Source: https://www.scribd.com/doc/259286/Eagle-23
Timestamp: 2019-04-26 01:01:51
Document Index: 316236134

Matched Legal Cases: ['§ 15', '§ 45', '§ 425', '§ 425', '§ 425', '§425', '§ 425', '§ 425', '§ 425', '§425', '§ 4', '§ 45', '§ 15', '§ 15', '§\n28']

Eagle-23
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28 1 KARINEH KHACHATOURIAN (SBN 202634) JEFFREY M. RATINOFF (SBN 197241)
2 GORDON & REES LLP
3 275 Battery Street, Suite 2000
4 Telephone: (415) 986-5900 Facsimile: (415) 986-8054
) PLAINTIFF'S CONSOLIDATEDl ) OPPOSITION TO ANTI-SLAPP
) MOTIONS BY DEFENDANTS (DOES ) 2-5)
) Date: February 23, 2006 ) Time: 9:00 a.m.
) Dept.: 2
) Judge: Hon. William J. Elfving
) Complaint Filed: October 5, 2005 ) Trial Date: None Set
PLAINTIFF'S CONSOLIDATED OPPOSITION TO SPECIAL MOTION TO STRIKE BY DEFENDANTS DOES 2-5
A. Procedural History 1
B. Eagle Broadband, The Market Manipulation Scheme And Its Effect On
A. DOES 2-5 Have Not Met Their Burden That The Anti-SLAPP Statute
Applies To The Complaint In This Case .4
1. General Legal Standards .4
2. The Complaint Is Exempt From The Anti-SLAPP Statute Pursuant
To Section 425.17(C) 4
3. The Eagle Broadband Yahoo! Finance Message Board Is Not A
4. The Message Po stings Are Not A Matter Of Public Interest.. 7
5. The Message Posters Are Not Exercising Their First Amendment
B. Even If The Anti-SLAPP Statute Applies, Plaintiff Has Presented Sufficient Evidence That It Is Likely To Prevail On The Merits OfIts
1. The Complaint Alleges Actionable, Defamatory Statements 8
2. Eagle Broadband's Section 17200 Claim Is Not Preempted By The
Holding In Bowen 13
3. Eagle Broadband Can Establish It Has Suffered Damages At The
Hands Of Defendants 14
C. Plaintiffs Should Be Permitted To Pursue Discovery 16
Ampex Corp. v. Cargle, 128 Cal.App.4th 1549, 1576 (2005) 12
Barnes-Hind, 181 Cal. App. 3d at 382 16
Barrett v. Rosenthal, Case No. S122953 6
Bowen v. Ziasun Technologies, 116 Cal.App.4th 777 (2004) 14, 15
ComputerXpress, Inc. v. Jackson, 93 Calp.App. 4th 993 (2001) 6, 8,9, 10
Damon v. Ocean Hills Journalism Club, 85 Cal.App.4th 468 (2000) 6, 7
DuPont Merck Pharmaceutical Co. v. Sup. Ct., 78 Cal.App.4th 562 (2000) 4
Equilon Enters., LLC v.Consumer Cause, Inc., 29 Cal. App. 4th 53 (2002) 4
Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 63 F.Supp. 2d 1127 (N.D. Cal. 1999) .. 8
Golden Gateway Center v. Golden Gateway Tenants Assoc., 26 Ca1.4th 1013 (2001) , 8
Roskind v. Morgan Stanley Dean Witter & Co. ,80 Cal.App.d'" 345 (2000) 14,15
Spinner Corp. v. Princeville Dev. Corp., 849 F.2d 388 (9th Cir. 1998) 14
Strigliabotti v. Franklin Resources, Inc., 2005 WL 645529 (N.D. Cal. 2005) 15
Vegod Corp. v. American Broadcasting Companies, 25 Cal.3d 763 (1979) 12
Business and Professions Code Section 17200 13, 14, 15
Cal. Civ. Code § 45 8
Cal. Civ. Proc. Code § 425.16 4,5,8
Cal. Civ. Proc. Code § 425.17 5,6
EBRDI10353621927436.1
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Defendants2 are trying to hide behind California's Anti-SLAPP law to escape
responsibility for deliberately posting fabricated press releases, SEC filings, and emails on Yahoo!'s Finance Message Board about Eagle Broadband's financial health and business
operations to harm the company financially and to drive its stock price down. Contrary to Defendants' arguments, this lawsuit does not involve a company trampling helpless champions oflegitimate free speech on a matter of public concern. To the contrary, Eagle Broadband filed
this action to protect itself, its employees, and its shareholders from Defendants' illegal
activities. In short, Eagle Broadband has submitted overwhelming admissible evidence that it is
a victim of a "short and distort" scheme where the DOES have issued negative false information
on the Yahoo! Finance Message Board in a malicious smear campaign designed to drive Eagle
Broadband's stock price down and allowing themselves (or others with whom they are associated) to profit through stimulating fear in the investing public. California's Anti-SLAPP
statute was never intended to protect such fraudulent conduct. Accordingly, Defendants' Motion
should be denied or in the alternative, Plaintiff should be afforded an opportunity to conduct
discovery prior to any final ruling on this motion.
