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3m Company v. Boulter

February 2, 2012

3M COMPANY, PLAINTIFF,
v.
BOULTER, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Robert L. Wilkins United States District Judge

MEMORANDUM OPINION

Plaintiff 3M Company ("3M") has sued Defendants Lanny J. Davis, Lanny J. Davis & Associates, PLLC, Davis-Block LLC (collectively the "Davis Defendants"), and Harvey Boulter, Porton Capital Technology Funds, Porton Capital, Inc. (collectively the "Porton Defendants") for a number of claims, including commercial defamation, tortious interference with contract and prospective business relations, and civil conspiracy. See First Amended Complaint ("FAC").

Before the Court are the following sets of preliminary motions: 1) Defendants' Special Motions to Dismiss under the D.C. Anti-SLAPP Act of 2010 (Dkt. Nos. 8, 55, 34 and 57); 2) 3M's Motion to Strike Defendants' Special Motions to Dismiss and Cross Motion for Discovery (Dkt. Nos. 16, 40); 3) the Davis Defendants' Rule 12(b)(6) Motions to Dismiss (Dkt. Nos. 30, 52); and 4) the Porton Defendants' Rule 12(b)(2) and 12(b)(6) Motions to Dismiss (Dkt. Nos. 31, 51). The District of Columbia ("District") has intervened for the purpose of defending the validity of the D.C. Anti-SLAPP Act and to defend the Act's applicability in a federal court sitting in diversity. For the following reasons, Defendants' Special Motions to Dismiss are denied, 3M's Motion to Strike and Cross Motion for discovery are denied as moot, and Defendants' Rule 12 Motions to Dismiss are granted in part and denied in part.

FACTUAL SUMMARY

3M has brought claims against the Defendants for: Intimidation and Blackmail under United Kingdom (U.K.) law (Count I); Tortious Interference with Existing and Prospective Business Advantage (Count II); Tortious Interference with Contract (Count III); Commercial Defamation (Count IV); Injurious Falsehood and Business Disparagement (Count V); Breach of Fiduciary Duty (Count VI); Aiding and Abetting (Count VII); and Civil Conspiracy (Count VIII). 3M seeks compensatory and punitive damages from Defendants, as well as injunctive relief.

3M's factual allegations have been set forth fully in the First Amended Complaint, and have been repeated numerous times at length in the parties' briefs. Accordingly, the Court will not restate all the factual allegations here.

The Underlying Dispute: the BacLite Litigation in London

As part of its plan to expand into the global diagnostics market, 3M U.K. Holdings Limited (3M's wholly-owned subsidiary) acquired all of the outstanding shares of Acolyte Biomedica Limited ("Acolyte"), a company whose only commercially-available product at the time was BacLite. (FAC ¶ 42). BacLite is a test that screens for MRSA (Methicillin Resistant Staphylococcus aureus bacteria), commonly known as a "superbug." (FAC ¶ 42). Because superbugs such as MRSA are resistant to conventional antibiotics, they are of "special concern to medical professionals." (FAC ¶ 42).

Acolyte sold 3M on the potential that BacLite would fill a market void. (FAC ¶ 43). At the time, other screening tests for MRSA were either slower and cheaper ($2-3 per test with results in 48-72 hours) or much faster but more expensive (approximately $25 per test with results in 1-2 hours). (FAC ¶ 43). Acolyte represented to 3M that BacLite could produce results in 5 hours with a cost of $12-15 per test. (FAC ¶ 43). Acolyte also represented that BacLite was highly sensitive and accurate in clinical trials. (FAC ¶ 43).

3M entered into a Sales and Purchase Agreement ("SPA") to purchase Acolyte. (FAC ¶ 45). Under the SPA, Acolyte's selling shareholders (the "vendors") had the opportunity to receive conditional earn-out payments on net sales of BacLite through December 2009. (FAC ¶ 45). The vendors of Acolyte included the U.K. Ministry of Defense ("MoD"), which had been involved in the development of BacLite, and Defendant Porton Technology, an investment fund directed by Defendant Harvey Boulter.*fn1 (FAC ¶¶ 28-29). Boulter is also the Chief Executive Officer of Porton Capital, the investment manager of Boulter's funds. (FAC ¶ 28). According to 3M, Boulter had "developed significant relationships" within the U.K. government through his businesses. (FAC ¶ 30).

