I.
BUSINESS WIRE'S FEDERAL TRADEMARK CLAIMS ARE NOT SUBJECT TO A MOTION
TO STRIKE UNDER CALIFORNIA CODE OF CIVIL PROCEDURE ' 425,16 BECAUSE
FEDERAL CLAIMS BROUGHT IN FEDERAL COURT
ARE GOVERNED EXCLUSIVELY BY FEDERAL -- NOT STATE -- LAW
Business Wire's first three causes of action are for misuse of a
federally registered trademark under the federal Lanham Act. Defend-
ants' attempt to apply the state "procedural remedy" of California
Code of Civil Procedure ' 425.16, Lafayette Morehou~ Inc. v. Chronicle
Pub. Co., 37 Cal. App. 4th 855,858 (1995), to these federal claims in
federal court is plainly improper. With respect to federal trademark
claims, it has been clear for nearly 50 years that federal procedural
and substantive law applies:
The law governing the issues in this case is federal law .... [l]ssues
arising under the head ling] of infringement of a federally registered
trade-mark are governed by federal rather than state law .... The
present trade-mark statute, known as the Lanham Act, 15 U.S.C. ''
1051-1127, does not appear to deal specifically with this conflicts
question, but both the Act itself in 15 U.S.C.A. ' 1127, and the.
Senate Committee Report on the Act, 1946, U.S. Code Cong. Serv., pp.
1276, 1277, manifest an intent to regulate trade-marks used in inter-
state commerce along uniform national lines, thereby avoiding the
chaotic interference of diverse state laws.
Mendes v. New England Duplicating Co_., 94 F. Supp. 558,560 (D. Mass.
1950), aff'd, 190 F,2d 415 (lst Cir. 1951);3 accord, ~.g.., Interna-
tional Order of Job's Daur_bters v. Lindebura & Co., 633 F.2d 912,
915-17 (9th Cir. 1980) (determining that federal law applied to claim
under the Lanham Act, 15 U.S.C. ' 1125(a)); Maternally Yours v. Your
Maternity Shop, 234 F.2d 538,540 n. 1 (2d Cir. 1956) ("The prevailing
view subsequent to Eri~e has been that federal law governed infringe-
ment of federally-registered trade-marks .... ").
This well-established rule that federal trademark claims brought in
federal court are governed exclusively by federal law is compelled by
the equally settled general rule that all federal causes of action
adjudicated in federal court are governed by federal -- not state --
law. Se~e Fed. R. Civ. Pro. 1 ("These rules govern the procedure in
the United States district courts in all suits of a civil
nature ...."); 28 U.S.C. '' 2071-74 ("Rules Enabling Act") (giving
Supreme Court authority to prescribe rules of procedure for federal
courts in civil actions).
"One of the shaping purposes of the Federal Rules is to bring about
uniformity in the federal courts by getting away from local rules."
Hanna v. Plumer, 380 U.S. 460, 472 (1965); se...~e Hart & Wechsler,
The Federal Courts and The Federal System 664 (4th Ed. 1996). Applying
a state statute -- such as Code of Civil Procedure ' 425.16, which
defendants seek to apply here -- to federal claims in federal court
would offend this policy by subjecting litigants who are'properly
before a federal court on a federal cause of action to the vagaries of
disparate state law rules and procedures that could have the effect of
negating substantive protections afforded by federal law. See Sola
Electric Co. v. Jefferson Electric Co., 317 U.S_ 173, 176 (1942) ("The
federal courts have been consistent in holding that local rules of
estoppel will not
~-' All emphases are added unless otherwise noted.
be permitted to thwart the purposes of statutes of the United States.
").
While the "Erie doctrine" recognizes an exception to the rule that
federal law governs the adjudication of claims brought in federal
court, this exception applies only to state causes of action in feder-
al court -- not to federal claims such as Business Wire's three Lanham
Act claims. Under the Erie doctrine, federal courts must apply state
substantive law to state claims brought in federal courts. Erie R. CO-
v. Tompkins, 304 U.S. 64, 78 (1938); see United States ex rel. Newsham
v. Lockheed Missiles & Space Co_, 171 F.3d 1208, 1217-18 (9th Cir.
1999) (applying "the Erie doctrine" to find that California's Code of
Civil Procedure ' 425.16 applied to state law counterclaints brought
in federal court).
