Posts Tagged ‘pennsylvania’

ZAGG v. Catanach – Extended Excerpt

Friday, October 5th, 2012

ZAGG logoFollowing up on this morning’s post, here is an extended excerpt from ZAGG, Inc. v. Catanach (E.D. Pa. Sept. 27, 2012), denying the motion to dismiss of bloggers / b-school professors Catanach and Ketz of the Grumpy Old Accountants blog. The full opinion is available from the court as a pdf.

ZAGG, Inc. (“Zagg”) has brought this action for defamation and false light under Utah state law1 against Anthony H. Catanach, Jr. (“Catanach”) and J. Edward Ketz (“Ketz”), two business school professors at universities in Pennsylvania. Zagg alleges that Catanach and Ketz published false and defamatory statements about it on a blog. Before the court is the motion of Catanach and Ketz to dismiss the complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. …

Catanach and Ketz authored and caused to be published an article entitled “Don’t Gag on Zagg” on the Grumpy Old Accountants blog. In the article, they made a number of statements about Zagg’s accounting practices. Zagg alleges in its complaint that the following statements from the article are defamatory:

a. “The numbers are giving off so much smoke that we think management may have blinded both the auditors and investors.” b. “At worst, management may be ‘cooking the books.’”

c. “ZAGG’s balance sheet is littered with items prompting valuation and disclosure concerns.”

d. “The company includes accounts receivables from credit card processors in its reported cash balances. You know how we feel about this right? … Instead of the Company reporting positive cash flow for 2011, it really ‘burned’ cash.”

e. “[I]t is ironic and worrying that the ifrogz business segment is losing money right out of the gate.”

f. “Still not convinced that ZAGG management is massaging the numbers? Maybe the following will make the hairs on the back of your neck stand up.”

g. “This is a financial reporting debacle in the making.”

h. “It makes us grumpy when a firm overstates its cash by adding in some receivables, as note 1 explains. And why did ZAGG do this? In an attempt to fool investors about its cash flows!”

To state a claim for defamation under Utah law, plaintiff “must show that defendants published the statements concerning him, that the statements were false, defamatory, and not subject to any privilege, that the statements were published with the requisite degree of fault, and that their publication resulted in damage.” West v. Thomson Newspapers, 872 P.2d 999, 1007-08 (Utah 1994) …

The statements in issue by Catanach and Ketz on the Grumpy Old Accountants blog were not merely nettlesome or embarrassing but rather were capable of damaging Zagg’s reputation. They directly impeached Zagg’s honesty with statements such as “[t]he numbers are giving off so much smoke that we think management may have blinded both the auditors and investors” and others such as “Zagg’s balance sheet is littered with items prompting valuation and disclosure concerns,” and “[Zagg is] attempt[ing] to fool investors about its cash flows.” These statements imply dishonesty and even criminality and thus are capable of defamatory meaning.

Even when statements may otherwise be capable of defamatory meaning, the Utah Constitution protects expressions of opinion …

The defendants contend that their statements in the Grumpy Old Accountants blog were all expressions of opinion, as noted in a disclaimer at the end of the article stating, “[t]his essay reflects the opinion of the authors and not necessarily the opinions of the Pennsylvania State University, the American College, or Villanova University.” They also point out that a number of statements are preceded with the words, “we think.” These exculpatory words in and of themselves do not save the statements in issue from being defamatory. See Milkovich v. Lorain Journal Co., 497 US 1, 18 (1990). It would undermine the law of defamation if speakers or authors could simply employ a talismanic word formula to absolve themselves of slander or libel. See Id. at 18-19.

Although opinions are protected from defamation liability under the Utah Constitution, any facts implied by the opinion or underlying the opinion are not protected. West, 872 P.2d at 1015. The Supreme Court of Utah … relied specifically on “four factors as useful in distinguishing fact from opinion: (i) the common usage or meaning of the words used; (ii) whether the statement is capable of being objectively verified as true or false; (iii) the full context of the statement –- for example, the entire article or column –- in which the defamatory statement is made; and (iv) the broader setting in which the statement appears.” Id. (citing Ollman v. Evans, 750 F.2d 970, 979 (D.C. Cir. 1984) (en banc)).

