Stephen G. Perlman ( 2015 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
STEPHEN G. PERLMAN, REARDEN
LLC, a California limited liability
company, and ARTEMIS NETWORKS
LLC, a Delaware limited liability company,
Plaintiffs,
Civil Action No. 10046-VCP
v.
VOX MEDIA, INC., a Delaware
corporation,
Defendant.
MEMORANDUM OPINION
Date Submitted: June 10, 2015
Date Decided: September 30, 2015
Matthew E. Fischer, Esq., Jacob R. Kirkham, Esq., Jacqueline A. Rogers, Esq., POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Neville L. Johnson, Esq.,
Douglas L. Johnson, Esq., James T. Ryan, Esq., JOHNSON & JOHNSON, LLP, Beverly
Hills, California; Attorneys for Plaintiffs, Stephen G. Perlman, Rearden LLC, and
Artemis Networks LLC.
Peter L. Frattarelli, Esq., ARCHER & GREINER, P.C., Wilmington, Delaware;
Attorneys for Defendant, Vox Media, Inc.
PARSONS, Vice Chancellor.
This is an action by a Delaware limited liability company (“LLC”), a California
LLC, and an entrepreneur seeking equitable relief and money damages against a
Delaware corporation for defamation. The corporation owns and operates a website that,
in 2012, published an allegedly defamatory article about a non-party Delaware
corporation that is affiliated closely with the Delaware LLC and the entrepreneur. After
the website rewrote substantially the article that same day and admitted publicly that it
was not vetted properly, the website published another article several days later that the
plaintiffs allege is false and defamatory. Then, in 2014, the website published an article
about the Delaware LLC that, in its first sentence, referenced and hyperlinked the 2012
articles, allegedly repeated and enhanced the original statements, and imputed those
allegedly false and defamatory statements to the Delaware LLC. The corporation moved
to dismiss the complaint for failure to state a claim. As to two of the plaintiffs, the
corporation argues that their claims arising from the 2012 articles are time-barred under
California law and the 2014 article is substantially true. The defendant asserts that none
of the challenged statements are defamatory as to the third plaintiff as a matter of law.
For the reasons that follow, I deny the defendant‟s motion. Taking all well-pled
allegations of fact as true and drawing all reasonable inferences in favor of the plaintiffs,
the complaint pleads facts sufficient to support claims for defamation against the
defendant by all three plaintiffs. As to the defendant‟s assertion that two of the plaintiffs‟
claims as to the 2012 articles are time-barred, I conclude the defendant has failed to carry
its burden of establishing that affirmative defense. Similarly, as to claims arising from
1
the 2014 articles, I conclude the defendant has failed to show that the plaintiffs cannot
prove the statements were false and defamatory under any reasonably conceivable set of
circumstances. Finally, I find it is reasonably conceivable that plaintiffs could prove the
2014 article republished the allegedly false and defamatory statements in the 2012
articles.
I. BACKGROUND1
A. The Parties
Plaintiff Stephen G. Perlman is the President and Chief Executive Officer of
Plaintiffs Rearden LLC (“Rearden”) and Artemis Networks LLC (“Artemis”). Perlman
wholly owns Rearden, which wholly owns Artemis. Perlman is an entrepreneur and
inventor who is responsible for several innovations in Internet, entertainment,
multimedia, consumer electronics, and communications technologies and services.
Rearden, a technology development and incubation company, is a California LLC
operating in several states and countries. In addition to founding and incubating Artemis,
Rearden also founded and incubated OnLive, Inc.
Artemis is a Delaware LLC. Artemis developed pCell technology (formerly
named “DIDO” technology), which allows wireless users to utilize full-speed wireless
data rates regardless of how many users are sharing the same wireless data spectrum.
1
The facts are drawn from the well-pled allegations of Plaintiff‟s Verified Second
Amended Complaint (the “Complaint” or “Compl.”), which are assumed true for
purposes of the defendant‟s motion to dismiss, as well as documents integral to the
Complaint or incorporated by reference therein.
2
Rather than offer services or products to consumers directly, Artemis offers pCell as a
service to commercial customers, such as mobile wireless operators.
Defendant, Vox Media, Inc. (“Vox”), a Delaware corporation, owns and operates
The Verge website (www.theverge.com), Polygon (www.polygon.com), Vox
(www.vox.com), and SB Nation (www.sbnation.com). Vox holds itself out as one of the
country‟s largest and fastest growing online publishers that owns and operates sites in
distinct vertical categories, such as general news, sports, technology and culture, gaming,
dining and nightlife, shopping and fashion, and design and real estate. Vox generates
revenue through advertising on its websites and tends to charge advertisers more for
generating a higher number of page views. Thus, Vox‟s goal is to generate as much
interest and as many page views as possible.
B. Facts
1. Events at OnLive
Perlman, through Rearden, founded OnLive in 2003 as a California S-corporation.
He served as its President, CEO, and Chairman. In 2007, OnLive merged out of the
California S-corporation and into a Delaware C-corporation, retained its name, and began
operating as a standalone entity engaged in the development of an online video game
streaming service, a remote Windows desktop service, and a television video game
console. OnLive marketed these services directly to consumers. In 2009, OnLive
announced its “OnLive® Game Service” and “OnLive MicroConsole TV adapter” and
began testing its remote Windows desktop service. OnLive launched the OnLive Game
Service in the United States in June 2010 and in the United Kingdom in September 2011.
3
OnLive introduced “OnLive® Desktop,” the Windows desktop service, in early 2012.
The OnLive Game Service and OnLive Desktop were regarded as major technology
breakthroughs. They received wide press coverage and earned accolades and awards.
When OnLive was unable to raise enough capital to cover its operations overhead,
it completed an Assignment for the Benefit of Creditors (the “ABC”) on August 17,
2012. An assignee acquired all of OnLive‟s assets and assigned them to a successor
entity, OL2, Inc. (“OL2”). OL2 hired approximately half of the former employees and
continued doing business using the OnLive name. The Complaint is silent on what, if
any, consideration was paid by OL2 for any of the assets it acquired.
Although Perlman did not join OL2 following the ABC, he remained Chairman of
the corporate shell OnLive allegedly to ensure the OnLive Game Service and OnLive
Desktop, which were then owned by OL2, both continued to operate securely and without
interruption through the transition to OL2. The Complaint alleges that, beginning with
OnLive‟s launch, all of its services have remained secure and in continuous operation,
including through the ABC, OL2 taking over operations, and to this day. Finally, OnLive
itself was never dissolved and remains “active” and in good standing to this day,
presumably as a corporate shell.
2. The 2012 Articles
a. August 19 Articles
On August 19, 2012, Vox, through The Verge, published an article titled,
“OnLive‟s bankruptcy protection filing leaves former employees in the dark” (the
“August 19 Article”). The Complaint alleges that the August 19 Article contained the
4
following four falsehoods, which The Verge obtained from an unreliable source, Kevin
Dent. First, Perlman, while Chairman and CEO of OnLive, engaged in a scheme to profit
from the ABC at the expense of OnLive and its employees. In particular, the article cited
Dent‟s belief that Perlman, through Rearden, owned the patented technology used by
OnLive, and, by transferring OnLive and keeping the patents, Perlman was able to restart
OnLive with new investors without having to pay OnLive‟s staff their share of its equity.
Second, OnLive‟s corporate investors went along with Perlman‟s scheme to profit from
the ABC because they had their investments refunded. Third, in response to a truthful
press release, the August 19 Article stated, “[Perlman] just lied to the press. . . . What
journalist is ever going to trust OnLive again?” Fourth, the August 19 Article accused
Perlman and his companies of engaging in criminal activity, stating, “[t]he whole
structure of this seems like a Ponzi scheme where you have your original investor,
Rearden Labs, and they‟re getting all of their money back and Perlman has now
transferred some of his IP over.” Plaintiff alleges that these statements were false and
that Defendant knew or should have known they were false when it published them.
That same day, representatives of OL2 spoke with an editor of The Verge about
the falsehoods. Upon confirming with the U.S. Patent and Trademark Office‟s website
that OnLive had owned the patents, rather than Perlman or Rearden, as the article had
alleged, the editor agreed to remove the article. With the exception of the first four
sentences, however, The Verge, through co-author Sean Hollister, rewrote the article in
its entirety, including a one-sentence disclaimer at the bottom, saying, “Update: This
story has been heavily modified from its original version, which contained inaccuracies.”
5
In fact, The Verge‟s then editor-in-chief, Joshua Topolsky, later characterized it as a
“rewrite” in the following statement:
Long story short, the piece that was originally published was
posted last night without oversight from our senior editorial
team, and contained quotes and facts which [sic] were not
properly vetted. There was much to the story that was
accurate, but it required what was essentially a rewrite once
our senior staff went over it. . . .
. . . [S]ome of the typical editing phases we have at the Verge
weren‟t followed. Also, because they were on an overnight
schedule and it was a weekend, much of our staff wasn‟t
available (both Verge and Polygon).2
Even though The Verge rewrote the original August 19 Article that same day, the
Complaint alleges that the original article harmed Plaintiffs‟ reputations and various
uncorrected references to the August 19 Article continue to cause such harm to this day.