However, it has been "familiar doctrine" since at least 1942 "that the
prohibition of a federal statute may not be set at naught, or its
benefits denied, by State statute or state common law rules_ In such a
case our decision is not controlled by Erie R_ Co. v_ To~.Bpkins."
Sola Electric, 317 U.S. at 176. In other words, "the source of the
right sued upon ... determines whether federal or state law applies."
International Order of Job's Daughters, 633 F.2d at 915 (citing Mater-
nally Yours, 234 F.2d at 540-41 n. 1). Consequently, "the Erie doc-
trine is inapplicable to claims or issues created and gover, ed by
federal law," such as Business Wire's three claims under the federal
Lanham Act. Maternally...Yours, 234 F.2d at 541 n. 1 (citing Sola
Electric, 317 U_S_ at 176).
Beyond being compelled by clear precedent, the result that a state
statute such as Code of Civil Procedure ' 425.16 cannot apply to a
federal claim brought in federal court is the only result that makes
sense. The general rule under Erie is that state substantive law
applies to state causes of action in federal court, but that federal
procedural rules apply to all causes of action -- state and federal --
in federal court. See Hanna, 380 U.S. at 465 ("The broad command of
Erie ... [and] the [Rules] Enabling Act [was that] federal courts are
to apply I state substantive law and federal procedural law. ").. As
Judge Schwarzer once noted, where Erie applies, the basic question
"s [whether] the [rule at issue is] substantive, so that state law
applies, or procedural, so that federal law applies .... " Ackerman
v. Western Electric Co.. 643 F. Supp. 836, 858 (N.D. Cal. 1986),
afl'd, 860 F.2d 1514 (gth Cir. 1988). Thus, where a cause of action
brought in federal court is based on federal substantive law -- such
as the Lanham Act -- there is no possible basis for applying state law
since state substantive law cannot apply to federal causes of action
and state procedures never apply in a federal forum,4
It is not surprising, then, that defendants have not cited a single
case in which a federal court hearing federal Lanham Act claims ap-
plied state law -- and have cited no case applying California Code of
Civil Procedure ' 425.16 to federal causes of action brought in feder-
al court. In Newsham, which defendants cited in their opposition to
Business Wire's motion to bifurcate, the Ninth Circuit applied "the
Erie doctrine" in holding that ' 425.16 applied to state law counter-
claitns in federal court. 171 F.3d at 1218 (quoting Hanna v. Plumer,
380 U.S. 460, 471 (1965)). Since "the Erie doctrine is inapplicable to
claims or issues created and governed by federal law," Maternally
Yours, 234 F.2d at 541 n. l, Newsham is inapplicable to Business
Wire's three federal Lanham Act claims. Id.; Sola Electric, 317 U.S.
at 176; International Order of Job's Daughters, 633 F.2d at 915-17.
Equally inapplicable is Bradbur% v. Superior Court.. 49 Cai. App. 4th
1108 (1996), in which California's Code of Civil Procedure ' 425.16
was applied to federal civil rights claims brought in a California
state court. The Bradbury court was merely applying the "general
rule ... that where an action founded on a federal statute is brought
in a state court, the law of the state controls in matters of practice
and procedure unless the federal statute
4~ Contrary to defendants' position, then, the concerns about forum
shopping that animate the Erie doctrine -- and that were noted by the
Ninth Circuit when it applied the Erie doctrine to hold Code of Civil
Procedure ' 425.16 applicable to state law claims brought in federal
court, Newsham, 171 F.3d at 1218 -- are simply not implicated where,
as here, federal causes of action are at issue, if the mere specter of
forum shopping were to control the rule applied in every federal case,
then federal courts would always be required to apply state )practices
and procedures to claims over which federal and state courts have
concurrent jurisdiction. However, Congress and the Supreme Court
rejected such a regime when they authorized and approved the Federal
Rules of Civil.Procedure Se.e. Haan~a, 380 U.S. at 472; Hart & Wech-
sler, The Federal Courts and The Federal System at 664. Inherent in
the Federal Rules is the acknowledgment that application of federal
procedures in diversity and pendent jurisdiction cases would occasion-
ally result in different results than if the case had been tried in
state court under state procedures, but the Supreme Court expressly
held that the fact that forum shopping thus might occur was not suffi-
cient to invalidate the requirement that federal law applies in feder-
al court. Hanna, 380 U.S. at 473. provides otherwise." Chavez v. Keat,
34 Cal. App. 4th 1406, 1413-14 (1995) (analyzing whether state law
rule regarding punitive damages evidence should apply in civil rights
action under 42 U.S.C. ' 1983); see Bradbury, 49 Cai, App. 4th at
1118. Such a rule has no bearing on federal claims brought in federal
court, where federal procedural rules control. See Fed. R. Civ. Pro.