We will address each factor in turn. The Ollman decision cited by West explained that the first factor, “common usage or meaning of the words used,” was relevant for “determining whether the statement has a precise core of meaning for which a consensus of understanding exists or, conversely, whether the statement is indefinite and ambiguous.” Ollman, 750 F.2d at 979 (citations omitted). The court reasoned that readers of the statements would be “considerably less likely to infer facts from an indefinite or ambiguous statement than one with a commonly understood meaning.” Id. Here, the statements by Catanach and Ketz have commonly understood meanings. For example, when a reader sees “[a]t worst, management may be ‘cooking the books’” or Zagg’s “attempt to fool investors about its cash flows,” he or she understands that the authors are implying false numbers in Zagg’s ledger amounting to at least potential criminality.

As for the second factor, the statements by Catanach and Ketz about Zagg are capable of being verified. Accountants are able to look at Zagg’s financial records and public filings to determine whether there were manipulations and irregularities giving rise to “valuation and disclosure concerns,” as accused.

Turning to the third factor, reading the full context of the blog posting would not lead a reader to believe that the statements were opinions and not steeped in fact. Even though the authors did include at the end of the article that the essay reflected their opinions and at times use the phrase “we think,” various statements in the article explained to the reader that the authors had read Zagg’s public filings and financial statements and were basing their statements on these factual disclosures. For example, the article states, “[o]ur review of the Company’s operating environment and the 2011 10-K leads us to conclude that at the very least, the Company’s reported amounts are suspect.” This statement is based on data from the 10-K. In sum, the full context of the article would not lead a reader to conclude it was mere opinion.

The fourth factor requires the court to consider “the broader setting in which the statement appears.” The Supreme Court of Utah explained that statements in newspaper editorials tend to be more exaggerated than “hard news,” and as a result readers are “less likely to form personal animus toward an individual based on statements made in an editorial.” Id. at 1009. This led the West court to determine that the statements at issue in that case, which were published in a newspaper editorial about a mayor of a town in Utah, were not capable of defamatory meaning. Similarly, here readers may be less likely to sell their stock in a company when they read about potential disclosure concerns on the Grumpy Old Accountants blog than, for example, on the front page of The Wall Street Journal. On the other hand, the defendants are professors at business schools, with apparently no political axe to grind. Readers are likely to take their statements about corporate finance seriously. …

In West the plaintiff was a public official, and the court explained that this factor was relevant to its finding that the statements were opinions not capable of defamatory meaning. Id. at 1009-10. The context of any statement is critical. Readers expect that public officials will be criticized in newspaper editorials and that these criticisms are opinions. Id. That is just the nature of politics. Here, in contrast, two business school professors are making statements about the dishonesty of a corporation. Public companies are not routinely accused of fraud by business professors, and any such accusations would not be presumed to be opinions. The statements of Catanach and Ketz about Zagg on their blog are therefore not protected opinions under Utah law because the meaning of the statements is clear, they are capable of being verified, and the context of the statements and the broader settings in which they appear do not signal to the reader that the statements are opinions and not facts.

Accordingly, we will deny the motion of the defendants to dismiss for failure to state a claim because the statements of these business school professors about Zagg on their blog are capable of defamatory meaning and are not protected as opinions. We, of course, make no determination of whether the statements are true or false. Whether defamation actually occurred will be for the fact-finder to decide.

ZAGG v. Catanach Reminder of What’s at Stake When You Click “Publish”

Friday, October 5th, 2012

Bloggers Anthony H. Catanach Jr. and J. Edward Ketz (Photos: Grumpy Old Accountants)

Two business school professors who author the Grumpy Old Accountants blog have lost a 12(b)(6) motion to dismiss against ZAGG, a publicly traded corporation selling mobile phone accessories.

 

The case is ZAGG, Inc. v. Catanach (E.D. Pa. Sept. 27, 2012). The full opinion is available as a pdf. I will publish an extended excerpt later today.

Though this is a federal court in Philadelphia, it applied Utah defamation law.

Eric Goldman analyzes the case on his Technology & Marketing Law Blog. He notes that the professors still might win in the long run. But, he says:

[T]his case is a potent reminder that we as bloggers are betting our house with each blog post we make – and where we disseminate “negative” information that gores someone’s ox, the wounded ox just might gore us back. It’s one of the reasons why, after 2,000+ blog posts over nearly 8 years, my fingers still tremble a bit when I hit “publish” on a blog post that trashes a real live company or person. You as the readers tend to enjoy the bloodsport, but it’s only fun and games until someone gets sued.