In the short period during which the uncorrected August 19 Article was available on The
Verge‟s website, it attracted a large number of readers and comments and was shared
widely and cited across the Internet and social media networks throughout the United
States and internationally. On August 20, 2012, for example, the website Tencent QQ, a
Chinese website with approximately 800 million active accounts, translated into Chinese
and published portions of the original August 19 Article, including allegedly false
allegations contained therein. In addition, on August 21, 2012, the website
Techrights.org, which reports on a variety of issues relating to computing, including
software patents, cited to the August 19 Article and quoted purportedly false allegations
2
Compl. ¶ 41 (emphasis original).
6
that Perlman and Rearden defrauded OnLive‟s staff and engaged in unethical business
practices. Also, on August 19, 2012, Ron Amadeo, the Reviews Editor for Ars Technica,
a highly regarded and influential technology web publication, cited to and quoted the
August 19 Article on his Google+ account and added the following commentary: “Wow
man. So give employees shares in Company A, funnel the value those employees create
to a Company B, and then close Company A, fire all the employees, and leave them with
nothing? #f***OnLive.”3
b. August 28 Article
Several days later, The Verge published a new piece on Perlman and OnLive,
titled, “OnLive lost: how the paradise of streaming games was undone by one man‟s ego”
(the “August 28 Article”).4 Even though Hollister, who rewrote the first article because
of its inaccuracies and falsehoods, also wrote the August 28 Article, he chose not to fact-
check it, saying in an email to OL2‟s Public Relations Director, Jane Anderson:
Just wanted to give you a heads up that we‟re going to be
running with a report that I don‟t think you‟ll like very
much…
I originally wanted to reach out to you and go through a
process and maybe get some of Steve‟s perspective (which
3
Compl. ¶ 83 (asterisks added). Amadeo posts regularly about technology-related
topics on his Google+ account, which was followed by over 25,000 people and
viewed over 14 million times as of the commencement of this action.
4
Sean Hollister, OnLive Lost: How the Paradise of Streaming Games Was Undone
by One Man’s Ego, THE VERGE (Aug. 28, 2012),
http://www.theverge.com/2012/8/28/3274739/onlive-report (last visited Sept. 24,
2015).
7
I‟d still like, honestly!) but the team decided I‟d done enough
interviewing already and that the story was getting away from
me.
I just don‟t want you to read this and have an aneurysm or
anything! You‟re far too nice for that!5
Anderson replied within ten minutes offering to fact-check off the record, but Hollister
did not respond.
The August 28 Article included a photograph of an OnLive stock certificate
allegedly issued to an anonymous source whose name had been blacked out. The month
and day of issue also were blacked out, but the year and number of shares printed on the
certificate were altered to appear as if the certificate had come from a source within
OnLive more senior than the anonymous source. Plaintiffs assert that this document is a
forgery, detectable only through expert analysis, and that it was a deliberate attempt to
lend credibility to the article‟s false allegations.
The Complaint challenges the reliability of the anonymous sources used in the
August 28 Article, alleging they were former OnLive employees, current OL2
employees, and others who had read and believed the false and defamatory statements
contained in the August 19 Article before it was revised. Further, Plaintiffs allege that
Defendant knew or should have known that a primary anonymous source for the August
28 Article was highly—and obviously—unreliable, was not in a position at OnLive to
have knowledge of the facts alleged in the article, and had a history of mental problems.
5
Compl. ¶ 46.
8
According to the Complaint, these facts demonstrate Vox‟s motive to vindicate itself for
the embarrassment it incurred as a result of the August 19 rewrite, publish a
sensationalistic article that its author acknowledged might cause OL2‟s Public Relations
Director to “have an aneurysm,” and target Perlman and his companies—a topic that had
proven popular among its readers the previous week.
The August 28 Article allegedly contains many false statements about Plaintiffs.
These statements allegedly perpetuate Vox‟s false narrative about Perlman‟s scheme to
profit from the ABC and relate to the treatment of OnLive employees following the ABC,
the number of OnLive Game Service‟s registered users, certain business transactions and
potential offers to acquire OnLive, the operations and corporate governance of OnLive,
and the ABC. Plaintiffs assert that the following represent a sample of the false,
misleading, or inaccurate statements in the August 28 Article:
 “One manager told us that [Mr. Perlman] outvoted the
board of directors on occasion.”
 “…Perlman had seemingly found a legal loophole to
extract that value and deprived them [OnLive‟s
employees] of it in the process.”
 “Perlman transferred all of OnLive‟s assets to a brand new
company and took over as CEO, hiring back only a
skeleton crew to keep the ship afloat.”
 “[Perlman had] allegedly turned down offers from Sony,
Dell and Adobe in the past. . . . If OnLive had sold to any
of the bidders Perlman rejected, they [employees] claim,
they might have been able to cash out [their stock].”
 “Two Fridays ago, Steve Perlman told the 200 employees
of cloud gaming company OnLive that it was all his
fault.”
9
 “… the company … only ever had 1,600 concurrent users
of the service worldwide. Over the past week, OnLive has
tried to distance itself from the 1,600 number, but every
former employee we spoke to in a position to know told us
that it was true.”
 “Former staffers told us Mass Effect 2 and Dragon Age:
Origins were ready and would have launched on day one
if it wasn‟t for Steve Perlman. . . . Perlman told EA he
wanted exclusivity . . . When EA refused, Perlman
ordered his staff to remove all EA titles from OnLive.”
 “[Mr. Perlman] threatened to cease doing business with
[Ubisoft].”
 “Employees convinced the new owner, Lauder Partners, to
let Steve Perlman go.”
 “When Nvidia offered possible solutions, though,
employees told us the company decided not to negotiate.”
 “Perlman also allegedly scared Valve off with a broad
pitch when the company merely wanted to test the
waters.”
 “It didn‟t look like Perlman was interested in saving the
firm.”6
Finally, the August 28 Article contained embedded links to prior articles about
Perlman, which he alleges cast him and his companies in a negative light. Specifically,
Plaintiffs allege that “[t]his ready and deliberate access to all of defendant‟s articles on
Mr. Perlman and his companies associate the defamatory statements from the original
August 19 Article and the August 28 Article with Mr. Perlman‟s other companies—
specifically with Artemis.”
6
Compl. ¶¶ 56a-t.
10
In the first fifteen minutes after The Verge published the August 28 Article,
various journalists and editors associated with The Verge, Polygon, and Vox promoted
the article as the “definitive account” based on “exhaustive proof,” despite the fact that
they had not fact-checked the article with OL2, using social media platforms such as
Facebook, LinkedIn, Twitter, Tumblr, and Google+ to reach hundreds of thousands, if
not millions, of readers. Readers quickly posted 300 comments (288 in the first two
days) responding to the August 28 Article, and the article spread rapidly through social
media networks. Soon the August 28 Article became a top Google search result for
“OnLive,” behind only OnLive‟s own corporate and service web pages and the OnLive
Wikipedia page. In fact, two years later the August 28 Article was still the fourth Google
result for “OnLive.” Also, when Internet users use Google to search for “Steve
Perlman,” Google provides three “In-depth articles,” which it identifies as “high-quality
content to help [users] learn about or explore a subject;” the August 28 Article appears
alongside two articles from www.businessweek.com and www.smithsonianmag.com,
respectively, both highly credible publications.7
7
For an analysis of the impact of Google‟s “In-depth article” feature on a subject‟s
reputation, Plaintiffs cite David Goldman and Richard Dukas, How Google’s ‘In-
Depth Articles’ feature could affect PR, PR Daily (Aug. 30, 2013),
http://www.prdaily.com/Main/Articles/How_Googles_InDepth_Articles_feature_c
ould_affect_15110.aspx (“From our study of consumer-facing Fortune 500
companies, 65 percent of the newly designated in-depth articles were unfavorable
. . . . These articles can have a persistent debilitating effect on a company. . . .
Given that Google‟s algorithm has selected these stories as in-depth articles, these
unfavorable results are unlikely to be displaced by tomorrows news. Increased
activity on the corporate Twitter, Facebook, or Flickr accounts will not displace
this content either.”).
11
In addition, several websites cite, link to, or discuss the August 28 Article.
GamesIndustry.biz links to the article, has a picture of Perlman, and summarizes false
allegations, including the alleged number of peak subscribers and number of employees
hired by OL2. MCV UK links to and summarizes the article, and VG 24/7 also links to
and summarizes the article. Anderson‟s efforts to persuade the staffs of these respective
websites to remove references to the article were unsuccessful.
On March 10, 2014, the MIT Technology Review published an article about
Perlman and pCell (the “MIT Article”). As originally published, the MIT Article linked
to the August 28 Article when discussing Perlman‟s history at OnLive. Artemis
contacted the author immediately to request that the link be removed based on its false
content. After Artemis provided a few examples of the false allegations contained in the
August 28 Article, the MIT Article‟s author allegedly determined that the August 28
Article was not a credible source and replaced the link with another to a Wall Street
Journal article. By then, however, the MIT Technology Review already had translated
the original MIT Article, including the link to the August 28 Article, into Spanish and
posted it on its Spain website. It later was copied to another Spanish language news
website, BBVA. Artemis attempted to have these Spanish versions corrected, but it did
not succeed.