1; 28 U.S.C. '' 2071-74; Hanna, 380 U_S. at 465; Ackerman, 643 F.
Supp. at 858.s
II.
BUSINESS WIRE'S CLAIMS ALSO ARE NOT SUBJECT TO CALIFORNIA CODE OF
CIVIL PROCEDURE ' 425.16 BECAUSE THEY DO NOT ARISE OUT OF DEFENDANTS'
SPEECH IN A PUBLIC FORUM ON A PUBLIC ISSUE
Beyond the well-settled rule that only federal law applies to' Busi-
ness Wire's federal Lanham Act claims, there is another independent
reason why California Code of Civil Procedure ' 425.16 does not apply
to these federal claims -- nor to Business Wire's state law claims for
trademark dilution, breach of contract, fraud, defamation, unfair
competition and
-----
-~ Even further afield is defendants' bizarre assertion that federal
civil rights law somehow "mandates" application of California Code of
Civil Procedure ' 425.16 to federal trademark claims brought in feder-
al court. See Def's Opp. to Bifurcation at 7 (citing 42 U.S.C. '
1988). By its plain terms, ' 1988 is expressly limited to cases in
which jurisdiction is conferred on the district courts by federal
civil rights statutes. Entitled "Proceedings in vindication of civil
rights," ' 1988(a) provides in pertinent part:
The jurisdiction in civil and criminal matters conferred on the dis-
trict courts by the provisions of titles 13, 24, and 70 of the Revised
Statutes for the protection of all persons in the United States in
their civil rights, and for their vindication, shall be exercised and
enforced in conformity with the laws of the United States, so far as
such laws are suitable to carry the same into effect; but in all cases
where they are not adapted to the object, or are deficient in the
provisions necessary to furnish suitable remedies and punish offenses
against law, the common law, as modified and changed by the constitu-
tion and statutes of the State wherein the court having jurisdiction
of such civil or criminal cause is held, so far as the same is not
inconsistent with the Constitution and laws of the United States,
shall be extended to and govern the said courts in the trial and
disposition of the cause ....
Titles 13, 24 & 70 of the Revised Statutes, to which ' 1988 refers,
confer jurisdiction in civil rights cases. Thus by its plain terms, '
1988 is limited to "'the context of a federal civil rights action,'"
as even the case cited by defendants recognizes. Robertson v. Wegmann,
436 U.S. 584, 588 (1978) (quoting Moor v. County of Alameda, 411 U.S.
693,703 (1973)). Business Wire did not bring a federal civil rights
action and therefore ' 1988 simply does not apply.
-----
civil conspiracy. Simply stated, none of these causes of action arise
out of defendants' First Amendment speech on a public issue and hence
are not within the scope of the statue.
Section 425.16 only applies to causes of action arising from defend-
ants' acts "in furtherance of the [defendants'] right of petition or
free speech under the United States or California Constitution in
connection with a public issue." Cal. Code of Civ. Proc. '
425.16(b)(1). To determine whether defendants acts meet this require-
ment, courts must look to subdivision (e) of the statute, which de-
fines the above-quoted phrase to mean the following:
(1) any written or oral statement or writing made before a legisla-
tive, executive, or judicial proceeding, or any other official pro-
ceeding authorized by law; (2) any written or oral statement or writ-
ing 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; (3) any written or oral statement or
writing made in a place open to the public or a public forum in con-
nection with an issue of public interest; (4) or any other conduct in
furtherance of the exercise of the constitutional right of petition or
the constitutional right of free speech in connection with a public
issue or an issue of public interest.
It is defendants' burden to establish that each cause of action arises
out of speech activity that falls within one of these categories.
Braun v. Chronicle Pub. Co., 52 Cal. App. 4th 1036, 1042-43 (1997);
Wilcox v. Superior Court, 27 Cal. App. 4th 809,819-20 (1994). Any
cause of action for which defendants fail to carry this burden is not
subject to an anti-SLAPP motion under ' 425.16. Wilcox, 27 Cal_ App.