What Do You Do with a Blogging Teacher?

Monday, August 29th, 2011

Blogging English teacher, Natalie Munroe (Photo apparently from Munroe's own blog.)

Suburban Philadelphia English teacher Natalie Munroe wrote a personal blog on which she called her students “disengaged, lazy whiners,” “utterly loathsome,” and “frightfully dim.”

She was suspended last February, and now, after a summer of blogging about such things as blueberry-cranberry bread pudding, Munroe is back in her classroom, but parents are still mad.

The Associated Press reports that over 200 parents at Central Bucks East High School have informed school officials that they want their children kept out of Munroe’s classes. Yet some out there hail her for telling the truth.

Munroe says her blog quotes have been taken out of context and that the media has made inaccurate statements about her. So I’ll let her provide some context with a quote from her blog post the day the scandal broke: (And note that when Munroe says “blogs” she apparently means “blog posts.”)

Of my 84 blogs, 60 of them had absolutely nothing to do with school or work. Of the 24 that mentioned it, only some of them were actually focused on it–others may have mentioned it in passing, like if I was listing things that annoyed me that day and wrote without any elaboration that students were annoying that day. …

Contrary to what seems to be popular belief, I didn’t–and don’t–feel negatively toward all students. As I mentioned in another blog that nobody chooses to talk about, there were delightful students in school, too. I fondly discussed some wonderful students who shined in the school’s Jazz and Poetry Festival, and I even said that I was proud to be part of the school at events like that.

But the fact remains that every year, more and more, students are coming in less willing to work, to think, to cooperate. These are the students I was complaining about in my blog. The same way millions of Americans go home at the end of the day and complain about select coworkers or clients or other jerks they had to deal with, I came home and complained on my blog about those I had to deal with.

Unfortunately, the 84 prior posts have been deleted. Without Munroe making her old posts available, it’s hard to form your own opinion from scratch. (And unfortunately, the Internet Wayback Machine doesn’t have the old posts either.) So I guess we’ll have to say she’s at least guilty of writing something regrettable.

One interesting note is that Munroe apparently tried to keep her blog anonymous. But she didn’t try very hard. For instance, she didn’t use student names or her own whole name. But she did sign her blog as “Natalie M.,” and she apparently included a picture of herself as well. So, not real anonymous at all.

So, what’s the legal dimension here? While some people are calling for Munroe to be fired, one blogger wants the school district to keep her on to avoid a lawsuit.

Was Munroe’s blog protected free speech?

That’s a good question. Off-site speech by public employees concerning their job is an area where the First Amendment has an impact but doesn’t offer full protection. There’s a lot of case law in this area, but I haven’t researched it. So, I can’t say which way I think this would come out.

Also, it’s possible Munroe could make the argument that her blogging is protected under federal labor law. I don’t know how strong that argument would be, and the strength of it would in part depend on the content of her posts and her intended audience, which are facts that are obscured by the deletion of her old posts.

Then, of course, there’s the issue of whether a firing would violate the collective bargaining agreement between the teachers and the school district. That’s something that would depend entirely on the CBA’s terms.

Bottom line, apparently the school district has determined it is not legally in the clear to fire her. That means this story will eventually fizzle out.

A few years from now, it will be something a few students gossip about sporadically: “Did you know that Ms. Munroe … “ A few years after that, no one will remember it at all. (I read recently that Anita Hill’s students today generally have no idea about her nationally famous role in the Clarence Thomas hearings. That kind of boggles my mind … )

Anyway, I guess the broader lesson we are learning is that high school teachers trail only slightly behind high school students and maybe just ahead of high school administrators in their moth-to-a-flame attraction to blogging trouble.

The Google Street View Case – What it Doesn’t Mean for Bloggers

Monday, January 3rd, 2011

A Google Street View car driving through the countryside. (Image: Google. Used without permission.)

A few weeks ago, Google lost a lawsuit over its Street View feature. The reporting about the case was generally off the mark, so let me try to clear things up.

In the federal lawsuit, Aaron and Christine Boring of Franklin Park, Pa. won $1 in damages against Google, Inc. for trespassing.