3. The 2014 Article
On February 19, 2014, pCell received prominent press at the top of the front page
of the New York Times business section, in a live interview of Perlman on Bloomberg
Television, and by Wired Magazine, among others. That same day, Vox published an
12
article about pCell and Perlman‟s operations with Artemis titled, “The man behind
OnLive has a plan to fix your terrible cell phone service” (the “2014 Article”) that
generated a lot of traffic for its website, The Verge. Plaintiffs allege that because OnLive
and OL2 sell remote Windows desktop and video game services to consumers, and
Artemis sells wireless services to commercial mobile wireless operators, the 2014 Article
catered to and reached a separate and distinct market and audience than the 2012 Articles
had.
The 2014 Article opened with the following sentence, including a hyperlink to the
August 28 Article, which Plaintiffs allege is defamatory: “Steve Perlman, the creator of
the defunct game-streaming service OnLive, claims he has the answer to slow wireless
service.”8 Thus, before the wireless industry read anything in the 2014 Article about
Artemis or pCell, it read that one of Perlman‟s previous services is now defunct. But, the
Complaint alleges that far from being defunct, the OnLive Game Service has been active
since its launch in 2010 and remained an active game-streaming service at least until
Plaintiffs filed this action. Further, OnLive and OL2 continue to be Delaware
corporations in good standing. Thus, Plaintiffs argue, this first sentence is a new,
unfavorable, and defamatory allegation that updates and continues the disparaging
narrative of the 2012 Articles.
8
Compl. ¶ 68 (bold and underlining in original). The bold, underlined text is a
hyperlink that, when clicked, forwards readers to the August 28 Article, which
itself contains a hyperlink to the August 19 Article.
13
Specifically, the Complaint avers that “defunct” conveys that the OnLive services,
and OnLive itself, no longer exist.9 As to OnLive‟s Game Service and Remote Desktop
service, Plaintiffs assert that “defunct” tells readers that users‟ personal information
(including messages, login information, Word and Excel files, etc.) is no longer
accessible on an uninterrupted basis or secure from hacker attacks. As to OnLive itself,
“defunct” purportedly tells readers the company no longer exists, which is confirmed by
the August 28 Article and the allegedly defamatory statements therein impugning the
competence, ethics, and governance of OnLive and Perlman.
Finally, Plaintiffs allege that the 2014 Article defames Artemis because it
compares Artemis‟s pCell wireless service (which is the subject of the article) with the
“defunct” OnLive Game Service, suggesting to readers that the pCell wireless service
will meet a similar end: “OnLive, which like pCell seemed impossibly ambitious when it
first debuted, delivered on the initial promise, but the company failed to turn its ambition
into profit.”10
4. Damage to Plaintiffs
Plaintiffs allege that Defendant‟s libelous articles caused them irreparable harm,
including lost business opportunities and investments. In particular, Vox‟s false and
misleading statements allegedly caused readers and potential investors to view Plaintiffs‟
businesses as non-viable, dishonest, and non-reputable and to question Perlman‟s
9
Compl. ¶¶ 70-71.
10
Compl. ¶ 72.
14
competency in managing a well-funded start-up. These questions related to subjects such
as whether Perlman will turn down acquisition offers that will result in investor liquidity,
whether Perlman will override board decisions, and whether Perlman will be able to
attract top-tier talent to work for him given the false allegations of fiduciary misconduct
and self-dealing. Plaintiffs provide the following two examples of the harm they
allegedly have suffered.
First, a potential major foreign investor in Artemis stated that it was impressed
with Artemis‟s technology and business prospects after conducting due diligence visits
and intended to invest $100 million in Artemis and deploy Artemis‟s technology in
several countries through mobile operators that the investor controlled. On a later visit,
however, the investor stated, in front of Artemis‟s executive staff, that a foreign business
associate had referred the investor to the August 28 Article and its allegations had raised
a number of serious concerns about Perlman. Despite efforts by Perlman and other
former OnLive employees then working at Artemis to explain that the August 28
Article‟s allegations were false, the investor declined to invest in or deploy the Artemis
technology.
Second, a major U.S. venture capital firm expressed an intention to invest $100
million in Artemis after having conducted extensive technical and business due diligence.
The entire partnership, consisting of more than a dozen partners, traveled to Artemis‟s
office for a business presentation and demonstration of Artemis‟s technology. At the end
of the meeting, one partner remarked that, based on what the August 28 Article revealed
about Perlman, he did not think Perlman would be able to attract the talent needed to
15
build up the company. Perlman explained that the August 28 Article was false and noted
that top OnLive employees were working at Artemis and that Artemis had received
hundreds of top-talent resumes as evidence of his ability to attract top talent. The former
OnLive employees then working for Artemis also confirmed the falsity of the August 28
Article and vouched for Perlman.
As the meeting continued, allegation after allegation from the August 28 Article
was raised before the partnership. Defending against so many allegations transformed
what was meant to be a closing meeting for a $100 million investment in Artemis‟s
breakthrough wireless technology into an attempt to explain a long list of false
allegations of fiduciary misconduct that never occurred. Ultimately, the firm declined to
invest in Artemis based on concerns arising from the August 28 Article, despite the
firm‟s confidence in the value of the technology, the business, and Perlman‟s track
record.
Plaintiffs allege, and I consider it reasonable to infer, that the decision to invest
tens or hundreds of millions of dollars in a technology start-up like Artemis depends
heavily on Perlman‟s reputation. Before publication of Vox‟s libelous articles, Perlman
had raised funding at these levels for prior start-ups with weaker prospects than Artemis
and in worse economies, including during the 2002 and 2008 recessions. Plaintiffs aver,
however, that the allegedly libelous articles paint a negative picture of Perlman and
undermined his ability to raise funding for Artemis‟s breakthrough wireless technology
even at a time of demand for its benefits.
16
C. Procedural History
Plaintiffs first filed this defamation action on August 18, 2014, and filed a Verified
First Amended Complaint on September 24, 2014. On October 17, 2014, Vox moved to
dismiss. Plaintiffs moved to amend their complaint further on December 10, 2014. The
Court granted the unopposed motion to amend by Order dated December 23, 2014. On
December 24, Plaintiffs filed their Verified Second Amended Complaint, which is the
operative complaint and seeks damages and injunctive relief in connection with allegedly
defamatory statements made in three articles published by Vox‟s website, The Verge.
Count I pleads a cause of action for defamation based on the 2012 Articles and the 2014
Article. Count II seeks a permanent and mandatory injunction to remedy allegedly
continuing harm to Plaintiffs‟ reputations, businesses, and future business endeavors
arising from the defamatory articles by declaring that the articles contain false and
defamatory statements about Plaintiffs and requiring Vox to: (1) remove all libelous
articles and related hyperlinks from any of its websites; and (2) publish and promote a
retraction of the articles.
On January 15, 2015, Vox moved to dismiss the Verified Second Amended
Complaint for failure to state a claim as a matter of law. After full briefing on that
motion, I heard oral argument on it on June 10, 2015.
D. Parties’ Contentions
Vox contends that all claims by Artemis must be dismissed due to the lack of any
defamatory content in any of the articles as to Artemis. Vox contends that the 2012
Articles do not mention Artemis and that the 2014 Article states only straightforward
17
facts about Artemis without attributing any defamatory meaning to Artemis. Vox further
argues that all claims by Plaintiffs Perlman and Rearden must be dismissed on an article-
by-article basis. First, it asserts that Perlman‟s and Rearden‟s claims as to the 2012
Articles are time-barred by California‟s one-year statute of limitations and the 2014
Article did not “republish” the 2012 Articles. Second, according to Vox, Perlman‟s and
Rearden‟s claims as to the 2014 Article fail because the statement pursued, that OnLive is
“defunct,” is not defamatory as a matter of law under the substantial truth doctrine.
In opposition to Defendant‟s motion to dismiss, Plaintiffs contend that the 2014
Article republished the 2012 Articles, thereby restarting the statute of limitations as to the
claims by all Plaintiffs. In that regard, Plaintiffs assert that the 2014 Article both
enhanced or revised the 2012 Articles and directed the defamatory 2012 Articles to a new
audience. Plaintiffs further argue that the defamatory statements about Perlman in the
2012 Articles are also defamatory as to Artemis because Perlman is identified so closely
with Artemis that statements defaming him defame Artemis. Finally, Plaintiffs contend
that Delaware‟s two-year statute of limitations should apply because Delaware has the
most significant relationship to the parties and their claims. Alternatively, they aver that,
even if California‟s one-year statute of limitation applies, this Court‟s equity jurisdiction
requires application of a laches analysis under which Plaintiffs‟ delay in asserting their
claims was neither unreasonable nor prejudicial to Defendant.
18
II. ANALYSIS
A. Standard of Review
Pursuant to Rule 12(b)(6), this Court may grant a motion to dismiss for failure to
state a claim if a complaint does not assert sufficient facts that, if proven, would entitle
the plaintiff to relief. As reaffirmed by the Supreme Court, “the governing pleading
standard in Delaware to survive a motion to dismiss is reasonable „conceivability.‟”11
That is, when considering such a motion, a court must “accept all well-pleaded factual
allegations in the Complaint as true, . . . draw all reasonable inferences in favor of the
plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably
conceivable set of circumstances susceptible of proof.”12
This reasonable “conceivability” standard asks whether there is a “possibility” of
recovery.13 If the well-pled factual allegations of the complaint would entitle the plaintiff
to relief under a reasonably conceivable set of circumstances, the court must deny the
motion to dismiss.14 The court, however, need not “accept conclusory allegations
unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-
11
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 537
(Del. 2011) (footnote omitted).
