On December 27, 2021, the California Court of Appeal issued two decisions addressing whether claims arising from statements made in filings with the Securities and Exchange Commission (“SEC”) fall within California’s statute designed to deter “strategic lawsuits against public participation,” or “SLAPPs,” arising from protected speech. In Sugarman v. Benett, No. B307753, 2021 WL 6111725 (Cal. App. Dec. 27, 2021) (“Benett”), and Sugarman v. Brown, No. B308318, 2021 WL 6111718 (Cal. App. Dec. 27, 2021) (“Brown”), the Court held that state law claims arising out of disclosures in federal SEC filings may be subject to California’s anti-SLAPP statute, giving defendants a powerful tool to dispose meritless claims early in the process.
Benett and Brown stem from the same underlying complaint, brought by the former CEO of Banc of California (“Banc”) and his trust (collectively “Plaintiff”), against Banc, its board, its former auditor and its former chief financial officer, among others, in the wake of the events that led to Plaintiff’s resignation from his positions at Banc in January 2017. Plaintiff asserted a number of tort claims against the defendants, which arose out of alleged misleading statements regarding Banc’s financial projections, earnings per share guidance and corporate governance made in SEC filings.
In response to the lawsuit, Banc and its directors brought anti-SLAPP motions, as did Banc’s former auditor and former chief financial officer. Resolution of an anti-SLAPP motion involves two steps. The defendant must first establish that the challenged claim arises from activity protected by Section 425.16 of the California Code of Civil Procedure. If the defendant makes the required showing, the burden then shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success on the merits.
The trial court granted in part and denied in part Banc’s and its directors’ anti-SLAPP motions. Both parties appealed. The trial court granted Banc’s former auditor’s motion and granted in part and denied in part the former chief financial officer’s motion. Plaintiff and the former chief financial officer both appealed.
Benett addresses the anti-SLAPP motion brought by Banc and its board, while Brown addresses the former auditor’s and former chief financial officer’s anti-SLAPP motions. Although the Courts address both prongs of the anti-SLAPP statute—whether (1) whether the claims in question fall within the anti-SLAPP statute and (2) the plaintiffs met their burden of proving success—this post focuses on the prong one analysis, as that was the issue of first impression. The Court in both cases looked to Hawran v. Hixson, 209 Cal.App.4th 256 (2012). In Hawran, the trial court held that claims arising from statements made in filings with the SEC fall within California’s anti-SLAPP statute. However, because the plaintiff did not challenge that finding on appeal, the Court of Appeal in Harwan did not reach the issue.
Consistent with the trial court’s reasoning in Hawran, the Court of Appeal in both Benett and Brown affirmed the trial court’s rulings that statements made in Forms 8-K, 10-Q and 10-K — all of which publicly traded companies are required to file with the SEC — fall within the anti-SLAPP statute. Such statements constituted statements in connection with an issue under consideration or review by an official proceeding (Code Civ. Proc. § 425.16(e)(2)), and also fell within the anti-SLAPP statute’s catchall provision for speech in connection with an issue of public interest (Code Civ. Proc. § 425.16(e)(4)).
In concluding that the Banc’s Forms 8-K,10-Q and 10-K were protected under Section 425.16(e)(2) as statements made in connection with an issue under consideration or review, the Court relied heavily upon the trial court’s reasoning in Hawran. There, the trial court found the Hawran defendant’s “Form 8-K put the issues identified in the form under consideration or review by the SEC,” and that the company’s related press release, “from which [the plaintiff’s] claims arose, was thus protected as a writing made in connection with an issue under consideration or review by . . . any other official proceeding authorized by law.” Hawran, 209 Cal.App.4th at 269. These mandatory SEC filings “allow the SEC to determine whether to investigate a particular transaction.” Id. at 263 n.2. Thus, the Court of Appeal in Benett and Brown agreed with the trial court in Hawran, extended its reasoning not just to Form 8-K, but also to form 10-Q and 10-K, and held that statements made in such filings fall within the scope of section 425.16(e)(2) as statements “made in connection with an issue under consideration or review” by a governmental body.
With regard to Form 10-K in particular, the Court in Brown noted that 15 U.S.C. § 7266(a) and (c) require the SEC to review disclosures made by issuers of securities on a regular and systematic basis. This review requirement made clear that claims arising out of statements in a Form 10-K fall within the anti-SLAPP statute. As to Forms 8-K and 10-Q, Plaintiff attempted to argue in Benett that the anti-SLAPP statute does not apply because unlike Form 10-K, Forms 8-K and 10-Q are not specifically designed to trigger an SEC investigation. The Court disagreed, noting that “Form 8-K filings are required by the SEC to report specified material changes and other events the registrant deems important to investors.” Even though these filings may not be designed to trigger an investigation, they nonetheless “subject the information reported to SEC review,” which is sufficient to fall within subdivision (e)(2) of the anti-SLAPP statute.
As for subdivision (e)(4) of the anti-SLAPP statute, the so-called “catchall” provision applicable to claims arising out of speech in connection with a public issue or an issue of public interest, the Court of Appeal reasoned that statements about Banc’s financial position in SEC filings “were public statements . . . and were likely to impact individual investors and the market. Such statements “had a high degree of closeness to the public interest in the performance of a publicly traded company”, and fell within the scope of the anti-SLAPP statute. As the Court observed in Brown, “[t]he financial projections of a large, publicly traded company like Banc are of great interest to a significant community of investors.”
Because Benett and Brown hold that the anti-SLAPP statute applies to claims arising out of statements made in Forms 8-K, 10-K and 10-Q, they provide another arrow in the proverbial quiver for defendants faced with California state law claims arising out of statements in disclosures to regulators, particularly to the SEC. That said, it is important to recognize the limits of these cases: they did not hold that “all statements to a regulator are protected,” leaving some room for creative arguments by future plaintiffs’ counsel, particularly under subdivision (e)(4). Moreover, although Benett extended protection not just to the SEC filings themselves, but also to “private statements” that were “related directly to the investor presentations” because the “connection between [the] statements and the investor presentations and SEC filings is clear,” there is likely a point at which the “connection” will become too attenuated, and the anti-SLAPP statute will not apply. Later cases will draw these lines.