Press coverage (e.g., this not-very-well-written story) made it sound as if Google incurred liability by taking a picture of private property and displaying it on the internet. That’s not the case. The reason Google was liable for trespassing is because Google drove its Street View car onto private land, going up a private road that was marked with a “No Trespassing” sign.

In other words, the case doesn’t say it’s trespassing to take a picture of private property and display it on the internet. (Indeed it’s not.) What the case means is that it’s trespassing to trespass.

So, if you are a blogger, this case shouldn’t make you nervous about posting pictures of private property – unless those pictures serve as evidence of your having done something unlawful.

And that’s what Google did. By posting the pictures, they proved that they committed a civilly actionable trespass. It also would appear that Google violated Pennsylvania criminal trespass statute at 18 Pa. Cons. Stat. § 3503.

It was absurd for Google to fight this in court. They should have respected the law, and they should have respected private property rights. It’s too bad they only had to pay a dollar. I personally think a small measure of punitive damages would have been in order.

It’s another case of Google doing whatever Google gets ready to do – regardless of the law.

And they keep getting away with it.

Philadelphia Slaps Blogs with $300 Tax

Friday, August 27th, 2010

mastheads of blogs MS Philly Organic and Circle of Fits blogsVery interesting article: Valerie Rubinsky in the Philadelphia City Paper: Pay Up: Got a blog that makes no money? The city wants $300, thank you very much.

Philly is not taxing all blogs – just blogs that are set up to make money – any money, no matter how small. If a blog is designed to make a profit, even if it doesn’t, the City of Brotherly Love requires a business privilege license (a $300 one-time fee or $50 per year) plus taxes on the profits.

So that means Philadelphia is after Sean Barry’s Circle of Fits, a music blog hosted on Blogspot, which has made $11 over two years, according to the article.

Also getting billed is MS Philly Organic, a blog by Marilyn Bess that, combined with earnings from some posts for eHow, has brought in about $50 over three years.

Rubinsky reports that City Council members Bill Green and Maria Quinones-Sanchez have proposed reforming the law to help make the city a more accommodating place for small businesses. But while the reform would exempt the first $100K in profits, nano-sized online “businesses,” such as ad-hosting blogs, would still have to pay $50 per year or $300 upfront for a license. Some reform.

Apparently the tax-collector letters went out to bloggers who did the right thing and reported tiny-sized revenues on their income tax returns.

I’d like to hear a tax attorney weigh in on whether there is serious argument that these bloggers are not businesses engaged in an activity for profit since the amount of money they are earning is trivial and undoubtedly doesn’t cover their expenses. But I’m not a tax attorney, so I’ll have to leave that to someone else.

My advice for most bloggers is this: Dump the ads. Why bother putting ads on your blog unless it is going to make you substantial amounts of money? Ads clutter up blogs. They look terrible, and they are often for products that are either ridiculous (like herbal cures) or kindov depressing (like life insurance). That detracts from a user’s experience. And if ads cause you to have legal trouble – and even trying to figure out if you have legal trouble is a kind of legal trouble – then you should flush them down the drain.

In fact, if you are really in it for profit, then you are probably better off doing whatever it takes to build readership in the near-term – and in my opinion, that means turning off the ads. If and when your readership ever gets big enough that ads would bring in real money, you can start providing advertising space at that point. Take a cue from big start-up ventures. None of them try to make money in the early years. For a VC-funded start-up, making money at the beginning usually means that you aren’t trying hard enough to grow and gain market share.

More: Lyrissa Lidsky on PrawfsBlawg: (Business) License to Blog (with good discussion in the comments)

(Ha’p: Media Law Prof Blog)

Corbett’s Subpoenas to Twitter Dropped

Tuesday, June 22nd, 2010

(Image from the Pennsylvania Office of Attorney General, used without permission.)

The attorney general of Pennsylvania, Tom Corbett, issued a subpoena last month to get the identity of two anonymous posters on Twitter who criticized him.

Corbett, a Republican currently running for governor, eventually withdrew the subpoenas after receiving hot criticism. An article in the Philadelphia Bulletin has some interesting analysis.

A cover letter with the subpoena requested Twitter to keep the subpoena secret. (Well, it did turn out to be embarrassing.)

The attorney general of Pennsylvania, Tom Corbett, issued a subpoena last month to get the identity of two anonymous posters on Twitter who criticized him.