12
Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
13
Id. at 537 & n.13.
14
Id. at 536.
19
moving party.”15 Moreover, failure to plead an element of a claim precludes entitlement
to relief and, therefore, is grounds to dismiss that claim.16
Generally, the Court will consider only the pleadings on a motion to dismiss under
Court of Chancery Rule 12(b)(6). “A judge may consider documents outside of the
pleadings only when: (1) the document is integral to a plaintiff‟s claim and incorporated
in the complaint or (2) the document is not being relied upon to prove the truth of its
contents.”17 Additionally, the Court may take judicial notice of a fact if that fact is “not
subject to reasonable dispute in that it is either (1) generally known within the territorial
jurisdiction of the trial court or (2) capable of accurate and ready determination by resort
to sources whose accuracy cannot reasonably be questioned.”18
15
Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011) (citing
Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).
16
Crescent/Mach I P’rs, L.P. v. Turner, 846 A.2d 963, 972 (Del. Ch. 2000) (Steele,
V.C., by designation).
17
Allen v. Encore Energy P’rs, 72 A.3d 93, 96 n.2 (Del. 2013); In re Santa Fe Pac.
Corp. S’holder Litig., 669 A.2d 59, 70 (Del. 1995) (observing that courts consider
the relevant publication in libel cases on a Rule 12(b)(6) motion without
converting the motion to one for summary judgment).
18
Fawcett v. State, 697 A.2d 385, 388 (Del. 1997) (citing D.R.E. 201(b)). “On a
motion to dismiss the Court is free to take judicial notice of certain acts that are of
public record if they are provided to the Court by the party seeking to have them
considered.” Shellburne Civic Ass’n, Inc. v. Brandywine Sch. Dist., 2006 WL
2588959, at *6 n.3 (Del. Ch. Sept. 1, 2006) (quoting In re Wheelabrator Techs.,
Inc. S’holders Litig., 1992 WL 212595, at *12 (Del. Ch. Sept. 1, 1992).
20
B. The 2012 Articles
1. Are Perlman’s and Rearden’s claims as to the 2012 Articles time-barred?
Defendant argues that this Court must follow the statute of limitations in this case
and dismiss Perlman‟s and Rearden‟s claims arising from the 2012 Articles as untimely.19
Relying on Shearin v. E.F. Hutton Group, Inc., Defendant argues that “[a] request for
injunctive relief can get a defamation action into Chancery in the first place, but it does
not alone justify the court in not applying the same limitations provision as would apply
were the facts brought before the Superior Court.”20 For the following reasons, I decline
to apply the statute of limitations and conduct a laches analysis instead.
Two Delaware Supreme Court cases, Reid v. Spazio21 and IAC/InterActiveCorp v.
O’Brien,22 are instructive on this issue. In Reid, the Supreme Court said, “[u]nder
ordinary circumstances, a suit in equity will not be stayed for laches before, and will be
stayed after, the time fixed by the analogous statute of limitations at law; but, if unusual
conditions or extraordinary circumstances make it inequitable to allow the prosecution of
a suit after a briefer, or to forbid its maintenance after a longer period than that fixed by
the statute, the [court] will not be bound by the statute, but will determine the
19
Plaintiffs conceded at oral argument that Artemis‟s claim is tied to the defamation
of Perlman through the republication of the 2012 Articles in connection with the
2014 Article. Tr. 6. Thus, I discuss Artemis‟s claim infra.
20
652 A.2d 578, 584 (Del. Ch. 1994).
21
970 A.2d 176 (Del. 2009).
22
26 A.3d 174 (Del. 2011).
21
extraordinary case in accordance with the equities which condition it.”23 “Although both
laches and statutes of limitation operate to time-bar suits,” the Supreme Court in Reid
explained, “the limitations of actions applicable in a court of law are not controlling in
equity. A court of equity moves upon considerations of conscience, good faith, and
reasonable diligence.”24
The Delaware Supreme Court reaffirmed this analysis two years later in O’Brien.
There, the appellant-defendant argued that the Court of Chancery had erred when it found
the appellee-plaintiff‟s indemnification claim, a contract claim at law, to be timely by
applying laches instead of the relevant three-year statute of limitations. The Supreme
Court affirmed the Court of Chancery‟s determination that O’Brien was one of the few
cases where the analogous statute of limitations should not be applied because of unusual
conditions or extraordinary circumstances.25 The Supreme Court further affirmed that in
determining whether the facts of the case constituted unusual conditions or extraordinary
circumstances, the Court of Chancery exercised its discretion appropriately in
considering all relevant factors, as discussed in greater detail infra.26 Thus, I conclude
that, notwithstanding any contrary language in Shearin, this Court may conduct a laches
23
Reid, 970 A.2d at 183 (quoting Wright v. Scotton, 121 A. 69, 72-73 (Del. 1923)).
See also Adams v. Jankouskas, 452 A.2d 148, 157 (Del. 1982); U.S. Cellular Inv.
Co. v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502 (Del. 1996); 2 POMEROY‟S
EQUITY JURISPRUDENCE § 419a (5th ed. 1941).
24
Reid, 970 A.2d at 183 (citations omitted).
25
O’Brien, 26 A.3d at 178.
26
Id.
22
analysis here in accordance with Reid and O’Brien and decide Defendant‟s timeliness
arguments on that basis.
To determine whether Perlman‟s and Rearden‟s claims as to the 2012 Articles are
time-barred, I first must identify the analogous statute of limitations. To determine the
appropriate limitations period for defamation claims, however, I must decide which
state‟s substantive law applies. In conducting a laches analysis, I then determine
whether, even if Plaintiffs‟ claims were brought after the analogous limitations period
expired, this is one of those few occasions where the analogous statute of limitations
should not be controlling because of “unusual conditions or extraordinary
circumstances.”
a. Choice of law
Defendant argues that this Court must apply California substantive law to
Perlman‟s and Rearden‟s defamation claims. When determining which state‟s
substantive laws apply, Delaware courts generally rely on the Restatement (Second) of
Conflict of Laws (the “Restatement 2d of Conflicts”).27 Under the Restatement 2d of
Conflicts, allegedly defamatory statements published over the Internet are treated as
“multistate” or “aggregate” communications.28 Thus, any claim arising from an Internet
27
Smith v. Del. State Univ., 47 A.3d 472, 480 (Del. 2012) (applying the Restatement
2d of Conflicts‟ “most significant relationship” test to a defamation claim).
28
Aoki v. Benihana, Inc., 839 F. Supp. 2d 759, 765 (D. Del. 2012) (citing
RESTATEMENT (SECOND) OF CONFLICT OF LAWS (Restatement 2d of Conflicts)
§ 150).
23
communication is governed by the law of the state with the “most significant
relationship” to the claim.29 In determining the most significant relationship, the Court
evaluates the relative importance of: “(a) the place where the injury occurred; (b) the
place where the conduct causing the injury occurred; (c) the domicile, residence,
nationality, place of incorporation and place of business of the parties; and (d) the place
where the relationship, if any, between the parties is centered.”30
“The state where the injured party is domiciled (for natural persons) or has its
principal place of business (for corporations or other legal persons . . .) will usually be the
state of most significant relationship for claims of defamation by an aggregate
communication that was published in that state.”31 This is because “defamation produces
a special kind of injury that has its principal effect among one‟s friends, acquaintances,
neighbors and business associates in the place of one‟s residence.” 32 Accordingly, under
the Restatement 2d of Conflicts and Delaware law, the local law of the state of the
plaintiff‟s domicile applies “unless, with respect to the particular issue, one of the other
states has a more significant relationship to the occurrence and the parties.”33
29
See id.; Restatement 2d of Conflicts §§ 145, 150.
30
Restatement 2d of Conflicts § 145.
31
Aoki, 839 F. Supp. 2d at 765 (citing Restatement 2d of Conflicts § 150(2), (3)).
32
Id. (quoting Fuqua Homes, Inc. v. Beattie, 388 F.3d 618, 622 (8th Cir. 2004)
(noting that this conclusion was reached under consideration of Restatement 2d of
Conflicts § 150)).
33
Restatement 2d of Conflicts § 150, cmt. e.
24
Plaintiffs argue that, because the defamatory allegations contained in the 2012
Articles relate exclusively and directly to Perlman‟s conduct as a fiduciary of a Delaware
corporation, the Complaint focuses on activity of Plaintiffs‟ that is located principally in
Delaware and, thus, Delaware substantive law should apply. Plaintiffs also argue that
Delaware has the most significant relationship to the parties. Vox is a Delaware
corporation that published the defamatory articles about Perlman, a Delaware fiduciary,
in his capacity as the Chairman and CEO of OnLive, a Delaware company. Artemis also
is a company formed under the laws of Delaware. Rearden is a California company, but
the vast majority of the companies it incubated and controls are formed under the laws of
Delaware. As such, Plaintiffs argue that they are better known in Delaware than in
California regarding Perlman‟s actions as an officer and director and Artemis‟s and
Rearden‟s business activities. These facts, Plaintiffs contend, support the conclusion that
Delaware is the state in which the allegedly defamatory communication caused them the
greatest injury to their reputations.
