SUPERIOR COURT OF CALIFORNIA

COUNTY OF SANTA CLARA

ALORICA INC., a Delaware corporation,

Plaintiff,

vs.

FORTINET INC., a Delaware corporation, and DOES 1 through 10, inclusive,

Defendants.

Case No. 2019-1-CV-344971

TENTATIVE RULING RE: SPECIAL MOTION TO STRIKE FORTINET, INC.’S FIRST AMENDED CROSS-COMPLAINT IN PART

The above-entitled action comes on for hearing before the Honorable Thomas E. Kuhnle on September 6, 2019, at 9:00 a.m. in Department 5. The Court now issues its tentative ruling as follows:

I. INTRODUCTION
II.
According to the allegations of the Complaint, filed on March 21, 2019, plaintiff Alorica, Inc. and defendant Fortinet, Inc. are both Delaware corporations. (Complaint, ¶¶ 1-2.) Alorica is one of the leading providers of outsourced communication solutions, averaging over 600 million customer interactions per year. (Id. at ¶ 4.) Fortinet is a multinational corporation that develops and markets hardware, software, and services for secure computer networking, including firewalls, switches, and routers. (Id. at ¶ 5.)

Alorica alleges in its Complaint that in 2017 it needed to upgrade the wide area network that connected Alorica’s data centers and contact centers. (Complaint, ¶ 6.) Alorica solicited bids and ultimately purchased thousands of Fortinet products in an amount exceeding $10 million. (Id. at ¶¶ 9 and 15.) Alorica also purchased enhanced support and extended services from Fortinet to ensure any problems that arose would be resolved promptly. (Id. at ¶ 16.)

Alorica alleges that soon after putting Fortinet equipment into Alorica’s production environment, issues were encountered with both software and hardware. (Complaint, ¶ 18.) Alorica experienced various recurring defects. (Id. at ¶¶ 24-25.) Fortinet was unable to deliver a reliable fix. (Id. at ¶ 28.) Fortinet personnel spent weeks on site at Alorica’s facilities, but many of the problems were never solved. (Id. at ¶ 30.) Alorica has demanded Fortinet refund the amounts paid for the defective equipment, but Fortinet has refused. (Id. at ¶ 33.)

Based on these allegations, the Complaint sets forth the following causes of action: (1) Breach of Warranty; and (2) Negligent Misrepresentation.

On June 25, 2019, Fortinet filed a First Amended Cross-Complaint in which it alleges Alorica misrepresented its network resources/requirements and capabilities to Fortinet. (First Amended Cross-Complaint (“FACC”), ¶¶ 18 and 33.) Fortinet alleges Alorica failed to properly deploy Fortinet’s products in Alorica’s network. (Id. at ¶ 28.) For example, Alorica’s employees asked questions to Fortinet that could have been answered by the product documentation Fortinet provided, and incorrectly used Fortinet’s products in ways that could have been avoided if Alorica properly trained its employees. (Ibid.) As a result of Alorica’s inability to deploy its own network, Fortinet eventually took over roughly 80% of the deployment activities, including designing Alorica’s network on the fly. (Id. at ¶ 29.) Fortinet was not contractually obligated to perform this work, but did so in a good faith effort to help its customer. (Ibid.)

In the end, Fortinet’s efforts could not overcome the problems Alorica had created. (FACC, ¶ 31.) Fortinet dedicated thousands of hours and incurred millions of dollars in damages and costs because of Alorica. (Id. at ¶ 32.)

The FACC sets forth the following causes of action: (1) Breach of Contract – Fortinet Service Terms & Conditions; (2) Breach of Contract – End User License Agreement; (3) Fraud/Intentional Misrepresentation; (4) Negligent Misrepresentation; (5) Defamation; (6) Intentional Interference with Prospective Economic Relations; (7) Negligent Interference with Prospective Economic Relations; (8) Unfair Competition; (9) Declaratory Judgment of No Breach of Contract; (10) Declaratory Judgment of No Negligent Misrepresentation; and (11) Declaratory Judgment of Limitation on Damages.

Alorica now brings a special motion to strike the fifth, sixth, and seventh causes of action in the FACC.

III. LEGAL STANDARD
IV.
[Code of Civil Procedure] [s]ection 425.16, subdivision (b)(1) requires the court to engage in a two-step process. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. The moving defendant’s burden is to demonstrate that the act or acts of which the plaintiff complains were taken “in furtherance of the defendant’s right of petition or free speech under the United States or California Constitution in connection with a public issue,” as defined in the statute. (§ 425.16, subd. (b)(1).) If the court finds such a showing has been made, it then determines whether the plaintiff has demonstrated a probability of prevailing on the claim. Under section 425.16, subdivision (b)(2), the trial court in making these determinations considers “the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.”

(Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67, brackets omitted.)

[T]he statutory phrase “cause of action … arising from” means simply that the defendant’s act underlying the plaintiff’s cause of action must itself have been an act in furtherance of the right of petition or free speech. In the anti-SLAPP context, the critical point is whether the plaintiff’s cause of action itself was based on an act in furtherance of the defendant’s right of petition or free speech. A defendant meets this burden by demonstrating that the act underlying the plaintiff’s cause fits one of the categories spelled out in [Code of Civil Procedure] section 425.16, subdivision (e)….

(City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78, emphasis in original, internal citations and quotation marks omitted.)

To satisfy the second prong, a plaintiff responding to an anti-SLAPP motion must state and substantiate a legally sufficient claim. Put another way, the plaintiff must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited. [A court] consider[s] the pleadings, and supporting and opposing affidavits upon which the liability or defense is based. However, [it] neither weigh[s] credibility nor compare[s] the weight of the evidence. Rather, [it] accept[s] as true the evidence favorable to the plaintiff and evaluate[s] the defendant’s evidence only to determine if it has defeated that submitted by the plaintiff as a matter of law. If the plaintiff can show a probability of prevailing on any part of its claim, the cause of action is not meritless and will not be stricken; once a plaintiff shows a probability of prevailing on any part of its claim, the plaintiff has established that its cause of action has some merit and the entire cause of action stands.

(Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820, emphasis in original, internal citations, ellipses, brackets, and quotation marks omitted.)

V. ALORICA’S OBJECTIONS TO EVIDENCE
VI.
Alorica has submitted objections to the Declaration of Jon Bove. For reasons discussed infra, the objections are OVERRULED.

VII. ALORICA’S REQUEST FOR JUDICIAL NOTICE
VIII.
Alorica requests the Court take judicial notice of the following:

(1) On May 10, 2019, Fortinet filed a Cross-Complaint in this action;
(2)
(3) On May 31, 2019, Fortinet re-filed its Cross-Complaint;
(4)
(5) On June 25, 2019, Fortinet filed its FACC; and
(6)
(7) Fortinet’s website includes the posting of press releases, which may be accessed at https://www.fortinet.com/corporate/about-us/newsroom/press-releases.html.
(8)
The Court can take judicial notice of the first three items as court records. (Evid. Code, § 452, subd. (d).) Alorica provides no basis to take judicial notice of the fourth item. Moreover, “[s]imply because information is on the Internet does not mean that it is not reasonably subject to dispute.” (Huitt v. Southern California Gas Co. (2010) 188 Cal.App.4th 1586, 1605, fn. 10.)

Accordingly, Alorica’s request for judicial notice is GRANTED IN PART and DENIED IN PART. The Court takes judicial notice of the first three items, buts does not take judicial notice of the fourth item – i.e. content posted on Fortinet’s website.

IX. DISCUSSION
X.
A. Arising From Protected Activity
B.
Alorica argues the fifth, sixth, and seventh causes of action arise from protected activity because they are based on “conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.” (Code Civ. Proc., § 425.16, subd. (e)(4).)

Alorica states Fortinet’s fifth, sixth, and seventh causes of action are based on allegations that Alorica falsely “told at least one Fortinet customer and at least one Fortinet competitor that Fortinet’s products were low quality, did not perform as advertis[ed] and/or were inferior to competitor products” and that Alorica “contacted a Fortinet customer and told the customer that Forinet’s FortiSwitches had performance issues….” (FACC, ¶¶ 74, 83, and 91.)

In response, Fortinet asserts the statements at issue fall outside the realm of speech protected by California’s anti-SLAPP statute. Fortinet cites the recent California Supreme Court case of FilmOn.com Inc. v. DoubleVerify Inc. (2019) 7 Cal.5th 133. In FilmOn, the court stated that “within the framework of section 425.16, subdivision (e)(4), a court must consider the context as well the content of a statement in determining whether that statement furthers the exercise of constitutional speech rights in connection with a matter of public interest.” (Id. at p. 149.) In making this inquiry, a court must ask: (1) what public issue or issue of public interest the speech in question implicates – a question answered by looking to the content of the speech; and (2) what functional relationship exists between the speech and the public conversation about some matter of public interest. (Id. at pp. 149-150.)