A. Procedurai History
On October 5, 2005 Eagle Broadband filed its complaint against DOES 1-25 alleging
causes of action for unfair business practices and defamation. Plaintiff' s Request for Judicial
Notice, ("RJN") at Ex. A. On January 5, 2006, Eagle Broadband amended its complaint to add
Daniel Berger, the true name of DOE 3, aka upanddownl00. RJN at Ex. B. Daniel Berger was
served with the Amended Complaint on January 6, 2006. RJN at Ex. C. In essence, Eagle Broadband alleges that certain individuals and/or entities are deliberately posting false information about Eagle Broadband on the Yahoo! Finance Message Board as part of a broader
I To avoid duplication, Plaintiff is submitting a consolidated opposition for the convenience of the Court and the parties. By doing so, Plaintiff is not exceeding the page limit requirement as it is entitled to thirty pages.
2 For purposes of this opposition, Defendants shall mean DOES 2-5.
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28 market manipulation scheme to among other things, reap profits on illegal share trades and
damage the value of Eagle Broadband stock. See generally RJN at Ex. A.
Shortly after filing its complaint, on October 25,2005, Eagle Broadband applied ex parte
and obtained permission to serve a subpoena on Yahoo! and another yet to be determined
internet service provider concerning the identities of DOES 1-7. RJN at Ex. D. On October 26, 2005, Eagle Broadband served the subpoena on Yahoo!. Declaration of Karineh Khachatourian In Opposition to Defendants (DOES 2-5) Anti-SLAPP Motion ("Khachatourian Decl.") at Ex. A. On or about October 31,2005, Yahoo! acknowledged receipt of the subpoena and agreed to comply so long as DOES 1-7 did not object. Khachatourian Decl. ~8. On November 17, 2005, Yahoo! informed Eagle Broadband that DOES 4-5 had raised an objection to the disclosure of their identities and therefore, it would not provide information on any of the DOES until the
objections were resolved. Khachatourian Decl. Ex. B.
On November 16,2005, Defendants DOES 4-5 filed their Anti-SLAPP motion. On
November 23,2005 DOES 2-3 filed and served notice oftheir intent to file an Anti-SLAPP motion. Khachatourian Decl. RJN at Ex. E. On December 9, 2005, DOES 2-3 filed and served their Anti-SLAPP motion. Ultimately, Eagle Broadband and DOES 2-5 agreed on an extended briefing schedule and hearing date. RJN at Ex. F and G. None of the DOES contacted Eagle
Broadband's counsel to indicate any objection regarding the discovery sought or to discuss the
basis for the Anti-SLAPP motions prior to filing them. Khachatourian Decl. ~6. DOE 1 and DOES 6-7 have not objected to the Yahoo! subpoena or this lawsuit and have not made an
appearance in this action. ld. at ~7.
B. Eagle Broadband, The Market Manipulation Scheme And Its Effect On Shareholders.
Eagle Broadband provides advanced technology and services that enable established
service providers (independent telcos, cable companies, hotel operators, etc.) and new broadband providers (municipalities, utilities, real estate developers, etc.) to deliver high quality, next
generation entertainment, communications, Internet and security services to their subscribers.
Declaration of Frederick Reynolds In Opposition to Anti-SLAPP Motions ("Reynolds Decl.") at
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28 ~3. The company also draws on in-depth expertise in satellite communications to help the
military, government and corporations meet their everyday and mission critical communications
needs. Id. Eagle Broadband was founded in 1996 and is publicly traded on the American Stock Exchange under the ticker symbol EAG. Id.
Eagle Broadband's legal action was prompted by inquiries from shareholders who complained to the company about falling share price and the difficulty in buying and selling Eagle Broadband stock. Reynolds Decl. ~5. In fact, several shareholders remarked to the company that they have observed unusual trading patterns with Eagle Broadband's stock and have urged the company to investigate. Id. Eagle Broadband forwarded many of these shareholder complaints to the SEC and its investigation is currently pending. Id.
After initiating the lawsuit, Eagle Broadband hired an independent expert to evaluate its
stock trading patterns. Eagle Broadband's independent expert has uncovered evidence that Eagle
Broadband has been a target of a "Short and Distort scheme," where traders sell short and issue
false (negative) information in a smear campaign designed to drive the target's stock price down allowing the traders to close their positions at a profit? Declaration of Deirdre A. Flaherty In
Opposition to Anti-SLAPP Motions ("Flaherty Decl.") at ~11.
Specifically, individuals involved in Short and Distort schemes attempt to profit through
stimulating fear in the investing public. Id. at ~12. Their goal is often to convince investors that they are looking out for their best interests and that they have access to information that is not
readily available to the general public. Id. Short and Distort traders often clutter on-line
message boards in an attempt to disseminate fear while at the same time ensuring that optimistic
information posted on those same boards can not be readily found by investors. Id. The result of this scheme is that the investors who initially bought the stock at higher prices sell at a loss in the mistaken belief that the stock is worth less and that the price is likely to continue to fall. Id.