I disagree. The facts of this case are similar to those at issue in Aoki v. Benihana,
Inc.34 There, the defendant argued that Florida had the most significant relationship
pursuant to Sections 6 and 145 of the Restatement 2d of Conflicts based on the issue of
“whether a press release, written and issued in Florida by a Florida headquartered
corporation, accurately reflects allegations made in a Florida [l]awsuit by that Florida-
headquartered corporation, against one Florida defendant, and involving the actions of all
34
839 F. Supp. 2d at 768.
25
defendants in Florida, causing injury of that Florida-headquartered corporation in
Florida.”35 Despite the Aoki defendant‟s argument that the harm at issue occurred in
Florida and arose out of a Florida lawsuit involving Florida parties, the court gave the
greatest weight to the residence of the injured parties and applied New York law.36
Here, Perlman argues that he occupies residences in several states, including
Florida and California, and conducts his business operations throughout the United States
and globally. Public patent filings, however, indicate Perlman‟s domicile is California.
Because Perlman elected not to provide his permanent residence, the situs of his driver‟s
license, or other facts supporting a non-California domicile, I conclude that he is a
California resident. I reach the same conclusion as to Rearden, whose patent applications
indicate its headquarters are in San Francisco, California. Thus, California‟s substantive
law applies as to Perlman‟s and Rearden‟s claims arising from the 2012 Articles.
California has a one-year statute of limitations for defamation claims.37 Delaware
has a two-year statute of limitations for defamation claims.38 Given this conflict between
35
Id. (citation omitted).
36
Id. Plaintiffs attempt to distinguish Aoki, in which one party disputed whether
New York or Delaware law applied and the other party disputed whether New
York or Florida law applied, by arguing that the parties there agreed that New
York law applied. Therefore, Plaintiffs argue, the Aoki court‟s choice of law
analysis was dicta and should be disregarded. I find that argument unpersuasive.
Applying Delaware choice of law principles, the court said, “[t]he parties agree
that applying the law of these states would yield different results and, therefore, a
choice of law analysis is required.” Id. at 764 (citation omitted). Thus, I do not
consider the court‟s ultimate choice of New York substantive law to be dicta.
37
CAL. CIV. PROC. CODE § 340(c).
26
California‟s and Delaware‟s limitations periods, I look to Delaware‟s “borrowing statute”
to determine which of the two limitations periods applies. That statute provides:
Where a cause of action arises outside of this State, an action
cannot be brought in a court of this State to enforce such
cause of action after the expiration of whichever is shorter,
the time limited by the law of this State, or the time limited
by the law of the state or country where the cause of action
arose, for bringing an action upon such cause of action.
Where the cause of action originally accrued in favor of a
person who at the time of such accrual was a resident of this
State, the time limited by the law of this State shall apply.39
Thus, here, where non-residents Perlman and Rearden bring defamation claims that arose
in California, Delaware‟s borrowing statute mandates that the Court select the “shorter”
of the two potentially-applicable limitations periods—i.e., California‟s one-year statute of
limitations.
b. Laches and the O’Brien factors
Laches is an equitable defense based on the maxim that “equity aids the vigilant,
not those who slumber on their rights.”40 Laches is defined generally as an unreasonable
delay in enforcing a right that causes prejudice to the defendant.41 Therefore, “laches
generally requires the establishment of three things: first, knowledge by the claimant;
second, unreasonable delay in bringing the claim, and third, resulting prejudice to the
38
10 Del. C. § 8119.
39
10 Del. C. § 8121 (emphasis added).
40
Adams, 452 A.2d at 157.
41
Reid, 970 A.2d at 182.
27
defendant.”42 The touchstone of a laches inquiry is whether inexcusable delay led to an
adverse change in the condition or relations of the properties or parties.43 Nevertheless,
even though statutes of limitations are not controlling in equity, the Court of Chancery
places great weight on analogous limitations periods in determining whether a plaintiff‟s
claim should be deemed barred by laches.44
Because the Court generally is limited to the facts appearing on the face of the
pleadings in ruling on a motion to dismiss, affirmative defenses, such as laches, are not
ordinarily well-suited for disposition on such a motion.45 Thus, unless it is clear from the
face of the complaint that an affirmative defense exists and that the plaintiff can prove no
set of facts to avoid it, dismissal of the complaint based upon an affirmative defense is
inappropriate. Here, facts appearing on the face of the Complaint, taken together with all
reasonable inferences having been drawn in Plaintiffs‟ favor, indicate that Plaintiffs had
knowledge of an enforceable right to sue Vox for defamation arising from the 2012
Articles, but nonetheless delayed enforcing that right for two years. To receive the
benefit of a laches defense at this preliminary stage, however, Defendant carries the
burden of establishing not only prejudice, but also that Plaintiffs can prove no set of facts
42
Homestore, Inc. v. Tafeen, 888 A.2d 204, 210 (Del. 2005) (citation omitted).
43
Adams, 452 A.2d at 157.
44
U.S. Cellular, 677 A.2d at 502.
45
See Malpiede v. Townson, 780 A.2d 1075, 1082-83 (Del. 2001).
28
to avoid Defendant‟s affirmative defense. Turning to the O’Brien factors in that context,
I conclude Defendant has not met its burden.
In O’Brien, the Supreme Court affirmed this Court‟s consideration of the
following factors to determine whether “unusual conditions or exceptional
circumstances” prevent application of the analogous statute of limitations: (1) whether
the plaintiff had been pursuing his claim, through litigation or otherwise, before the
statute of limitations expired; (2) whether the delay in filing suit was attributable to a
material and unforeseeable change in the parties‟ personal or financial circumstances; (3)
whether the delay in filing suit was attributable to a legal determination in another
jurisdiction; (4) the extent to which the defendant was aware of, or participated in, any
prior proceedings; and (5) whether, at the time the litigation was filed, there was a bona
fide dispute as to the validity of the claim.46
Plaintiffs argue that this action was timely for three reasons. First, they contend
that the allegations in the Complaint demonstrate that Plaintiffs responded to the 2012
Articles by exercising self-help rather than running to the courthouse. In other words,
Plaintiffs spent time, effort, and money calling websites around the world that were
republishing the 2012 Articles, bringing to their attention the defamation therein, and
requesting that they remove the links. Plaintiffs argue that this Court, a court of equity,
should encourage that form of self-help rather than fault it. Second, and relatedly,
Plaintiffs argue that it was not until it began to lose $100 million investors after
46
O’Brien, 26 A.3d at 178.
29
Defendant published the 2014 Article that Plaintiffs experienced and understood the full
extent of the impact of the libelous publications on their reputations and business
prospects. Finally, Plaintiffs argue that Defendant has not—and cannot—meet its burden
in asserting a laches defense on a motion to dismiss.47 For this reason alone, Plaintiffs
argue that Vox‟s laches defense fails.
Defendant protests that Plaintiffs cite no cases for the proposition that an untimely
defamation cause of action can be delayed until a plaintiff is aware of the “full extent” of
the harm. On a motion to dismiss, however, Defendant carries the burden of persuasion
when asserting a laches defense.48 Here, Vox has not convinced me that there are no
reasonably conceivable circumstances under which Plaintiffs could overcome
Defendant‟s laches defense. Under O’Brien, I must exercise my discretion in considering
all factors relevant to determining whether “unusual conditions or exceptional
circumstances” prevent application of the analogous statute of limitations. I conclude it
is reasonably conceivable that Plaintiffs did pursue their claim diligently and in good
faith before the statute of limitations expired, even though they did so through self-help
rather than litigation. Similarly, it is reasonably conceivable that Defendant was aware of
Plaintiffs‟ extra-judicial efforts to remedy the harm to their reputations. Finally, and
most importantly, Vox has not even argued that Plaintiffs‟ delay resulted in prejudice to
47
See Whittington v. Dragon Gp. L.L.C., 2010 WL 692584, at *8-9 (Del. Ch. Feb.
15, 2010) (finding “insufficient” prejudice), aff’d & remanded, 998 A.2d 852 (Del.
2010).
48
See Hudak v. Procek, 806 A.2d 140, 153 (Del. 2002).
30
it, let alone persuaded me that Plaintiffs could not rebut such an allegation under any
reasonably conceivable circumstances.
Because Defendant‟s laches defense is before me on a motion to dismiss under
Rule 12(b)(6), Vox carries a heavy burden of proof. Having considered the arguments of
Plaintiffs and Defendant, I hold that Vox has not shown that it is entitled to dismissal of
Perlman‟s and Rearden‟s claims arising from the 2012 Articles based on laches and,
therefore, I decline to grant Defendant‟s motion.
C. The 2014 Article
To sustain a cause of action for defamation, Plaintiffs must plead five elements:
(1) defamatory communication; (2) publication; (3) reference to each Plaintiff asserting a
claim; (4) a third party‟s understanding of the communication‟s defamatory character;
and (5) injury.49 For purposes of this motion to dismiss, Defendant does not challenge
whether the 2012 Articles were false and defamatory, but argues that Plaintiffs‟ pleadings
as to the 2014 Article were insufficient. Two statements on the face of the 2014 Article
are relevant. First, the statement referring to “Steve Perlman, the creator of the defunct
game-streaming service OnLive,” is directly at issue. The second statement, i.e.,
“OnLive, which like pCell seemed impossibly ambitious when it first debuted, delivered
49
Giove v. Holden, 2014 WL 975135, at *5 (D. Del. Mar. 10, 2014) (citing Read v.