Although 3M actively marketed BacLite in many countries and began to seek regulatory approval for the product, it became apparent to 3M that BacLite performed much poorer in clinical trials than Acolyte had initially represented. (FAC ¶¶ 45-48). 3M ultimately determined that BacLite was not commercially viable for several reasons, including: 1) that BacLite was not "robust" because it was incapable of meeting its claimed performance in a real world environment; 2) that BacLite was overly complicated to use, thus increasing the chances for error in clinical environments; and 3) that the middle-market niche that 3M had hoped to fill with BacLite had "unexpectedly narrowed." (FAC ¶ 49).

Having determined that BacLite would not be commercially viable in the U.S., Canada or Australia, 3M sought the vendors' consent (as required by the SPA) in July 2008 to stop marketing BacLite. (FAC ¶¶ 49-52). Under the SPA, the vendors could not unreasonably withhold such consent. (FAC ¶ 52). 3M offered the vendors $1.07 million, which was the amount that 3M had expected to receive from BacLite sales through December 2009. (FAC ¶ 52). The Boulter Defendants, however, were not satisfied and instead sought to "wring" tens of millions of dollars from 3M-an amount "much greater than that to which they were entitled." (FAC ¶ 53). According to 3M, it was at approximately this time that Defendants began their "campaign of harassment and intimidation." (FAC ¶ 53).

3M's Allegations of Intimidation, Coercion and Defamation

3M alleges that the Porton Defendants first sought to threaten 3M's CEO George Buckley ("Buckley"). (FAC ¶¶ 54-56). Boulter's friend informed Buckley via e-mail that he and Boulter had influence over several groups of 3M investors who owned material positions of 3M stock, that Boulter and his friend had informed the investors of 3M's position regarding Acolyte, and that the investors were threatening to sell their entire positions. (FAC ¶ 54). Through these e-mails, Boulter "threatened 3M with a crippling sell-off of 3M's stock, and commensurate damage to 3M's value" if 3M did not accede to his demands. (FAC ¶ 57). 3M does notallege that it or Buckley capitulated to those demands or that those investors sold their positions.

In December 2008, certain vendors, including the Porton Defendants, ultimately sued 3M in the U.K. High Court in London for breach of the SPA (the "BacLite Litigation"). (FAC ¶ 59). Although 3M does not specify this in its Complaint, the Court takes judicial notice of the fact that, besides the Porton Defendants, the other claimant in the BacLite Litigation was Ploughshare Innovations Limited, "an investment arm of the UK Ministry of Defence" and a subsequent shareholder in Acolyte. (Dkt. No. 28-1 at ¶ 8). Among other things, the claimants alleged that 3M breached the SPA because it failed to market BacLite actively and obtain regulatory approval in the United States. (FAC ¶ 59). Those claimants "repeatedly demanded" that 3M pay them nearly $66 million, the maximum potential amount of earn out payments under the SPA. (FAC ¶¶ 58-59).

3M alleges that, leading up to the U.K. trial in 2011, the Porton Defendants hired Washington, D.C. lawyer Lanny J. Davis and began a scheme to extract $30 million from 3M in two ways: 1) by launching "a comprehensive, international, and unrelenting bombardment of sensational and false accusations against 3M in the global media"; and 2) by attempting "to leverage access to the U.K. MoD." (FAC ¶¶ 60-63). 3M claims that Davis became the "mastermind[] [of] Defendants' scheme against 3M" and was the "spider in the web" of Defendants' alleged conspiracy.*fn2 (FAC ¶¶ 17, 61-62).

First, Davis began a "defamatory media blitz" against 3M. (FAC ¶¶ 64-65). That campaign focused on 3M's decision to withdraw its efforts to market and obtain regulatory approval for BacLite. (FAC ¶¶ 66-79). Some of the alleged defamatory conduct included:

 Publishing press releases which claimed that 3M had dropped BacLite out of "bad faith" and had dealt dishonestly with the FDA. (FAC ¶¶ 66, 74).  Filing a "sham's citizen's petition" which Davis submitted to the FDA on behalf of the Porton Defendants. (FAC ¶¶ 66, 78-79). In the petition, Defendants request that the FDA investigate 3M and hold an evidentiary hearing to determine, among other things, whether 3M intentionally botched the BacLite clinical trial in order to promote 3M's own MRSA detection product. (Id.).