The FilmOn court stated that context should be considered when conducting the second part of the inquiry and that the commercial character of speech could be potentially relevant. (FilmOn.com Inc. v. DoubleVerify Inc., supra, 7 Cal.5th at p. 154.) “[A] court must consider whether a statement – including the identity of its speaker, for example, or the audience sought – contributes to or furthers the public conversation on an issue of public interest.” (Ibid.)

Fortinet argues Alorica’s private campaign to discredit Fortinet does nothing to further any public conversation regarding any issue and therefore does not qualify as “protected speech.” Fortinet contends the fact that Alorica spread false information to Fortinet’s competitors and channel partners privately and in secret demonstrates Alorica was not trying to warn end-users, let alone the general public. Fortinet asserts the statements were made solely for the purpose of commercial activity and only to a small group of businesses. Fortinet argues further that Alorica’s statements were not part of any preexisting or ongoing public controversy. (See Du Charme v. International Brotherhood of Electrical Workers (2003) 110 Cal.App.4th 107, 119 [“[I]n order to satisfy the public issue/issue of public interest requirement of section 425.16, subdivision (e)(3) and (4) of the anti-SLAPP statute, in cases where the issue is not of interest to the public at large, but rather to a limited, but definable portion of the public (a private group, organization, or community), the constitutionally protected activity must, at a minimum, occur in the context of an ongoing controversy, dispute or discussion….].)

Alorica relies in large part on the case of Wilbanks v. Wolk (2004) 121 Cal.App.4th 883. In Wilbanks, the court noted that “[c]onsumer information, [] at least when it affects a large number of persons, also generally is viewed as information concerning a matter of public interest.” (Id. at p. 898.) Alorica states that, contrary to Fortinet’s assertions in opposing the motion that the statements were made only to a small group of companies, Fortinet has alleged statements were made to “countless more customers, potential customers, competitors, and channel partners….” (FACC, ¶ 74.)

While the allegations show the statements were made to a large group of companies, there is no indication the statements were made publicly or that there was any ongoing controversy, dispute, or discussion. The allegation in the FACC that the statements were made to countless more customers is made “on information and belief.” (FACC, ¶ 74.) This lends credence to the proposition that the statements were made in private or secretly because it demonstrates Fortinet was not privy to those statements and will not know the full extent of the statements absent discovery.

In contrast, in Wilbanks the statements at issue were published on the defendant’s website. (Wilbanks v. Wolk (2004) 121 Cal.App.4th at p. 895.) In other words, the statements were clearly made in a public forum.

As discussed in FilmOn, context is important in evaluating the nature of the statements. FilmOn involved “two well-funded for-profit entities engaged in a private dispute over one’s characterization – in a confidential report – of the other’s business practices.” (FilmOn.com Inc. v. DoubleVerify Inc., supra, 7 Cal.5th at p. 154.) This is similar to the situation in this case. The Court concludes the statements allegedly made by Alorica are not speech protected by the anti-SLAPP statute because they do not arise from “conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.”

C. Probability of Prevailing
D.
Even if the Court were to find the challenged statements arose out of protected activity, Fortinet has satisfied the second prong of the anti-SLAPP statute, by providing evidence to substantiate legally sufficient claims.

1. Fifth Cause of Action
2.
The fifth cause of action is for defamation. “The elements of a defamation claim are (1) a publication that is (2) false, (3) defamatory, (4) unprivileged, and (5) has a natural tendency to injure or causes special damage.” (Wong v. Jing (2010) 189 Cal.App.4th 1354, 1369.)

The Court notes initially that the sufficiency of a cause of action generally depends on whether the allegations in that cause of action state a claim regardless of the title under which the factual basis for relief is stated. (See Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.) Alorica argues that Fortinet’s allegations might be relevant to a claim for trade libel, but do not support a claim for defamation.

Trade libel is an intentional disparagement of the quality of services or product of a business that results in pecuniary damage to the plaintiff. Like defamation, trade libel requires a false statement of fact, not an expression of an opinion. To constitute trade libel the statement must be made with actual malice, that is, with knowledge it was false or with reckless disregard for whether it was true or false. The plaintiff must also plead and prove it actually suffered some pecuniary loss.

(J-M Manufacturing Co., Inc. v. Phillips & Cohen LLP (2016) 247 Cal.App.4th 87, 97, citations omitted.) For the reasons set forth below, however, the Court need not engage in an analysis of whether the facts alleged and presented are sufficient to support a trade libel claim.