Carpenter, 1995 WL 945544, at *3 (Del. Super. June 8, 1995)). The parties did
not address in depth the conflict of law issue as to Plaintiff Artemis. Artemis is a
Delaware LLC; therefore, for purposes of this Memorandum Opinion, I assume its
defamation claim based on the 2014 Article arguably is subject to Delaware law.
31
on its initial promise, but the company failed to turn its ambition into profit . . . ,” is
relevant in that it gives context to the first statement.
The content of the 2012 Articles, however, is also relevant to whether Plaintiffs
stated a claim as to the 2014 Article for two reasons. The words “defunct game-
streaming service OnLive” constituted a hyperlink in the first sentence of the 2014
Article, which, when clicked, connected readers directly to the 2012 Articles. For
Artemis, which argues that it was harmed by the 2014 Article‟s incorporation by
reference of the false and defamatory statements in the 2012 Articles, the content of the
2012 Articles is relevant because it provides background and context to the statement at
issue in the 2014 Article. And for Perlman and Rearden, whose claims I presume are
timely as to the 2012 Articles, as discussed supra, the 2014 Article purportedly
republished the 2012 Articles by enhancing the defamatory statements therein and
presenting them to a new audience.
Defendant argues that Vox‟s reference to “Steve Perlman, the creator of the
defunct game-streaming service OnLive,” is not actionable defamation because it is
substantially true. Defendant also contends that, under well-settled California law, the
hyperlink in the 2014 Article was not a republication of the 2012 Articles. I discuss these
arguments below.
32
1. Substantial truth
Under Delaware and California law, substantial truth is an affirmative defense to
defamation.50 “The test in deciding whether an article is substantially true involves a
consideration of whether the alleged libel was more damaging to plaintiff‟s reputation, in
the mind of the average reader, than a truthful statement would have been. As part of this
evaluation, courts will consider whether the „gist‟ or „sting‟ of the article was true.”51 On
a motion to dismiss, however, Defendant retains the burden of proving that Plaintiffs
cannot recover under any reasonably conceivable set of circumstances susceptible of
proof under the complaint. Thus, as stated above, unless it is clear from the face of the
complaint that an affirmative defense exists and that the plaintiff can prove no set of facts
to avoid it, dismissal of the complaint based upon an affirmative defense is inappropriate.
Vox argues that this Court may consider its substantial truth defense on a motion to
dismiss. I agree, but, for the following reasons, conclude that it is not clear from the face
50
See Giove, 2014 WL 975135, at *5 (citing Ramunno v. Cowley, 705 A.2d 1029,
1035 (Del. 1998)) (“However, a statement of fact is not defamatory if it is
“substantially true.”); Carver v. Bonds, 135 Cal. App. 4th 328, 344-45, 37 Cal.
Rptr. 3d 480, 493 (Cal. Ct. App. 2005) (citing Masson v. New Yorker Magazine,
501 U.S. 496, 516-17 (1991)) (“California law permits the defense of substantial
truth, and thus a defendant is not liable if the substance of the charge be proved
true . . . . Put another way, the statement is not considered false unless it would
have a different effect on the mind of the reader from that which the . . . truth
would have produced.”).
51
Gannett Co. v. Re, 496 A.2d 553, 557 (Del. 1985) (citing Williams v. WCAU-TV,
555 F. Supp. 198, 202 (E.D. Pa. 1983)). See also Masson, 501 U.S. at 517;
Morningstar, Inc. v. Superior Court, 23 Cal. App. 4th 676, 686, 29 Cal. Rptr. 2d
547 (Cal. Ct. App. 1994).
33
of the Complaint that Plaintiffs can prove no set of facts to avoid Vox‟s substantial truth
defense.
Defendant has not established that Plaintiffs cannot prove the statements were
false and defamatory under any reasonably conceivable set of circumstances susceptible
of proof under the Complaint. “A defamatory communication is one that tends so to
harm the reputation of another as to lower him in the estimation of the community or to
deter third persons from associating or dealing with him.” 52 “The meaning of a
communication is that which the recipient correctly, or mistakenly but reasonably,
understands that it was intended to express.”53 Here, Defendant argues that it is
substantially true that the “game-streaming service OnLive” was “defunct” as alleged in
the 2014 Article; Plaintiffs assert that the statement is false and defamatory.
In Delaware and in California, whether a communication is false is a question of
fact.54 Based on the well-pled facts alleged in the Complaint and reasonable inferences
52
Giove, 2014 WL 975135, at *5 (citing Henry v. Del. Law Sch. of Widener Univ.,
Inc., 1998 WL 15897, at *10 (Del. Ch. Jan. 12, 1998), and RESTATEMENT
(SECOND) OF TORTS § 559 (1977)).
53
RESTATEMENT (SECOND) OF TORTS § 563 (1977).
54
See Q-Tone Broad., Co. v. Musicradio of Md., Inc., 1994 WL 555391, at *5 (Del.
Ch. Aug. 22, 1994) (“In its analysis of the content of an allegedly defamatory
statement, the Court must look to the fair and natural meaning which will be given
it by reasonable persons of ordinary intelligence.”); Morningstar, 23 Cal. App. 4th
at 688 (“In determining whether statements are of a defamatory nature, and
therefore actionable, a court is to place itself in the situation of the hearer or
reader, and determine the sense or meaning of the language of the complaint for
libelous publication according to its natural and popular construction.”).
34
drawn from them in favor of Plaintiffs, I conclude it is reasonably conceivable that
Plaintiffs will be able to prove the statement at issue in the 2014 Article is false.
Defendant disputes whether “defunct game-streaming service OnLive” refers to the
game-streaming service or to OnLive, Inc., the company. According to the Complaint,
however, neither of these interpretations are substantially true. The Complaint alleges
that both the game-streaming service OnLive and the corporate entity OnLive are alive
and well, i.e., not defunct.55 Any contrary argument that the statement, in isolation, is
substantially true would present a question of fact, which I cannot decide on a motion to
dismiss.
Defendant further asserts that the case law makes clear that context is paramount
in assessing substantial truth and that content contained in links in the body of an
allegedly defamatory article can provide that context.56 As discussed in greater detail
55
These facts are unlike those at issue in Giove, where the plaintiff alleged the
defendant published false information in a neighborhood watch bulletin that the
plaintiff was a convicted felon. 2014 WL 975135, at *5. The bulletin stated that
the plaintiff had been convicted of Unlawful Sexual Intercourse in the First
Degree, when in fact he had been convicted of Unlawful Sexual Intercourse in the
Third Degree. Id. When the plaintiff was convicted, however, the court
determined the incorrect statement was no more damaging to the plaintiff‟s
reputation than the correct one in the mind of the average reader because both of
the referenced crimes are felonies; in other words, the court determined the
statement was substantially true. Id.
56
See, e.g., Carver, 135 Cal. App. 4th at 344, 37 Cal. Rptr. 3d at 493; Ramada Inns,
Inc. v. Dow Jones & Co., 543 A.2d 313, 325 (Del. Super. 1987). See also
RESTATEMENT (SECOND) OF TORTS § 563, cmt. d (“The context of a defamatory
imputation includes all parts of the communication that are ordinarily heard or
read with it.”).
35
infra, however, the content contained in the links that Defendant urges me to consider
does not help Defendant‟s case. Relying on the content of hyperlinks to establish the
substantial truth of a statement practically requires incorporating by reference all of the
allegedly defamatory statements in the 2012 Articles. In addition, the link to a New York
Times article cited in the Complaint that states that “OnLive remains an active game-
streaming service to this day” provides a sufficient basis to infer that Defendant‟s
statement that the game-streaming service was defunct conceivably may have been false.
Finally, although Defendant avers that the author‟s use of the term “defunct” in the 2014
Article was a reference to OnLive, Inc., Plaintiffs have disputed this and thereby raised
an issue of fact.57 Thus, whether the “defunct” statement was defamatory cannot be
resolved on a motion to dismiss.
2. Artemis
Defendant argues next that Plaintiffs do not, and cannot, allege any defamation as
to Artemis. Specifically, the 2012 Articles do not mention Artemis, so they cannot be
defamatory as to Artemis. Thus, Vox reasons by extension that the “linking back” in the
2014 Article is literally a link to a “dead end.” For the following reasons, I disagree.
57
Defendant argues that, to the extent Plaintiffs purport to assert a cause of action
arising from the statement that the OnLive service is defunct, Plaintiffs have no
standing to pursue such a claim because the OnLive service is wholly owned and
operated by the separate entity, OL2. As I observed at argument, however,
Perlman and the two Plaintiff entities are claiming that, by virtue of Vox‟s false
statement, Vox impugned his business reputation and that of Rearden and Artemis
and caused all three to lose business as a result. Thus, whether or not OL2 may
have a claim, Plaintiffs alleged adequately that the statement is defamatory as to
them, as discussed infra.
36
“[A] corporation is defamed by defamatory communications of its officers and
directors only if those statements „also reflect discredit upon the method by which the
corporation conducts its business.‟”58 Here, I understand that the alleged defamation of
Artemis all stems from the 2014 Article and its link to the 2012 Articles. Specifically,
the alleged defamation is based on: (1) the statement, “Steve Perlman, the creator of the
defunct game-streaming service OnLive”; (2) the defamatory content of the 2012 Articles
incorporated by reference through the hyperlink; and (3) the statement, “OnLive, which
like pCell seemed impossibly ambitious when it first debuted, delivered on its initial
promise, but the company failed to turn its ambition into profit . . . .” These statements
purportedly defame Artemis by reasserting defamation from the 2012 Articles, adding
further defamatory allegations from 2014, and associating them with pCell and Artemis.