4th at 819; accord Ericsson GE Mobile Comm., Inc. v. C.S.I. Telecomm.
Eng'rs, 49 Cal. App. 4th 1591, 1603 (1996).6 Defendants have utterly
failed to carry this burden as to any of the causes of action in the
complaint. They do not contend Business Wire's causes of action are
within categories 1, 2 or 4 of ' 425.16(e). Rather, defendants' sole
argument is that Business Wire's claims are within category 3 because,
they assert, each claim arises out of statements made by defend-
ants on their website or in a press release distributed by Business
Wire, and [ii] such statements were thus made in a public forum on a
matter of public interest. Defs' MPA at 7.
Defendants are wrong on both counts. First, Business Wire's causes of
action for fraud and breach of contract are not based on what defend-
ants said on their website or in
_6~ Ericsson GE Mobile was disapproved on other grounds in Briggs v.
Eden Council for H~Hope and Opportunity, 19 Cal. 4th 1106, 1123 n.10
(1999).
the press release. To the contrary, these claims are based on misrep-
resentations defendants made only to Business Wire in a private com-
mercial transaction when the parties entered into a contractual rela-
tionship. As one appellate court has explained, "it would be an ab-
surdity to suggest" that such claims "seeking damages based upon
theories of breach of contract or misrepresentation" would be within
the scope of ' 425.16. Ericsson GE Mobile. 49 Cal. App, 4th at 1601;
see Cohen v. Cowles Media Co., 501 U,S. 663, 671 (1991) (cause of
action "for breach of a promise" by newspaper does not arise out of
First Amendment protected speech).
Second, even those causes of action based on statements on the website
or in the Dress release do not meet either criteria for invoking '
425.16(e)(3). Like statements in a newspaper, statements on a website
or in a press release do not constitute statements made in a >public
forum_ Lafayette Morehouse, Inc. v. Chronicle Pub. Co., 37 Cal. App.
4th 855, 863 n,5 (1995) (newspaper is not a public forum); accord Zhao
v. Wong, 48 Cal. App, 4th 1114, 1125 (1996).7 Nor do these statements
constitute speech on a public issue. The statements at issue in the
website and press release never once mention investment seams, the
purported matter of public interest to which defendants now claim
their statements were connected.
A. Code-Of Civil Procedure ' 425.16 Does Not Apply To Fraud Or Con-
tract Claims Based On Misrepresentations By A Party To The Formation
Of A Contract Business Wire's breach of contract and fraud claims are
based on defendants' false representations and material omissions in
private communications to Business Wire on which the company relied in
entering into a private commercial transaction with defendants. When
defendants contacted Business Wire, they knew but did not disclose
that the company they claimed to be representing did not exist, that
the investment opportunity they claimed to be offering was a sham, and
that neither they nor their purported company bad been granted govern-
ment contracts for improvements to the Internet -- yet they made all
these false representations (and more) to Business Wire in order to
deceive Business Wire into entering into a contract with defendants.
See Kunis Decl., ~ 2-3 & Exh. 1; Bardach Decl,, Exh. 1. Aware that
their representations about their "company" were false, defendants
nonetheless
Zt Zhao was disapproved on other grounds in Briggs, 19 Cal_ 4th at
1123 n. 10.
entered into a contract that promised, inter alia, that their repre-
sentations were accurate.
None of defendants' false representations and material omissions to
Business Wire were made in a website or press release, let alone in a
"public forum." To the contrary, they were made in private e-mail and
telephone calls between defendants and Business Wire and in the con-
tract defendants executed with Business Wire. Such private misrepre-
sentations are not within the scope of ' 425.16. Ericsson GE Mobile,
49 Cal. App. 4th at 1601.
In Ericsson, the lawsuit was based on defendant CSI's allegedly false
representations to Orange County pursuant to CSI's contract with
Orange County. Id. at 159496; CSI moved to strike Ericsson's lawsuit
under ' 425.16. The trial court granted the motion, but the Court of
Appeal reversed on the ground, inter alia, that causes of action
arising out.t of representations by a party to a contract are not
within the scope of ' 425.16:
Here, the acts upon which Ericsson is relying in contending that
defendants interfered with its prospective economic advantage are the
same acts which could form the basis for an action by the County,
against CSI, for breach of contract. If the County rather than Erics-
son had brought a suit seeking damages based upon theories of breach
of contract or n, misrepresentation, it would be an absurdity to sug-
gest the County's action would be barred by the defense of free
speech. To do so would open the door to the applicability of section
425.16 to breach of contract or fraud actions where the act of the
party relates to the formation or performance of contractual obliga-
tions and not with respect to the exercise of the right of free
speech.