3 "Selling Short" is the sale of a stock that the buyer does not yet own; the seller having to buy the equity in the future to meet delivery obligations. This transaction is made in the hope that the stock price will fall; the opposite of the more usual "going long", or purchasing a stock in the hope that the stock price will rise. In a typical short selling position the investor sells borrowed stock in the hopes that the stock price will fall allowing the investor to buy the stock back for a profit. The action of the investor buying the stock and realizing their profit on a short position is known as "covering". Flaherty Decl. ~7; Ex. A.
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28 This sell activity often further depresses the share price allowing the Short and Distort traders to cover at a lower price and realize their profit. Id. As a result, Eagle Broadband and its
shareholders have suffered significant financial losses.
A. DOES 2-5 Have Not Met Their Burden That The Anti-SLAPP Statute Applies To The Complaint In This Case
1. General Legal Standards
California's Anti-SLAPP statute provides that a defendant may file a special motion to
strike any cause of action that arises from an "act of that person in furtherance of a person's right
of petition or free speech under the United States or California Constitution in connection with a
public issue ... " Cal. Civ. Proc. Code § 425 .16(b)(1) (West 2005). Specifically, Defendants
contend that their postings are covered by section 425. 16(e)(3), as "statements or writings made
in a place open to the public or a public forum in connection with an issue of public interest."
DOES 4-5 Mot. at 6:9-11; DOES 2-3 Mot. at 2-9-12.
In ruling on a special motion to strike, the trial court engages in a "two-step" analysis.
Equilon Enters., LLC v. Consumer Cause, Inc., 29 Cal. App. 4th 53,67 (2002). The court must
first determine whether the moving party "has made a threshold showing that the challenged cause of action is one arising from protected activity." Id. The Anti-SLAPP statute mandates that the court consider "the pleadings, and supporting and opposing affidavits stating the facts
upon which the liability or defense is based." Cal. Civ. Proc.Code§425.l6(b)(2).
If the defendant meets this initial burden, the court "then determines whether the plaintiff
has demonstrated a probability of prevailing on the claim." Cal. Civ. Proc. Code §§ 425. 16(b).
To be sure, the threshold required to establish a probability of success is quite low. Plaintiff must simply establish a legally sufficient claim and submit evidence to establish aprimajacie case. DuPont Merck Pharmaceutical Co. v. Sup. Ct, 78 Cal.AppAth 562, 568 (2000). Should
Plaintiff meet its burden, Defendants' Anti-SLAPP motions must be denied.
2. The Complaint Is Exempt From The Anti-SLAPP Statute Pursuant to Section 425.17(c).
Assuming any of the Defendants are Eagle Broadband competitors, or engaged in the
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28 business of selling or leasing goods or services, the Complaint is not subject to the provisions of
Section 425.16 because it falls within one of the enumerated exemptions set forth in California Code of Civil Procedure section 425.17, enacted by the California Legislature to curb the abuse ofthe Anti-SLAPP statute by defendants in circumstances where it is not warranted. Section
425.17(a) expressly states that
The Legislature finds and declares that there has been a disturbing abuse of Section 425.16, the California Anti-SLAPP Law, which has undermined the exercise of the constitutional rights of freedom of speech and petition for redress of grievances, contrary to the purpose and intent of Section 425.16. The Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process or Section 425.16.
Section 427 .17( c) mandates that the Anti-SLAPP statute not apply to "any cause of
action brought against a person primarily engaged in the business of selling or leasing
goods or services, including but not limited to ... securities or financial instruments,
arising from any statement or conduct of that person" if
(1) The statement or conduct consists of representations of fact about that person's or a business competitor's business operations ... that is made for the purpose of obtaining approval for, promoting, or securing ... commercial transactions in, the person's goods or services, or ... was made in the course of delivering the person's goods or services.
(2) The intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer ... notwithstanding that the conduct or statement concerning an important public issue.
Cal. Civ. Proc. Code § 425. 17(c)(1) and (2) (West 2005). Each and every posting at issue in the
Complaint concerns Eagle Broadband's "business operations" and therefore, this action falls squarely within this exemption to the Anti-SLAPP statute. Accordingly, this Court should deny Defendants' motion without further consideration as it is nothing more than an "abuse of Section
425.16." See Cal. Civ. Proc. Code § 425. 17(a)(West 2005).
3. The Eagle Broadband Yahoo! Finance Message Board is Not A Public Forum
In their papers, Defendants assume that the Eagle Broadband Yahoo! Finance Message Board is a public forum. A thorough legal analysis reveals otherwise. Although Plaintiff does not dispute that the internet generally may constitute a public forum, it is still an open question whether the Yahoo! Finance Message Board falls within the same category. In fact, that issue is currently pending before the California Supreme Court in which counsel for DOES has filed an
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28 amicus brief. See Barrett v. Rosenthal, Case No. S122953.
Cases construing the term "public forum" as used in section 425.16 have noted that the
term is traditionally defined as a place that is open to the public where information is freely exchanged. See Damon v. Ocean Hills Journalism Club, 85 Cal.App.d'" 468,475 (2000). Nonetheless, in support of their contention, Defendants rely almost exclusively on the
ComputerXpress case. Unlike the websites in ComputerXpress, which accepted postings from anyone, here, Yahoo! places controls and restrictions on who may post and what content may be posted. See generally ComputerXpress, Inc. v. Jackson, 93 Calp.App. 4th 993 (2001).