Alorica argues Fortinet has failed to allege Alorica made any false or defamatory statement about Fortinet. In response, Fortinet provides evidence Alorica made false statements regarding certain Fortinet products to at least two Fortinet past and/or prospective customers, at lease one Fortinet competitor, and at least one Fortinet channel partner. (Declaration of Jon Bove in Support of Fortinet, Inc.’s Opposition to Alorica Inc.’s Special Motion to Strike First Amended Cross Complaint in Part (“Bove Decl.”) , ¶¶ 17 and 21.) Alorica’s false statements have harmed Fortinet’s brand and goodwill. (Id. at ¶ 23.) As a direct result of Alorica’s false statements, Fortinet’s largest channel partner in North America – CDW – downgraded Fortinet from its “focus partner” status and instructed its sales representatives to limit their engagement with Fortinet. (Id. at ¶ 24.) Fortinet’s quarterly sales have since declined due to Alorica’s interference with Fortinet and CDW’s relationship. (Ibid.)

Alorica argues Fortinet’s evidence lacks foundation and personal knowledge and is hearsay, and Fortinet has failed to support its claims with admissible evidence. While it is true that some of the statements in the Bove Declaration might lack foundation or be hearsay, the California Supreme Court recently held that “at the second stage of an anti-SLAPP hearing, the court may consider affidavits, declarations, and their equivalents if it is reasonably possible the proffered evidence set out in those statements will be admissible at trial.” (Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 949.) The court explained:

Although affidavits and declarations constitute hearsay when offered for the truth of their content, section 425.16, subdivision (b)(2) permits their consideration in ruling on a pretrial anti-SLAPP motion. In connection with the form of the declaration, then, defendants’ hearsay objection fails. These declarations may be considered, not because they satisfy some other hearsay exception, but because they qualify as declarations or their equivalent under section 2015.5, and can be considered under section 425.16.

(Id. at p. 942.)

The Sweetwater court noted that, in contrast to a motion for summary judgment, an anti SLAPP motion is filed much earlier and before discovery. (Sweetwater Union High School Dist. v. Gilbane Building Co., supra, 6 Cal.5th at p. 945.) The court stated that “[t]o strike a complaint for failure to meet evidentiary obstacles that may be overcome at trial would not serve the SLAPP Act’s protective purposes.” (Id. at p. 949.) The court concluded:

In sum, at the second stage of an anti-SLAPP hearing, the court may consider affidavits, declarations, and their equivalents if it is reasonably possible the proffered evidence set out in those statements will be admissible at trial. Conversely, if the evidence relied upon cannot be admitted at trial, because it is categorically barred or undisputed factual circumstances show inadmissibility, the court may not consider it in the face of an objection.

(Ibid.) Fortinet has submitted a declaration with evidence for which there is a reasonable possibility of admissibility at trial. Therefore, it can be considered for purposes of Alorica’s anti-SLAPP motion.

Therefore, Fortinet has provided evidence supporting the fifth cause of action. Consequently, Fortinet has met the second prong of the anti-SLAPP analysis for this cause of action.

3. Sixth and Seventh Causes of Action
4.
The sixth and seventh causes of action are for intentional and negligent interference with prospective economic relations.

The elements of intentional interference with prospective economic advantage are (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant’s action.

(Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1005, quotation marks and citations omitted.)

The elements of negligent interference with prospective economic advantage are (1) the existence of an economic relationship between the plaintiff and a third party containing the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) the defendant’s knowledge (actual or construed) that the relationship would be disrupted if the defendant failed to act with reasonable care; (4) the defendant’s failure to act with reasonable care; (5) actual disruption of the relationship; and (6) economic harm proximately caused by the defendant’s negligence.

(Ibid., citations omitted.)

Alorica contends Fortinet will be unable to demonstrate a probability of success on the sixth and seventh cause of action because they contain vague, speculative, and non-actionable allegations. However, the evidence from the Bove Declaration discussed in connection with the fifth cause of action also supports the sixth and seventh causes of action. It demonstrates the existence of economic relationships that were disrupted due to Alorica’s actions and damage thereby caused to Fortinet. (Bove Decl., ¶¶ 17-25.)

Therefore, Fortinet has provided evidence supporting the sixth and seventh causes of action and has met the second prong of the anti-SLAPP analysis for these causes of action.

E. Conclusion
F.
Alorica’s special motion to strike is DENIED.

The Court will prepare the final order if this tentative ruling is not contested.