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Company’s Lawsuits To Deter Critical Comments Backfire; Company Dismisses Cases,Pays Critics’ Attorney Fees

Jan. 9, 2001

Company’s Lawsuits To Deter Critical Comments Backfire; Company Dismisses Cases,Pays Critics’ Attorney Fees

WASHINGTON, D.C. — Hollis-Eden Pharmaceuticals has paid $107,887 in attorney fees and agreed to dismiss two cases against stockholders who posted critical messages about the company on an Internet message board.

In both cases, the trial court earlier had agreed with the critics, who were both shareholders represented by the Public Citizen Litigation Group, that the suits were improper SLAPPs (Strategic Litigation Against Public Participation) – lawsuits intended to deter them and others from exercising their First Amendment right to criticize the company.

In the first case, filed in December 2000, Hollis-Eden, a drug development company based in San Diego, sued 10 individuals, claiming they had posted defamatory messages on a Yahoo! message board devoted to discussion about the company. Public Citizen represented two of the posters and asked the court to dismiss the complaint against them on the ground that the suit was an unlawful attempt to chill the exercise of their constitutional right to speak freely about the publicly held company.

California’s anti-SLAPP law is based on the recognition that the lawful exercise of First Amendment rights is threatened by the financial and emotional cost of defending against a frivolous lawsuit. The law offers defendants a mechanism for seeking prompt dismissal of meritless lawsuits that challenge speech about a public issue or speech made in connection with an official proceeding.

In March 2000, the trial court agreed with Public Citizen that the postings of the two shareholders concerned a matter of “public interest” within the meaning of the anti-SLAPP statute and that the statements were not defamatory. The court dismissed the case against the two and awarded the defendants attorney fees and costs of approximately $72,000. Hollis-Eden appealed. Both parties had filed briefs and were awaiting a date for oral argument when they agreed to settle the case.

Soon after the trial court dismissed the first case, Hollis-Eden again sued one of the two original defendants, this time for a single message he posted in March 2001. Public Citizen again invoked the anti-SLAPP statute, and the court again dismissed the case. Hollis-Eden’s appeal and a motion for attorney fees in the trial court were both pending when the parties agreed to a settlement.

Under the terms of the settlement, the two defendants accepted $107,887 in attorney fees and costs in the two cases, and Hollis-Eden agreed to dismiss both appeals. Both defendants retain their First Amendment rights to speak about the company.

“Hollis-Eden tried for a full year to use the court system to intimidate its critics into silence,” said Allison Zieve, a Public Citizen Litigation Group lawyer who represented the two individuals. “Better late than never, the company seems to have realized that frivolous lawsuits were not going to suppress criticism and, in fact, were creating more ill-will for the company among its stockholders.”

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

For background information about this and other Internet free speech cases that Public Citizen has handled, click here.