Falsely Accused of Being “Under Investigation”

Competing for customers by telling them a competitor is “under investigation” is surprisingly common. I hear this from prospective clients all the time. Most of the time, the accusation isn’t any more specific than that the client is under investigation for something. No one really knows what exactly, but the implication is that if some authority is investigating the client for something–anything–then the client is probably guilty of doing something improper and should be shunned by customers. I suppose one reason this appears to be a fairly common phenomenon is that many think that if they keep the accusation vague enough, and assert only that a competitor is being investigated and hasn’t (yet) been formally found guilty of any specific conduct, then the statements can’t be defamatory. Most courts would disagree with this logic.

A couple of federal cases brought by Grover Gaming, Inc., provide an example of the majority view. Grover is a provider of electronic pull tabs for charitable gaming, a market regulated by the Virginia Department of Agriculture and Consumer Services’ Office of Charitable and Regulatory Programs. Grover is licensed to manufacture and supply these games. In Grover Gaming v. William J. Rice, Grover alleged that Rice (an employee of Powerhouse Gaming, Inc., a competitor of Grover) had been going around claiming that Grover and its employee, Trish Riley, were under “serious state investigation,” which Grover asserted was false. In a parallel case, Grover Gaming v. Rodger Huffman, Grover sued another Powerhouse Gaming employee for essentially saying the same thing, albeit to different customers. “They are under a very serious State Investigation in Virginia!!!!!” Huffman allegedly said. “Be careful dealing with Trish Riley!!! She’s fully involved!!!”

Grover alleged that these false accusations caused severe harm to its reputation and disrupted its relationships with its clients. Grover argued these statements “convey the impression that Grover does not operate its business appropriately and operates its business illegally;” “imply that Grover shorts players and charities because it does not provide appropriate payouts;” and indicate that “Grover is ripping everyone off.” The defendants moved to dismiss, claiming they were immune under the anti-SLAPP statute, that simply being “under investigation” does not imply wrongdoing, and that the term “serious” is subjective and should be considered non-actionable opinion. Both courts rejected these arguments and allowed the defamation claims to proceed.

In Rice, the court first noted that in analyzing whether the “serious state investigation” accusation was actionable, the court would consider the entire statement to understand its true meaning in the context in which it was made, even if the whole statement includes subjective words like “serious” that, standing alone, would be non-actionable opinion. Next, to determine whether the statement could be reasonably interpreted as implying false statements, it looked to the four-part test established by Ollman v. Evans, 750 F.2d 970 (D.C. Cir 1984), which has been adopted in the Fourth Circuit. That test includes consideration of the following:

  1. the author or speaker’s choice of words;
  2. whether the challenged statement is capable of being objectively characterized as true or false;
  3. the context of the challenged statement within the writing or speech as a whole; and
  4. the broader social context into which the statement fits.

Applying these factors, the court found that an objective, reasonable reader could interpret the statement as one implying a factual assertion carrying the requisite degree of defamatory sting. The court observed that context was particularly important here. Rice was an industry insider; the recipient of the message was not. A recipient could reasonably understand from the message that Rice had personal knowledge of ongoing state Pull-Tabs-300x171investigations and that Grover had likely engaged in illegal conduct related to charitable gaming.

Rice pointed to the Owens v. DRS Auto. Fantomworks case (from Norfolk Circuit Court) in which the court examined an allegedly false accusation that a business was “under criminal and civil investigation.” The Owens court commented in dicta that the statement “involve[d] generalizations that would require the Plaintiffs to define the terms based on their own knowledge, thus making those terms expressions of an opinion.” The Rice court was unpersuaded by this primarily because of the difference in context. It was clear in the Owens case that the speaker was not an insider and had little prior contact with the business of which he spoke. In the context in which it was made, it was more likely to be interpreted as a mere insult rather than an assertion of a factual nature.

The Huffman court analyzed the same arguments and reached the same result (presumably in coordination with the Rice court, which is part of the same Western District of Virginia but from a different division).

In both Rice and Huffman, the court rejected the anti-SLAPP motions. Although true that the existence of an investigation could be a matter of public concern, Grover’s allegations (which were required to be taken as true at this early stage in the proceedings) were that there was no investigation. Without such an investigation, the statements were not made on a matter of public concern. Therefore, Virginia’s anti-SLAPP statute did not apply.

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