For example, Yahoo! frequently deletes postings from the message board after a certain
period of time. See Flaherty Decl. ~27. To post a message, a user must set up an account with
Yahoo!, assign itself a user name and password and agree to Yahoos' terms of use. Reynolds
Decl. ~18. Users also have the ability to filter profanity and report abuses to Yahoo!. Id.
Yahoo! ultimately investigates abuse reports and will shut a poster down if it believes a
complaint has merit. Id.
Moreover, Yahoo!'s terms of use specifically restrict permissible content and use of the
message board. Reynolds Decl. Ex. H For example:
• Yahoo! mayor may not pre-screen Content, but that Yahoo! and its designees shall have the right (but not the obligation) in their sole discretion to pre-screen, refuse, or move any Content that is available via the Service. Reynolds Decl. Ex. H at~6.
• Yahoo! may establish general practices and limits concerning use of the Service, including without limitation the maximum number of days that email messages, message board postings or other uploaded Content will be retained by the Service, the maximum number of email messages that may be sent from or received by an account on the Service, the maximum size of any email message that may be sent from or received by an account on the Service, the maximum disk space that will be allotted on Yahoo! 's servers on your behalf, and the maximum number of times (and the maximum duration for which) you may access the Service in a given period of time. Reynolds Decl. Ex. H at ~12.
• You agree not to use this service to ... (c) impersonate any person or entity, including, but not limited to, a Yahoo! official, forum leader, guide or host, or falsely state or otherwise misrepresent your affiliation with a person or entity (d) forge headers or otherwise manipulate identifiers in order to disguise the origin of any Content transmitted through the Service; ... (g)upload, post, email, transmit or otherwise make available any unsolicited or unauthorized advertising, promotional materials, "junk mail," "spam," "chain letters," "pyramid schemes," or any other form of solicitation ... (k) intentionally or unintentionally violate any applicable local, state, national or international law, including, but not limited to,
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28 regulations promulgated by the U.S. Securities and Exchange Commission, any rules of any national or other securities exchange, including, without limitation, the New York Stock Exchange, the American Stock Exchange or the NASDAQ, and any regulations having the force of law. Reynolds Decl. Ex. H at ~6.
In light of these facts, since the speech at issue took place in a privately owned Internet
newsgroup which requires that its users both identify themselves and agree to specific terms of use, it should be deemed private and not "freely and openly accessible to the public," such as to constitute a public forum.
4. The Message Po stings Are Not A Matter of Public Interest
Defendants have not and cannot meet their burden of establishing that their postings
concerned "a public issue or an issue of public interest" so as to bring Plaintiff s defamation
claim within the ambit of the Anti-SLAPP statute. In California, "it is now well settled that to
constitute a public issue, this type of conduct must either impact a broad segment of society or
affect a community in a manner similar to that of a governmental entity." See e.g., Damon v. Ocean Hills, 85 Cal. App. 4th 468, 479 (2000) Assuming Defendants are competitors of Eagle
Broadband, statements of one competitor concerning another do not fall within Section 425.16 and cannot be considered a matter of public interest. See Globetrotter Software, Inc. v. Elan
Computer Group, Inc., 63 F.Supp. 2d 1127, 1130 (N.D. Cal. 1999); accord Cal. Civ. Proc. Code §425, 17(c)(West 2005). Thus, Defendants have not met their initial burden of establishing that
the po stings at issue are a matter of public interest.
5. The Message Posters Are Not Exercising Their First Amendment Rights
Defendants are not exercising their First Amendment rights and therefore, the Anti-
SLAPP statute does not apply here. Although Section 425. 16(e)(3) does not expressly require
that the statements or writing in a public place involve the exercise of a constitutional right, the
presentation of such a statement necessarily implicates the rights of free speech. See Cal. Civ. Proc. Code § 4 2 5.16 (e). Defendants' po stings were not made in furtherance of any constitutionally protected right. Specifically, the po stings at issue are not entitled to
constitutional protection because the speech was false and unconnected to any state action by
virtue of the fact that the expression was made on a private internet site. See Golden Gateway
PLAINTIFF'S CONSOLIDATED OPPOSITION TO SPECIAL MOTION TO STRlKE BY DEFENDANTS DOES 2-5
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28 Center v. Golden Gateway Tenants Assoc., 26 Cal.4th 1013, 1033-1034 (2001). Thus, the AntiSLAPP statute does not apply here.
B. Even If The Anti-SLAPP Statute Applies, Plaintiff Has Presented Sufficient Evidence That It Is Likely To Prevail On The Merits Of Its Claim.
Even if the Anti-SLAPP statute applies in this case, Plaintiff has presented sufficient admissible evidence to establish a probability of prevailing on its claims.
