due to

mismanagement of water treatment facilities. The City’s conclusory

assertion that Baxter’s and Nelson’s statements were made “in

connection with an issue under consideration” by the City are

insufficient to make the showing required by section 425.16

(e)(2)--that the statements were made “in connection with an issue

under consideration by, a legally authorized official

proceeding . . . .” Briggs v. Eden Council for Hope and Opportunity,

19 Cal. 4th 1106, 1123 (1999). Consequently, the City’s motion to

strike is denied.

CONCLUSION

For the reasons stated above, the City’s motion to dismiss

is denied, and the City’s motion to strike ECO’s counterclaims for

trade libel and defamation is denied.

IT IS SO ORDERED.

Dated: April 12, 2006

/s/ Garland E. Burrell, Jr.

GARLAND E. BURRELL, JR.

United States District Judge

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