According to the Complaint:
The February 19 [2014] Article is defamatory to Artemis by
comparing the pCell wireless service with the OnLive Game
Service and suggesting that the pCell wireless service will
become “defunct” like OnLive. The link to the August 28
[2012] Article is in the very first sentence of the February 19
Article in bold. That Artemis will suffer the same fate as
OnLive is the explicit proposition of the February 19 Article
given Mr. Perlman‟s position as President and CEO of
Artemis coupled with a prominent link that disparages Mr.
Perlman‟s tenure as CEO of OnLive. The February 19
Article further disparages Artemis, Mr. Perlman as Artemis‟s
founder and CEO, and Rearden as the incubator of Artemis
by alleging that the alleged past problems . . . at OnLive are
58
Del. Exp. Shuttle, Inc. v. Older, 2002 WL 31458243, at *21 (Del. Ch. Oct. 23,
2002) (quoting RESTATEMENT (SECOND) OF TORTS § 561, cmt. b).
37
suggestive of future problems at Artemis and any other
Perlman or Rearden venture.59
I conclude it is at least reasonably conceivable that Plaintiffs will be able to prove
that the typical reader of the 2014 Article will associate Artemis with Perlman and
Rearden and will understand that they should not invest with Artemis because of
Perlman‟s history at OnLive as referenced by the hyperlink and set forth in the 2012
Articles. That is, it is reasonably conceivable that Plaintiffs could prove that the 2014
Article and its reference through the hyperlink in the first sentence of the Article to the
defamatory allegations against Perlman in the 2012 Articles did reflect discredit upon the
method by which Artemis conducts its business.
The facts of Q-Tone Broadcasting Co. v. Musicradio of Maryland are analogous.60
There, an executive working for the plaintiff radio station‟s rival remarked to the owner
of an advertising agency that advertised with the plaintiff that the plaintiff‟s “leading
male executive was a homosexual who might be likely to „put the move‟ on the client.”61
As the court later explained, “the allegations were deemed to discredit the plaintiff
corporation in the method by which it conducted its business, thereby making the
statements actionable by the corporation.”62 Thus, although the defamatory statement
that the leading executive had homosexual “designs” towards the owner of the
59
Compl. ¶ 74.
60
1996 WL 494177 (Del. Super. Apr. 22, 1996).
61
Id. at *1.
62
Del. Exp. Shuttle, 2002 WL 31458243, at *21.
38
advertising agency did not implicate specifically the plaintiff radio station, the court
found that the remark defamed the radio station as a business because the comments
maligned the leading male executive in his professional conduct, which in turn maligned
the company in its business of operating a radio station.
Here, Plaintiffs alleged that the 2012 Articles and the 2014 Article defamed
Perlman in his professional capacity in relation to his conduct as an officer and director
of a corporation. Specifically, the 2012 Articles allege Perlman used his position as a
fiduciary of OnLive to cheat employees and other stockholders out of the value of their
stock, misappropriated patents, personally benefited from an assignment for the benefit of
creditors, mistreated employees, mistreated game publishers such as EA and Ubisoft, and
incompetently turned down offers to sell OnLive to Sony, Dell, or Adobe. 63 These
allegations discredit Perlman and, perhaps, to the extent it is mentioned, Rearden as well.
I do not understand Plaintiffs to allege that the 2012 Articles on their own impugn the
reputation of Artemis. The 2014 Article, however, which links directly to the 2012
Articles, conceivably does discredit the way Artemis does business based on Perlman‟s
close association with Artemis in that it suggests that similar misconduct will occur at
Artemis. Thus, it is reasonably conceivable that Plaintiffs will be able to prove that the
63
Compl. ¶¶ 55-57.
39
defamatory statements in the 2014 Article are about Artemis in the sense that they reflect
discredit on the way Artemis does business.64
Before considering whether the 2014 Article was defamatory as to Perlman and
Rearden, I address briefly Plaintiffs‟ argument, as clarified at oral argument, that
Artemis‟s claim is tied to the defamation of Perlman through the republication of the
2012 Articles in connection with the 2014 Article. As discussed in greater detail below,
republication is a legal term of art providing a specific exception to the single publication
rule. Here, as discussed above, I construe Plaintiffs‟ argument to be that the 2014 Article
defamed and irreparably harmed Artemis based on the context of the article, the content
of the 2012 Articles referenced through the hyperlink, and the discredit arising from
Vox‟s effort to extend the defamatory allegations against Perlman to Artemis.65
64
Defendant‟s reliance on Williams v. Howe, 2004 WL 2828058 (Del. Super. May 3,
2004), for the proposition that Artemis cannot state a claim because the 2012
Articles did not mention it is misplaced. In Williams, the court rejected the
plaintiff‟s defamation claim because she failed to establish proof of understanding
by a third party that the communication referred to her in any way, id. at *4,
whereas here, it is reasonably conceivable that a third party would understand that
the statements at issue in 2014, including the hyperlinks to the 2012 Articles, were
about Artemis. In this respect, my conclusion that Artemis adequately states a
claim for harm arising from allegedly false and defamatory remarks about Perlman
is limited to the well-pled facts in the Complaint and the reasons stated herein and
is not meant to imply that every company associated with Perlman has similar
claims.
65
In contrast to plaintiffs who rely on republication to restart an expired statute of
limitations, Artemis‟s claims focus on the 2014 Article and are all timely.
40
3. Perlman and Rearden
Under California law, the single-publication rule is codified as follows: “No
person shall have more than one cause of action for damages for libel . . . founded upon
any single publication . . . , such as any one issue of a newspaper or book or magazine
. . . . Recovery in any action shall include all damages for any such tort suffered by the
plaintiff in all jurisdictions.”66 “Notwithstanding the single-publication rule, a new
edition or new issue of a newspaper or book still constitutes a new publication, giving
rise to a new and separate cause of action and a new accrual date for the purpose of the
statute of limitations.”67 Thus, under California law, Perlman and Rearden have a
separate cause of action if the 2014 Article republished the 2012 Articles.
a. Republication
In California, “[t]he [single-publication rule] restricts to a single cause of action all
damages founded upon a single publication. A single publication is distinguished from a
republication. If a defendant republishes material, the protection under the [single-
publication rule] does not apply.”68 “The single publication rule applies to Internet
66
CAL. CIV. CODE, § 3425.3.
67
Shively, 31 Cal. 4th 1230, 1246 n.7, 7 Cal. Rptr. 3d 576, 80 P.3d 676, 684 n.7
(Cal. 2003).
68
Christoff v. Nestle USA, Inc., 152 Cal. App. 4th 1439, 62 Cal. Rptr. 3d 122, 136-
37 (Cal. Ct. App. 2007), aff’d in part, rev’d in part, 47 Cal. 4th 468, 213 P.3d 132
(Cal. 2009).
41
publication regardless of how many people actually see it.” 69 California appears to
consider the following factors in determining whether a republication occurred: (1)
whether the original publication was modified; and (2) whether the republication was
directed to a new, different audience.70 As applied to Internet publications, “under
California law, a statement on a website is not republished unless the statement itself is
substantively altered or added to, or the website is directed to a new audience.”71
b. Hyperlink
As an initial matter, the hyperlink alone does not resolve whether the 2014 Article
republished the 2012 Articles. In 2007, a California court found “no authority holding
that providing links to statements already published on the Web, without more,
republishes those statements. Rather, the court finds that such linking is more reasonably
akin to the publication of additional copies of the same edition of a book, which is a
situation that does not trigger the republication rule.”72 Several other courts have
concluded that a hyperlink, alone, does not constitute a republication:
[C]ourts addressing the doctrine in the context of Internet
publications generally distinguish between linking, adding
unrelated content, or making technical changes to an already
69
Kinney v. Barnes, 2014 WL 2811832, at *6 (Cal. Ct. App. June 23, 2014) (quoting
Cole v. Patricia A. Meyer & Assocs., APC, 206 Cal. App. 4th 1095, 1121 n.8, 142
Cal. Rptr. 3d 646, 667 n.8 (Cal. Ct. App. 2012).
70
Christoff, 152 Cal. App. 4th 1439, 62 Cal. Rptr. 3d at 139.
71
Yeager v. Bowlin, 693 F.3d 1076, 1082 (9th Cir. 2012).
72
Sundance Image Tech., Inc. v. Cone Editions Press, Ltd., 2007 WL 935703, at *7
(S.D. Cal. Mar. 7, 2007).
42
published website (which they hold is not republication), and
adding substantive material related to the allegedly
defamatory material to an already published website (which
they hold is republication).73
Only one California case addresses hyperlinks directly, and it does so only
summarily.74 Two other cases, Salyer v. Southern Poverty Law Center, Inc.75 and In re
Philadelphia Newspapers, LLC,76 provide more useful guidance. In Salyer, the plaintiff
argued that when the defendant published an article on a new section of its website in
2008 linking back to an allegedly defamatory 2006 article, the 2008 article republished
the 2006 article because the purpose of the hyperlink was to entice new readers to click
on the link and be directed to the article.77 The plaintiff in Salyer, however, did not
contend that the new article, which itself made no specific mention of the plaintiff, was
defamatory, and the court observed that “it would be a different case had the . . . 2008
article restated the defamatory remarks about Plaintiff. In such a case, the . . . 2008
article itself could be the basis for Plaintiff‟s defamation claim.”78 Thus, the court
73
In re Phila. Newspapers, LLC, 690 F.3d 161, 174 (E.D. Pa. 2012) (citing Davis v.