1. The Complaint Alleges Actionable, Defamatory Statements
Plaintiff's defamation claim is essentially a trade libel/libel per se cause of action. As
such, the legal test espoused by the court in Computer Xpress applies here. See Cal. Civ. Code § 45 (West 2005)(publication is defamatory if it is false and unprivileged and has a tendency to injure the one to whom it refers.) Trade libel is the publication of matter disparaging the quality
of another's property, which a poster should recognize is likely to cause pecuniary loss to the owner. ComputerXpress, 93 Cal.AppAth at 1010. To constitute trade libel, a statement must be
false. Id. Since mere opinions cannot by definition be false statements of fact, opinions will not support a cause of action for trade libel. Id. at 1011. To decide whether a statement is fact or
opinion, a court must put itself in the place of an average reader and determine the natural and
probable effect of the statement, considering both the language and the context. Id. As is discussed more fully below, Defendants' postings are false and therefore, actionable as a matter of law.
b. Defendants' Po stings Are False
Noticeably absent from Defendants Anti-SLAPP motions is the production of any
admissible evidence establishing that the information posted on the Yahoo! Finance Message Board was in fact true. To the contrary, each and every posting contains concededly false
information. For example, DOE 4, aka richwill21, made a posting on June 10, 2005 resembling an official Eagle Broadband press release announcing that Eagle Broadband was delisted from
the Russell 3000 Index Fund. RJN, Ex. A at Ex. A. Eagle Broadband has never been listed on the Russell 3000 Index Fund and Eagle Broadband never issued a press release announcing that it was delisted. Reynolds Decl. ~9. Accordingly, DOE 4 intentionally posted false information
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28 1 about Eagle Broadband's business to cause Eagle Broadband financial harm.
2 Similarly, DOE 2, aka team_3339, posted a fabricated email from Rob Clancy, Alltel's
3 Vice-President ofInvestor Relations on February 16, 2005 stating that Alltel did not do business 4 with Eagle Broadband. RJN, Ex. A at Ex. B. Rob Clancy never sent this email and therefore,
5 the posting is false. Reynolds. Decl. ~10. DOE 2, aka team_3339, made a second and third
6 posting on July 12, 2005 and July 13, 2005 respectively, clearly intending to give the impression 7 that On Command had made public statements that it will not purchase Eagle Broadband
8 products. RJN Ex. A at F-G. This, too, is false. Reynolds Decl, ~11-13. Around the same time 9 as these po stings, Eagle Broadband had actually announced its partnership with On Command.
10 fd. Accordingly, like the other DOE postings, DOE 2's po stings are also false.
11 Likewise, DOE 5, aka benderanddundat, January 24, 2005 posting is false. In it, DOE 5
claims that Eagle Broadband is out of cash and owes Aggregate Networks, LLC. $10 million. RJN Ex. A at G. Eagle Broadband is not out of cash and does not owe Aggregate Networks $10 million. Reynolds Decl. ~15. Finally, DOE 3 known as Daniel Berger, fka upanddownl00, made a posting on September 3,2004, entitled "Cubley files 144 to sell 815,933 shares" on the Yahoo! Finance Message Board. RJN Ex. A at Ex. I. This posting is equally false. Dr. Cubley is the former CEO and a member of Eagle Broadband's board of directors. Reynolds Decl, ~16. A Form 144 filing must be filed with the SEC when an executive officer, director, or affiliate of a company places an order to sell restricted shares. Id. Dr. Cubley did not file a Form 144 with the SEC on September 1, 2004 nor did Dr. Cub ley sell any of his Eagle Broadband shares on that day. Dr. Cubley did sell Eagle Broadband shares on January 22,2004 and a Form 144 filing was done at that time. Reynolds Decl. ~15-16. Therefore, Defendants' postings constitute trade libel
and are actionable on their face.
c. Defendants' Postings Are Not Opinion But Intentionally Misleading to Scare Investors
DOES 2-3 argue that the po stings are opinion and therefore, not actionable under
California defamation law. DOES 2-3 Mot. at 7: 15-9:4. In making this argument, DOES 2-3
completely ignore the nature of the postings. In making a determination whether the postings are
opinion, a court must look at the "general tenor, the setting, and the format" of the po stings and -9-
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28 whether they contain "hyperbole, invective, short-hand phrases and language not generally
found in fact based documents such as corporate press releases or SEC filings." CompuferXpress, 93 Cal.App. 4th at 1011-1012. To the contrary, the postings underlying this
action were deliberately constructed to mimic official corporate documents.
For example, DOE 4, aka richwill21, made a posting on June 10,2005 entitled "Press Release" which has the "look and feel" of an official Eagle Broadband Press Release. Reynolds
Decl. 'il8. Corporate press releases, including those issued by Eagle Broadband, usually contain a brief description of the company, a quote from a high-level officer of the company such as the Chief Executive Officer, as well as a ticker line with the location, date, and stock symbol for the company. Id. The press releases ordinarily appear in single space format. Id. DOE 4's posting is similar to the format of the Eagle Broadband press release and even contains language Eagle
Broadband regularly uses such as "HOUSTON, Jun 09, 2005 (BUSINESS WIRE) -- Eagle Broadband (AMEX:EAG), a leading provider of broadband, Internet protocol (Il') and
communications technology and services." Id. The posting is also in single space format and contains a fabricated quote from Eagle Broadband's CEO David Micek. Id. Compare RJN Ex. A with Reynolds Decl. Ex. A. Therefore, it is beyond question that DOE 4's posting cannot be
construed to be an opinion.