 Making statements accusing 3M and Buckley of being responsible for the deaths of MRSA victims, including statements during an "international press conference" at which Davis claimed that "thousands and thousands and thousands of people who died [from MRSA] might be alive today had there been a BacLite . . . ." (FAC ¶ 70).

 Davis' coordination of "fake public demonstrations" attended by "pretend protestors" purportedly affected by 3M's decision not to market BacLite. (FAC ¶¶ 66, 76).  Davis' creation of a web site called www.MRSA- INJUSTICE.com, in which Defendants republished false and defamatory allegations against 3M. (FAC ¶ 77). 3M alleges that Davis made such statements intentionally, maliciously, and with knowledge that the statements were false when they were made. (FAC ¶¶ 70-71, 75). According to 3M, Defendants did not make such statements to call attention to any purported public health issue, but rather to advance their own commercial interests and to coerce 3M to pay the Porton Defendants millions of dollars. (FAC ¶¶ 71, 79).

Defendants' Alleged Extortionate Threats 3M claims that Defendants then sought to interfere with 3M's existing business with the U.K. government, and did so by meeting with then-Minister of Defense Dr. Liam Fox. (FAC ¶¶ 80-83).

In June 2011, 3M's attorneys were engaged in settlement discussions with Davis regarding the BacLite Litigation. (FAC ¶ 84). Despite efforts to settle, 3M's counsel terminated the settlement discussions with Davis on June 9, 2011 because the parties were too far apart. (FAC ¶ 84). On June 16, 2011, Boulter met privately with Fox in Dubai. (FAC ¶ 83). 3M claims that, although much of what occurred at the meeting is subject to debate, there is no dispute that Boulter and Fox discussed the BacLite Litigation. (FAC ¶ 83). According to 3M, Defendants began to use that meeting to attempt to extort money from 3M. (FAC ¶ 93). 3M claims that:

 On June 17, 2011, Davis placed an unsolicited phone call to 3M's attorney and suggested that 3M speak directly with Boulter. Davis subsequently sent an email, on which Boulter was copied, granting 3M express authorization to speak directly with Boulter. (FAC ¶ 85). In that e-mail, Davis also acknowledged to Boulter that his meeting with Dr. Fox had "given [Boulter] even stronger reason not to come down very [sic] in $34m position." (FAC ¶ 86). According to 3M, the purpose of Davis' authorization was to allow Boulter to communicate "an illegal extortionate threat." (FAC ¶ 86).  Later that day, Boulter called 3M's attorney, informed him that he had met with Fox, and that Fox had told him that if 3M did not resolve the BacLite Litigation to his satisfaction, "there would be repercussions for 3M and Buckley." (FAC ¶ 87).  On June 18, 2011, Boulter e-mailed 3M's attorney and, among other things, stated that he had met with Dr. Fox regarding "our current favourite topic." Boulter claimed that he had been given authority to settle the BacLite Litigation on behalf of the MoD, and again asked for $30mn. Boulter informed 3M's counsel that, if 3M did not settle, that might leave the U.K.

Government "quietly seething, with ramifications for a while."

Boulter also referred to the fact that David Cameron's Cabinet would be shortly "discussing the rather embarrassing situation of [Buckley's] knighthood," and that the topic was "discussed today." (FAC ¶¶ 89, 91). 3M alleges that these communications "constituted an overt attempt by the Defendants, acting in concert, to blackmail, extort and intimidate 3M . . . ." (FAC ¶ 93). Those threats were meant to communicate the message that, if 3M did not settle the BacLite litigation, Defendants would interfere with 3M's current and future business relationships with the U.K. Government and would interfere with Buckley's "planned investiture as a Knight Bachelor." (FAC ¶¶ 90-91, 93). 3M does not allege that it capitulated to these threats or that Buckley, ultimately, was not knighted by the Queen of England. Instead, 3M claims that it responded by filing suit and "expos[ing]" Defendants.*fn3 (FAC ¶ 94).

U.K. High Court's Ruling in the BacLite Litigation

On November 7, 2011, the U.K. High Court issued its judgment. The High Court found that 3M had breached the SPA, but that the claimants were entitled only to damages of approximately $1.3 million. (FAC ¶¶ 60, 105; Dkt. No. 28-1 at ¶ 158). That amount, according to the court, reflected the amount of the conditional earn out payments to which claimants would have been entitled. (FAC ¶¶ 60, 105).