Mitan, 347 B.R. 607, 611 (W.D. Ky. 2006)).
74
See supra text accompanying note 72.
75
701 F. Supp. 2d 912 (W.D. Ky. 2009).
76
690 F.3d 161 (E.D. Pa. 2012).
77
Salyer, 701 F. Supp. 2d at 916.
78
Id. at 916 n.5.
43
concluded that “the critical feature of republication is, again, that the original text of the
article was changed or the contents of the article presented directly to a new audience.”79
Similarly, the plaintiffs in In re Philadelphia Newspapers argued that when the
defendants published an article that linked to and endorsed a previously published article
containing allegedly defamatory, albeit time-barred, statements, the link and reference in
the new article republished the old article.80 There, however, the court agreed with the
reasoning of cases like Salyer and Sundance that neither a hyperlink to an unchanged
article, nor a mere reference, without more, is a republication.81 Thus, the court
concluded that the link and reference did not amount to the restatement or alteration of
the allegedly defamatory material necessary for a republication.82
As these cases indicate, even the hyperlink in the 2014 Article and the reference to
the 2012 Articles, taken together, may not be sufficient to amount to a republication of
the defamatory content of the 2012 Articles. Here, however, Plaintiffs allege that the
2014 Article not only restated and enhanced the allegedly defamatory material, but also
directed it to a new and different audience.
79
Id. at 916-17.
80
In re Phila. Newspapers, 690 F.3d at 165.
81
Id. at 175.
82
Id.
44
c. Enhancement, modification, or new audience
The familiar, plaintiff-friendly standard of review on a motion to dismiss requires
that I conclude Plaintiffs adequately have pled that the 2014 Article enhanced or
modified the purportedly defamatory statements in the 2012 Articles. The 2012 Articles
accused Perlman, as the CEO and principal shareholder of OnLive, Inc., of scheming to
profit from the ABC, mistreating OnLive employees following the ABC, mishandling
business transactions and potential offers to acquire OnLive, and otherwise operating and
governing OnLive poorly. The Complaint asserts that the 2014 Article goes further by
suggesting that Perlman not only exploited OnLive‟s stockholders, but also victimized its
customer base.83 Thus, given Perlman‟s and Rearden‟s close association with Artemis
and the frequency with which both were mentioned in the 2012 Articles, I cannot say on
a motion to dismiss that the statement in the 2014 Article, considered in context provided
by the content referenced by the hyperlink, could not conceivably have gone beyond
merely restating defamatory allegations, and also enhanced and modified those
statements. In other words, Defendant has not shown that Plaintiffs cannot prove under
any reasonably conceivable circumstances that the 2014 Article enhanced or modified the
defamatory allegations first published in the 2012 Articles.
83
Compl. ¶ 71 (“Stating that OnLive was „defunct‟ would immediately raise
concerns about the security and accessibility of OnLive‟s users‟ personal
information . . . .”).
45
These facts are distinguishable from those of a recent California case, Kinney v.
Barnes.84 There, the respondent‟s claims, based on appropriation of name or likeness
claims subject to a two-year statute of limitations, were held to be within California‟s
statutory single-publication rule.85 The appellant issued a press release profiling the
respondent when the appellant first hired the respondent, but did not remove the profile
from the Internet for years after the respondent was terminated. The respondent argued
that the appellant modified, and thus republished, the profile at a later date, but the court
rejected this argument, concluding that the appellant‟s removal of the date on the profile
and relocation of it to the archives section of its website were not sufficient to constitute a
republication of the article.86 In this case, the statement at issue in the 2014 Article
modified the defamatory allegations published in the 2012 Articles, but, unlike the
insignificant changes alleged in Kinney, those at issue here arguably were both
substantive and independently false and defamatory.
84
2014 WL 2811832 (Cal. App. 2d Dist. June 23, 2014).
85
Id. at *6.
86
Id. at *7. Accord Canatella v. Van de Kamp, 486 F.3d 1128 (9th Cir. 2007)
(holding the defendant did not republish the plaintiff‟s disciplinary summary when
he added a “verbatim copy” of the summary to a different URL within the same
domain name); Yeager v. Bowlin, 693 F.3d 1076 (9th Cir. 2012) (holding that a
statement on a website is not republished unless the statement itself is
substantively altered or added to, or the website is directed to a new audience);
Oja v. U.S. Army Corps of Eng’rs, 440 F.3d 1122 (9th Cir. 2006) (holding that
hosting information on a website does not continuously republish the information).
46
I also find sufficiently persuasive to survive a motion to dismiss Plaintiffs‟
argument that the 2014 Article directed the defamation published in the 2012 Articles to a
new audience because the Complaint alleges facts sufficient to support a reasonable
inference that the 2014 Article was intended to and actually did reach a new audience.
Plaintiffs allege that the analysts, investors, academic researchers, and operators
interested in commercial wireless technology—i.e., Artemis‟s pCell technology featured
in the 2014 Article—are unlikely to be familiar with, much less interested in, the details
of the consumer video game industry as described in the 2012 Articles. Plaintiffs also
allege, and I consider it reasonable to infer, that Defendant knew an article about pCell
would generate high traffic on its website because pCell had received news coverage by
the New York Times, Bloomberg Television, and Wired Magazine, and intentionally
directed readers to the sensationalistic August 28 Article by including a hyperlink in the
2014 Article‟s very first sentence, which Plaintiffs allege is itself false and defamatory.87
The earliest and leading case on Internet republication, upon which California
courts consistently rely, supports this conclusion.88 In Firth v. State, the defendant issued
a government report, which was critical of the plaintiff‟s managerial style and completion
87
Compl. ¶ 106.
88
Firth v. State, 98 N.Y.2d 365 (N.Y. 2002). “Firth has been cited with approval in
two opinions of the California Courts of Appeal.” Yeager, 693 F.3d at 1083
(citing Traditional Cat Ass’n, Inc. v. Gilbreath, 118 Cal. App. 4th 392, 402-04, 13
Cal. Rptr. 3d 353, 361-62 (Cal. Ct. App. 2004) (quoting extensively Firth‟s
holding that the single-publication rule applies to the Internet), and Christoff, 152
Cal. App. 4th 1439, 62 Cal. Rptr. 3d at 138 (citing Firth for its statement in dicta
that “modification to a Web site does not constitute a republication”)).
47
of work responsibilities. Another state agency then summarized the report on its Internet
site and provided a hyperlink to the full text of the report. 89 The court rejected the
plaintiff‟s first argument that each new “hit” or viewing of the report should be
considered a new publication that retriggers the statute of limitations.90 The court also
rejected the plaintiff‟s alternative argument that the defendant should be deemed to have
republished the report when it later added an unrelated report on the same Internet site,
but that discussion is relevant here. Although analyzing the modification issue, the court
focused its discussion on the new audience issue, stating: “The justification for this
[republication] exception to the single publication rule is that the subsequent publication
is intended to and actually reaches a new audience.”91 The court further reasoned that
“the republication exception has no application at all to the addition of unrelated material
on a Web site, for it is not reasonably inferable that the addition was made either with the
intent or the result of communicating the earlier and separate defamatory information to a
new audience.”92
By contrast, taking the well-pled allegations in the Complaint as true and drawing
all reasonable inferences in favor of Plaintiffs, I conclude that it is reasonably inferable:
(1) that the statement at issue in the 2014 Article modified and enhanced the earlier and
89
Firth, 98 N.Y.2d at 367.
90
Id. at 369.
91
Id. at 371 (citing Rinaldi v. Viking Penguin, 52 N.Y.2d 422, 435 (N.Y. 1981), and
RESTATEMENT (SECOND) OF TORTS § 577A, cmt. d).
92
Id.
48
separate defamatory information referenced by the hyperlink; and (2) that Defendant
intended to communicate that and the prior statements to a new audience.
Therefore, I conclude it is reasonably conceivable that Plaintiffs could prove the
2014 Article republished the defamatory statements contained in the 2012 Articles. In so
concluding, I recognize that the single publication rule applies to the online domain. 93
Nevertheless, I have determined that Defendant has failed to carry its burden on a Rule
12(b)(6) motion to dismiss of demonstrating that Plaintiffs could not prove, under any
reasonably conceivable set of circumstances, that the 2014 Article enhanced, modified, or
directed to a new audience the 2012 Articles. It may be that the 2014 Article did not
enhance or modify the allegedly defamatory statements in the 2012 Articles or direct
those statements to a new audience, but those questions will have to await further
development of the record in this case.
III. CONCLUSION
For the foregoing reasons, Defendant‟s motion to dismiss the Complaint is denied.
IT IS SO ORDERED.
93
See, e.g., Clark v. Viacom Int’l, Inc., --- Fed. Appx. ----, 2015 WL 4098320, at *7
(6th Cir. July 8, 2015).
49