Similarly, DOE 2, aka team_3339, made a posting on February 16,2005 entitled "Heres
the email exchange with Alltel!" on the Yahoo! Finance Message Board,. RJN Ex. A at Ex. B. The plain language of the posting states that it is a message from Rob Clancy, Vice President of Investor Relations. In that message, Rob Clancy appears to state that "we are not working with Eagle Broadband." The stated reason allegedly given by Rob Clancy is Alltel's merger with Western Wireless. Alltel announced its agreement to purchase Western Wireless on January 10,
2005. Reynolds Decl. 'illO, Ex. C. The post also includes Rob Clancy's title and contact
information and general information about the Alltel Corporation. The contact information on
the post is nearly a perfect match to that listed on the Alltel webpage. Reynolds Decl. 'il10. Ex. B. This posting certainly has the look and feel of an official corporate message. Id. Moreover,
the posting contains certain true facts such as the Western Wireless merger and Rob Clancy's -10-
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28 contact information, which could mislead the reader into believing this email was legitimate. Accordingly, it is beyond question that DOE 2's postings do not contain opinion. They are
messages conveying false facts.
Likewise, Daniel Berger, formerly known as DOE 3, aka upanddownl00, made a posting on September 3,2004, entitled "Cubley files 144 to sell 815,933 shares" where a copy of the Form 144 was provided. RJN Ex. A at Ex. I. The September 2,2004 post has the look and feel
of a true report of a Form 144 filing but no such filing exists on that date exists. Reynolds Decl.
~16; Compare RJN Ex. A at Ex. I with Khachatourian Decl. Ex. C. Equally damaging is that all
the posts contain quotation marks, "CUT/PASTE" legends and do not contain any limiting language such as "IMO" or in my opinion. Therefore, it is indisputable that the posters took
extensive measures to avoid giving the impression that the information provided was opinion
rather than fact. Accordingly, Defendants' motions should be denied.
d. Eagle Broadband Is Not A Limited Public Figure
DOES 2-3 argue that Eagle Broadband is a limited public figure and therefore, Eagle
Broadband must prove that the defamatory statements were made with knowledge of falsity or
reckless disregard of the truth. DOES 2-3 Mot. at 6:8-26. To establish that Eagle Broadband is a limited public figure, DOES 2-3 must establish (1) a public controversy; which means the issue was debated publicly and had foreseeable and substantial ramifications for non-participants; (2) the plaintiff took some voluntary act through which he or she sought to influence resolution of the public issue; and (3) the alleged defamation must be germane to the plaintiff's participation in the controversy. Ampex Corp. v. Cargle, 128 Cal.AppAth 1549, 1576 (2005). What DOES-2-
3 fail to recognize is that criticism of commercial conduct, like the false and fabricated po stings
at issue here, does not deserve the special protection of the actual malice test. See e.g. Vegod
Corp. v. American Broadcasting Companies, 25 Cal.3d 763, 769-770 (1979).
Nonetheless, in support of their argument, DOES 2-3 rely heavily on the Ampex case and contend that Eagle Broadband is a limited public figure because it "has enthusiastically sought
attention regarding its operations, management, and business prospects, in its 171 press releases
issued since 2002." DOES 2-3 Mot. at 6:17-21. Again, Defendants' argument does not meet the
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28 showing required. While there may be a public debate regarding Eagle Broadband's products
and services, this "debate" does not and should not include false and fabricated press releases,
emails and SEC filings. Unlike Ampex, where the po stings were critical of a company's management, here, the postings are deliberately false and misleading and appear to be designed to instill fear in the investing public.
Likewise, Eagle Broadband is certainly not inviting such fraudulent and misleading
comments. The fact that Eagle Broadband may issue press releases concerning its company does
not mean it is inviting or participating in fraudulent discourse. To the contrary, like most
publicly traded companies, Eagle Broadband is required to issue public statements and make SEC filings and other public disclosures pursuant to federal and state law. Reynolds Decl. '4. As part of its responsibilities to its shareholders, Eagle Broadband is dedicated to providing the
most up to date and material information to its investors such as financial results, important joint ventures or sales, and changes within the management of the company. Id. Like many other public companies, Eagle Broadband maintains this information on a corporate website as it is the most efficient and effective way to comply with its legal disclosure obligations. Id. It does not
make sense to say that Eagle Broadband invites public comment when it is simply complying with its legal obligations. Since Defendants have failed to meet their burden, the additional malice requirement for limited public figures should notbe applied here.
e. Even if Eagle Is A Limited Public Figure, There Is Sufficient Evidence To Support Malicious Intent.
