Company Loses Second Bid to Silence Stockholder Who Posted Critical Comments on Web

Oct. 26, 2001

Company Loses Second Bid to Silence Stockholder Who Posted Critical Comments on Web

California Judge Dismisses SLAPP Suit Filed by Hollis-Eden Pharmaceuticals

WASHINGTON, D.C. — A California judge has dismissed Hollis-Eden Pharaceuticals’ second lawsuit against a stockholder who posted critical messages on an Internet message board. The judge agreed with Public Citizen Litigation Group’s position that the suit was an improper SLAPP suit — (Strategic Litigation Against Public Participation) — a lawsuit designed to deter public participation.

In May 2001, Hollis-Eden, a drug research firm, sued Los Angeles area resident Greg Alcus, claiming that a message he had posted to Yahoo!’s “HEPH” message board in March defamed the company. Alcus, represented by Public Citizen, moved to strike the complaint pursuant to California’s “anti-SLAPP” statute on the ground that the suit was an attempt to chill his right to speak freely about the publicly held company. Recognizing that First Amendment rights are threatened by the financial hardship and chilling effect of defending a frivolous lawsuit, the anti-SLAPP statute gives SLAPP defendants a mechanism for having meritless suits dismissed early in the litigation.

The judgment entered this week follows a Sept. 24 ruling by California Superior Court Judge Kevin A. Enright that the subject of Alcus’ posting concerned a matter of “public interest” within the meaning of the SLAPP statute and that Hollis-Eden’s claims against Alcus were meritless. In the March 21, 2001, posting, Alcus asked why the company was sitting on information about a drug research project. Alcus based his message on the company’s public filings and answers given by a company official during a shareholders’ meeting.

“Hollis-Eden’s real gripe was not with any particular posting, but with the fact that Mr. Alcus was critical of the company,” said Allison Zieve, an attorney with Public Citizen who represented Alcus. “Hollis-Eden’s goal was to stifle Mr. Alcus. The judge clearly understood that.”

San Diego-based Hollis-Eden first sued Alcus on Dec. 14, 2000, claiming that two comments he posted in November were defamatory. Enright dismissed that case on March 28, 2001, saying that the comments were related to a matter of public interest and that the company had no likelihood of prevailing in the case. The judge ordered the company to pay approximately $72,000 for Alcus’ attorney fees.

In the second suit, Hollis-Eden complained about the March 21 posting. The company again claimed that Alcus had defamed the company. In dismissing the suit, the judge again awarded attorney fees.

In a motion to strike filed on Alcus’ behalf, Zieve argued that Alcus’ March posting fell within the scope of a California statute that protects people from SLAPP suits and was not defamatory. The company is a publicly traded corporation that invites public comment, she argued. When the company’s stock price falls, when its drug development stalls or when investors have trouble obtaining information about the company, the ensuing discussion is a matter of public interest.

Public Citizen worked on the case with local counsel Charles A. Bird of Luce, Forward, Hamilton & Scripps LLP, based in San Diego, Calif.

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