3M's Damages

3M alleges that, on account of Defendants' actions, 3M has suffered harm to its reputation and goodwill, and to its existing and prospective business relations with the U.K. Government. (FAC ¶¶ 110-15). 3M alleges that Defendants acted on their threats to interfere with 3M's "longstanding relationships" with the MoD and the U.K. Government, and that, on account of such conduct, 3M's total direct and indirect sales to the MoD have decreased by 25 percent from 2010 to 2011. (FAC ¶ 113). 3M alleges that over the same period, its direct and indirect sales to the U.K. government have decreased by 54 percent. (FAC ¶ 113). Moreover, 3M alleges that bids it has submitted to the U.K. government have "gone nowhere." (FAC ¶ 114).

PROCEDURAL HISTORY

3M filed its original Complaint on August 24, 2011, and its First Amended Complaint on December 9, 2011. After receiving the original Complaint, and without any discovery having taken place, Defendants filed special motions to dismiss 3M's claims under Section 16-5502 of the D.C. Anti-SLAPP Act of 2010. See D.C. Code §§ 16-5501-5505. Defendants claim that their acts in this case were "acts in furtherance of the right of advocacy on issues of public interest," and, thus, were protected under the Act. According to Defendants, because 3M cannot show a likelihood of success on the merits of its claims at this stage, the claims should be dismissed with prejudice, and Defendants awarded their costs and fees under the Act.

3M has filed a Motion to Strike Defendants' special motions to dismiss, claiming that the Act is ultra vires and, in any event, does not apply in a federal court sitting in diversity. Defendants have also moved to dismiss the claims in the First Amended Complaint under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6).

ANALYSIS

I.THE D.C. ANTI-SLAPP ACT OF 2010

Defendants have filed their "special motions to dismiss" pursuant to the D.C. Anti-SLAPP ("strategic lawsuits against public participation") statute, which became effective in the District of Columbia on March 31, 2011. The D.C. Council passed the legislation in response to what it recognized as a growing "litigation phenomenon": "'Americans are being sued for speaking out politically. The targets are typically not extremists or experienced activists, but normal, middle-class and blue-collar Americans, many on their first venture into the world of government decision making.'" Council of the District of Columbia, Committee on Public Safety and the Judiciary Report, Bill 18-893, at 2 (Nov. 18, 2010) (hereinafter "Committee Report") (quoting George W. Pring, SLAPPS: Strategic Lawsuits Against Public Participation, PACE ENVTL. L. REV. 3, 3 (1989)). In an effort to protect "the kind of grassroots activism that should be hailed in our democracy," the Act purports to enable a defendant to "more expeditiously and more equitably" dispense of meritless suits. Committee Report at 1, 3.

The Act allows a party to file a special motion to dismiss "any claim arising from an act in furtherance of the right of advocacy on issues of public interest within 45 days after service of the claim."*fn4 D.C. Code § 16-5502(a). In order to invoke this protection, the moving party must "make[] a prima facie showing that the claim at issue arises from an act in furtherance of the right of advocacy on issues of public interest." § 16-5502(b). If the moving party makes that showing, the "motion shall be granted unless the responding party demonstrates that the claim is likely to succeed on the merits." Id.

The Act further requires that discovery be stayed until the motion is resolved. See § 16-5502(c)(1). If, however, it appears likely that the plaintiff will be able to defeat the special motion to dismiss with "targeted discovery," the court may order discovery if it is not "unduly burdensome." § 16-5502(c)(2). The Court may also "condition" any discovery on the plaintiff paying the defendant's discovery expenses. Id. Finally, the Act mandates that if any court grants a special motion to dismiss, the court must do so with prejudice. § 16-5502(d).

II.THE D.C. ANTI-SLAPP ACT'S APPLICABILITY IN A FEDERAL COURT SITTING IN DIVERSITY

3M argues that, under the Erie doctrine, the cabined discovery provisions of Section 16-5502(c) directly conflict with Federal Rules of Civil Procedure 26 and 56 and, thus, do not apply in federal court.*fn5 3M contends that, if this Court finds that the Anti-SLAPP Act is applicable here, 3M is at the very least entitled to the same amount of discovery it would otherwise be granted under Rule 56(d). After close consideration of this issue, the Court finds that the special motion to dismiss procedure of Section 16-5502, and not merely its discovery provisions, poses serious concerns under Hanna v. Plumer, 380 U.S. 460 (1965) and its progeny.

a.Relevant Standards

The D.C. Anti-SLAPP Act mandates that a court resolve a "special motion to dismiss" in a different manner than it would otherwise resolve a preliminary motion attacking the merits of a case under Rules 12 or 56. This Court now considers whether those rules preclude a federal court sitting in diversity from applying the D.C. Anti-SLAPP Act. This is an issue of first impression in this Circuit.