Defendants DOES 2-3 contend that in order for Eagle Broadband to prevail as a limited
public figure, it will have to prove actual malice or a "desire to mislead and misinform." DOES
2-3 Mot. at 9:1-4. It is apparent from the po stings that Defendants DOES 2-3 acted with malice. For example, Daniel Berger formerly known as DOE 3 aka upanddownlOO, deliberately altered the date on the "Form 144" filing report from January 22, 2004 to September 2, 2004 to give the
misimpression that an "insider" was selling a significant amount of his shares. Compare RJN
Ex. A at Ex. I with Khachatourian Decl. Ex. C; see also Flaherty Decl. '23. Moreover, DOE 2 aka team3339 deliberately falsified an email from a company executive of Alltel and
intentionally fabricated company quotes from On Command stating they would not do business -12-
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28 with Eagle Broadband only days after Eagle Broadband announced its partnership with On Command. Reynolds Decl. ~12-13., Ex. D-E .. In short, DOES 2-5 purposefully and
maliciously designed their false postings to appear authoritative and from a reliable source with
the use of quotations, "Cut and Paste" language, and citation to certain true facts to spread
misinformation about Eagle Broadband's financial condition and products to the investing public. Accordingly, Plaintiff can easily meet the "malice' requirement and the Court should deny Defendants' motion in its entirety.
2. Eagle Broadband's Section 17200 Claim Is Not Preempted By The Holding In Bowen.
In reliance on Bowen v. Ziasun Technologies, 116 Cal.App.d'" 777 (2004), DOES 2-3
summarily argue that Business and Professions Code Section 17200 ("Section 17200") does not
apply to securities transactions, and therefore, it is unlikely that Plaintiff will prevail on the
merits of its claim at trial. DOES 2-3 Mot. at 5:17-6:5. DOES 2-3's argument illustrates a misunderstanding of Eagle Broadband's allegations and California law.
Defendants do not dispute that defamation claims such as the ones alleged in Eagle
Broadband's complaint, clearly fall within acts prescribed by Section 17200. Where the parties
disagree concerns whether all securities transactions are exempt from the reach of Section 17200.
Eagle Broadband submits that they are not. The holding in Bowen, the sole case relied on by Defendants, is not as broad as DOES 2-3 suggest. The California courts have expressly held that federal securities laws do not preempt section 17200 generally. See, e.g., Roskind v. Morgan Stanley Dean Witter & Co. , 80 Cal.AppAth 345 (2000). In addition, Bowen and the cases on
which it rests all dealt with fraud in the purchase of securities. See, e.g., Spinner Corp. v. Princeville Dev. Corp., 849 F.2d 388 (9th Cir. 1998). Moreover, even the language ofthe Bowen
case is limited to "securities transactions" and does not encompass all situations where securities
are somehow implicated but not purchased or sold by the plaintiff.
Here, Eagle Broadband alleges DOES 1-25 have violated Section 17200 on two different grounds. First, Eagle Broadband contends that the DOES have intentionally disseminated false and misleading information about Eagle Broadband using the Yahoo! Finance Message Boards in an effort to damage Eagle Broadband. See RJN Ex. A. Specifically, the lawsuit alleges that
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28 the DOES have engaged in unfair and fraudulent business acts including defamation which has resulted in considerable financial loss to Eagle Broadband and the depletion of the value of its stock. RJN Ex. A Second, the lawsuit alleges that DOES have engaged in a market manipulation scheme, which Eagle Broadband's independent expert has identified as a "short and distort scheme" to drive Eagle Broadband's stock price down allowing the traders to close their positions at a profit. Flaherty Decl. ~~11-27.
The conduct at issue in this case is more akin to the facts alleged in Strigliabotti v.
Franklin Resources, Inc., 2005 WL 645529 (N.D. Cal. 2005) and Roskind rather than Bowen. Both cases upheld the Plaintiff s right to bring a Section 17200 claim in connection with
securities-related matters. In Strigliabotti, the most recent case on the issue, the court held that Section 17200 may be used to challenge an alleged scheme to overcharge investors in the
management of securities. Id. at *9. Likewise in Roskind, the court held that a Section 17200
action against a brokerage firm engaging in a "trading ahead scheme," - i.e. not executing stock sales orders by its customers immediately and instead trading ahead for its own benefit before processing those sales-was not preempted by the federal securities laws. 80 Cal. App. 4th at 353-354. Bowen, on the other hand, dealt with two plaintiff investors who brought suit against a corporation alleging that they were defrauded by a pyramid scheme orchestrated by foreign brokerage houses from which they purchased stock. 116 Cal.App.d'" at 778.
Unlike the plaintiff in Bowen, Eagle Broadband has brought this lawsuit not as a
purchaser or seller of securities, but as a victim of a market manipulation and misrepresentation
campaign and therefore, its unfair business practices claims are not effected by the holding in
Bowen. In fact, the purchase or sale of securities is tangential to the claim and is relevant to
assess the impact of the false statements and the financial damage Eagle Broadband has suffered. Even if Bowen did apply, Eagle Broadband could still pursue its Section 17200 based on its defamation allegations. Accordingly, Eagle Broadband's Section 17200 is viable as a matter of law, and therefore, Defendants' Anti-SLAPP motions should be denied.