Id. at 1601-02. As Ericsson makes clear, ' 425.16 does not apply to
Business Wire's causes If action for "breach of contract or fraud"
because they are based on statements made in "the 'formation ... of
contractual obligations." Id.
Ericsson also illustrates that defendants cannot invoke ' 425.16 by
claiming, after the fact, that their misrepresentations were motivated
by some public issue. Id. at 1603 (rejecting argument that because
"the expenditure of public funds" was a matter of public interest that
CSi's representations pursuant to its contractual relationship con-
cerning a communication system's compliance with county specifications
was "in connection with" that matter of public interest). Rather, the
act giving rise to the cause of action must involve some facial
"exercise ... of free speech" in order to invoke ' 425.16. Id. at 1602
(distinguishing causes of action based on statements made in "the
formation or performance of contractual
obligations" from those based on statements made in "the exercise ...
of free speech").8
The seminal case in California interpreting ' 425.16 also points out
this important distinction. As Wilcox v. Superior Court explains, '
425.16 applies to causes of action that arise out of acts that direct-
ly implicate First Amendment rights, but does not apply to claims that
arise out of facts that do not directly implicate such rights even if
the defendants :claim to have been motivated to advance their First
Amendment rights o~, a public issue. Wilcox, 27 Cal. App. 4th at 820-
21. On the one hand, Wilcox said, ' 425.16 would apply where defend-
ants were sued over "a lawsuit against a developer" because "the
defendant would have a prima facie First Amendment defense." Id. at
820. Similarly, "if the plaintiff's suit arises out of defendant's
constitutionally protected conduct, such as a peaceful economic boy-
cott[,] the plaintiff should be required to satisfy the statute's
requirements." Id. at 821. On the other hand, "if the defendant's act
was burning down the developer's office as a political protest the
defendant's motion to strike could be summarily denied." Id. at 820.
There is no prima facie First Amendment defense to Business Wire's
breach of contract and fraud claims. See Cohen, 501 U.S. at 665 ("The
question before us is whether the First Amendment prohibits a plain-
tiff from recovering damages, under state promissory estoppel law, for
a newspaper's breach o ra promise of confidentiality given to the
plaintiff in exchange for information. We hold that it does not.");
San A.ntonio Community Hosp. v. Southern California Dist. Council of
Carpenters, 125 F.3d 1230, 1239 (9th Cir. 1997) ("The First Amendment
does not protect fraud."). Moreover, the false representations giving
rise to these Claims were not made in a public forum and never mention
the purported matter of public interest defendants now claim justifies
their unlawful conduct. Business Wire is not attempting
Although Ericsson. was disapproved on another ground in Briees, its
analysis on both of these points remains good law. Brings only disap-
proved Ericsson on the narrow issue of whether a party moving to
strike under ' 425.16(e)(1) or (e)(2) must show that the statements
giving rise to the cause of action concerned "an 'issue of public
significance_'" Bri~s, 19 Cal. 4th at 1123 & n. 10_ This limitation on
Ericsson and other cases is inapplicable here, since defendants are
seeking to invoke ' 425.16 on the basis of ' 425.16(e)(3), which
requires "an issue of public interest," as the Supreme Court noted in
Bri.e. gs. Icl. at 1117-18.
to prevent defendants from creating a website to speak about Internet
investment scams, as the FTC has done. Se._~e Ulrich Decl., ~ 19 &
Exh. R. Rather, Business Wire sued defendants for lying in a private
commercial transaction that deceived Business Wire into doing business
with them -- which is something the FTC has never done and which, as
the FTC example shows, defendants did not need to do to further their
purported educational mission.
To apply ' 425.16 to Business Wire's contract and fraud claims would
allow any party to make fraudulent representations and breach a con-
tract with impunity. The anti~ SLAPP statute was never intended to
apply to such conduct. Ericsson GE Mobile, 49 Cal. App. 4th at 1601-
02; Wilco..x, 27 Cai. App. 4th at 820-21. |