This case presents the question of whether a Federal Rule of Civil Procedure applies in the face of a conflicting state law. As the Supreme Court recently recognized, the framework for deciding this question is "familiar." Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S.Ct. 1431, 1437 (2010). The Court must "first determine whether [the federal rule] answers the question in dispute." Id. (citing Burlington N. R.R. Co. v. Woods, 480 U.S. 1, 4-5 (1987)). "This question involves a straightforward exercise in statutory interpretation to determine if the statute covers the point in dispute." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 26 (1988) (citing Burlington Northern and Walker v. Armco Steel Corp., 446 U.S. 740, 749-50 (1980)).*fn6

If the federal rule answers or covers the question in dispute, the federal rule governs unless it is invalid. Shady Grove, 130 S.Ct. at 1437; Stewart, 487 U.S. at 27. The Court does not "wade into Erie's murky waters unless the federal rule is inapplicable or invalid." Shady Grove, 130 S.Ct. at 1437 (citing Hanna v. Plumer, 380 U.S. 460, 469-71 (1965)).

b.The Supreme Court's Opinion in Shady Grove

The Supreme Court recently applied this test in considering whether a New York law governing class actions precluded a federal court sitting in diversity from entertaining a class action under Federal Rule of Civil Procedure 23. The state law in Shady Grove prohibited class actions in suits seeking penalties or statutory minimum damages. Shady Grove, 130 S.Ct. at 1436 n.1. Rule 23, of course, has no such prohibition. The plaintiffs in Shady Grove, who had brought suit in federal district court, wished to maintain a class action to recover unpaid statutory interest from an insurance company. Id. at 1436-37. As such, the case would not have been able to proceed as a class action in New York state court but would have been able to proceed as a class action in federal court under Rule 23.

Both the district court and the United States Court of Appeals for the Second Circuit held that the state law applied in federal diversity actions. The Second Circuit found no conflict between the two rules because it concluded that Rule 23 and the New York state rule "address[ed] different issues." Id. at 1437. Finding no federal rule on point, the Second Circuit held that the New York state rule was "substantive" within the meaning of the Erie doctrine and accordingly must be applied in federal diversity actions. Id.

The Supreme Court disagreed and reversed. Justice Scalia delivered the opinion of the Court as to the first step of the analysis, that is, whether Rule 23 "answers the question in dispute." Id.*fn7 The question in dispute, as the majority saw it, was "whether Shady Grove's suit may proceed as a class action." Id. As the Court held, Rule 23 provided an answer to that question.

The Court first looked at the text and scope of Rule 23, which states that a class action "may be maintained" as long as certain prerequisites are met. The Court found that Rule 23 by its terms created a categorical rule "entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action." Id. at 1437. Finding that Rule 23 provided a "one-size-fits-all formula" for deciding whether a class action could be maintained, the Court held that Rule 23 would apply in diversity actions because the New York statute "undeniably" "attempt[ed] to answer the same question." Id. at 1437-39. The Court rejected appellee's argument that Rule 23 did not control because the federal rule neither implicitly nor explicitly empowered a federal court to "certify a class in each and every case." Id. at 1438. In fact, the Court held, that is exactly what the Rule did. Id. As the Court stated, "Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rule's prerequisites are met." Id. at 1442.*fn8

The Supreme Court's decision in Shady Grove, among others, provides clear guidance on how to analyze purported conflicts between the Federal Rules of Civil Procedure and state laws. The Court first looks at whether the federal rule, fairly construed, answers or covers the question in dispute. See Shady Grove, 130 S.Ct. at 1437; Burlington Northern, 480 U.S. at 4-5; Walker, 446 U.S. at 747-48. The Supreme Court instructs that the federal rule is not to be "narrowly construed in order to avoid a 'direct collision' with state law," but that the federal rule is to be given its plain meaning. Walker, 446 U.S. at 748-50 & n.9; see also Shady Grove, 130 S.Ct. at 1442 (when construing federal rule, "[w]e cannot contort its text, even to avert a collision with state law . . . ."); 19 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure ยง 4508, 251 (2d ed. 1996) (hereinafter "Wright & ...


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