3. Eagle Broadband Can Establish It Has Suffered Damages At The Hands of Defendants
Whether under its defamation or unfair business practices claim, Eagle Broadband has -14-
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28 Defendants' efforts. Id. at ~21-26, 28.
submitted evidence to show that it has suffered damages at the hands of Defendants and therefore, can and will establish a probability of success on the merits." Eagle Broadband retained an independent expert to evaluate Eagle Broadband's stock trading pattern and the effect the po stings have had on Eagle Broadband's stock. Flaherty Decl. ~5. This independent expert has concluded that Eagle Broadband appears to be the target of a "short and distort" scheme through the use of the Yahoo! Finance Message Board and has suffered some damage because of
During the period that these po stings took place, Eagle Broadband's independent expert
has concluded that Eagle Broadband has experienced a decline in stock price in excess of 76% of
its value. Id. at ~26. This dramatic decline in share price could lead to a variety of losses for Eagle Broadband including (but not limited to) the loss of investor confidence and goodwill, the
inability to utilize "non cash" incentives (such as stock options, often critical to maintain
employee retention and morale) and a restriction in Eagle Broadband's ability to access capital markets. Id. Moreover, it appears that po stings occur during the same time that a large portion
of the short interests were being closed or covered. Id. at 22 and Ex. E. Specifically, Eagle
Broadband's expert was able to identify a specific drop in stock value in connection with the
po stings as follows:
• January and February 2005: Eagle Broadband stock went through a period where the stock price lost in excess of 46% of its value, the largest largest loss in value experienced by Eagle Broadband in any sixty day period. DOES 2 and 5 made their po stings during this time period. See Flaherty Decl. ~18-20; 24.
• DOE 5 posting occurred in the middle of this time period and during the afternoon of a day that ultimately represented the largest loss in EAG share value in anyone day during this period (a loss in excess of 10%). Id.
• During the period January through July 2005 when the majority of these postings took place, Eagle Broadband experienced a high volume of short trading where short trades were not initially covered until much later, in July 2005. Id
• The analysis indicates that Eagle Broadband's mid-month short interest POSItIon increased from approximately 4.8 million shares in mid-February 2005 to
4 Defendants also ignore well established California precedent that in libel per se cases, Plaintiff does not have to establish special damages, because damage is presumed. See Barnes-Hind, 181 Cal. App. 3d at 382; see also BAH 7.10.
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28 approximately 6.4 million at June 15, 2005. During the 30 days ended July 15, 2005, over 4 million short interest positions were covered or closed. The high cover volume in June/July 2005 is of interest since short traders make profits when short positions are covered and this 30-day period has the highest volume of covered positions. Id.
• The short interest pattern for the period after July 15, 2005 differs in that it is more indicative of a "churn" scenario where a relatively consistent number of short positions are opened and closed within the same month. Id.
• Another potential indicator of stock price manipulation is a stock's beta. As of January 5, 2006, the Beta for Eagle Broadband is 3.27 and indicates that is it a highly volatile stock and subject to a much greater degree of fluctuation in stock price than the market as a whole.i Id.
• Eagle Broadband experiences a high volume of postings on its message board, significantly higher than that experienced by the comparable companies. See Flaherty Decl. Ex. B, ~14.
• Eagle Broadband is subj ect to a much greater volume of short trades than that which would be expected for a comparable stock. See Flaherty Decl. ~16, Ex. C.
In light of this overwhelming evidence, DOES 2-5 cannot sustain an argument that Eagle
Broadband does not have a probability of success on the merits.
c. Plaintiff's Should Be Permitted To Pursue Discovery
As discussed more fully in Plaintiffs Motion To Permit Discovery, should the Court
require additional evidence before denying Defendants Anti-SLAPP motions, Plaintiff
respectfully requests a six month continuance to obtain necessary information identified by its
expert as follows: (1) the identities and employment information for DOE 2-5; (2) their financial and stock trading records; (3) a complete set of Yahoo! message board po stings; (4) discovery
from Yahoo! on the controls it sets in place on the use of its Finance Message Board for Eagle
Broadband and any complaints and restrictions it has placed on DOES 2-5; and (5) records of Eagle Broadband short positions, opened and closed. Flaherty Decl. ~~27-28. This additional information is directly related to the issues raised by Defendants' Anti-SLAPP motions and is not in Eagle Broadband's possession, custody, or control. Accordingly, Eagle Broadband must
5 A beta is a measure of the volatility of a company's stock price as compared with the market as a whole and an indication of how the stock's price fluctuates in comparison with the rest of the market. A beta of 1 indicates that the stock's price will generally move with the market. A beta of less than one indicates that the stock is less volatile than the market as a whole while a beta of more than one indicates that the stock is more volatile (i.e. subject to greater price fluctuation) than the market. Flaherty Decl. ~20.
5 pursue discovery.
7 Dated: January 20, 2006
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obtain this information should the Court require supplemental briefing.
For the foregoing reasons, Defendants' Anti-SLAPP Motions should be denied in their
entirety or in the alternative, the Court should continue the hearing and grant Plaintiff time to
By ~e1lachatourian~ Attorneys for Plaintiff EAGLE BROADBAND, INC.