OPINION OF THE COURT
In this defamation and fraud action, plaintiff Silvercorp Metals Inc. (Silvercorp) moves pursuant to CPLR 3211 (a) (7) to dismiss the counterclaim of defendant Anthion Management LLC (Anthion).
Factual Background
Silvercorp is a silver producer with mining exploration projects in China and Canada. Silvercorp alleges that Anthion disseminated two letters and published defamatory statements on the Internet on three separate occasions about Silvercorp in order to manipulate and drive down the price of Silvercorp’s stock for Anthion’s personal gain through a “short selling” scheme.
In response, Anthion asserted a counterclaim pursuant to Civil Rights Law §§ 70-a and 76-a (the “anti-SLAPP” [strategic lawsuit against public participation] statute). Anthion claims that Silvercorp commenced this action to “silence” it “as part of a public relations and legal SLAPP . . . campaign to retaliate
Anthion allegedly discovered inconsistencies in Silvercorp’s financial information as reported to Chinese financial regulators and the Securities and Exchange Commission (SEC), indicating that Silvercorp was engaged in accounting fraud. Anthion prepared a preliminary report (the August 29 report), and sent it anonymously to security regulators, Silvercorp’s auditors, and six of the United States’ and Canada’s most prestigious business journalists from the Wall Street Journal and the New York Times.
Following an announcement by the British Columbia Securities Commission (BCSC) that it was investigating the anonymous allegations, Silvercorp issued another press release claiming that the BCSC and SEC were carrying out an investigation of the fraud.
Defendant then prepared a 17-page final report (referred to in the complaint as the September 14 letter) concerning Silver-corp’s valuation and financial reporting, and sent it to the BCSC and Silvercorp’s outside auditors, and posted a copy on www.chinastockwatch.com. It is alleged that by providing this document to Silvercorp’s governmental regulators, Anthion was “commenting on, and challenging the permission Silvercorp enjoys from government regulators to offer securities to the public.”
Silvercorp responded by issuing a press release on September 19, 2011 labeling Anthion’s reports as a manipulation scheme and, again, threatening to pursue legal action. Three days later, Silvercorp commenced this action against Anthion, and threatened in another press release on September 23, 2011 to “hold participants in this scheme . . . accountable.” In connection with this action, Silvercorp issued multiple third-party subpoenas to banks, investors and attorneys for financial records and
Silvercorp now moves to dismiss the counterclaim for failure to state a cause of action. Anthion contends that under section 70-a (1), which must be narrowly construed, a defendant in an action involving public petition and participation may maintain a counterclaim against any person who commenced such action. An action involving public petition and participation is a “SLAPP” action brought by a public applicant or permittee, and is materially related to any efforts of the defendant to report on, comment on, rule on, challenge or oppose such application or permission.
There is no authority indicating that Silvercorp is a “public applicant or permittee” by virtue of its status as a publicly held corporation that must obtain “permission” from securities regulators before issuing shares of stock to be traded on the New York and Toronto stock exchanges. Such an expansive definition of “public applicant or permittee” would effectively subject every publicly held corporation filing a defamation suit in New York to an anti-SLAPP counterclaim. The statute was intended to protect those local citizens who, usually before a government agency, publicly challenge applications by developers or other businesses for environmental and land use permits, leases, and licenses, and the regulatory approval purportedly sought by Silvercorp is nonlocal in nature. Anthion’s allegations, which are directed at Silvercorp’s filings made with federal securities regulators in the United States and Canada, are not what the Legislature envisioned in enacting the antiSLAPP statute.
Additionally, Anthion’s defamatory statements did not directly challenge any pending stock offering or application by Silver-corp to U.S. or Canadian securities regulators for a public offering of stock. Nor did Anthion’s accusations against Silvercorp have any bearing on a decision by regulators to approve any offering of Silvercorp stock.
And, Anthion, which operates a private hedge fund based in New York City, is not a financially-disadvantaged “citizen activist” in need of protection under the anti-SLAPP statute. Anthion does not seek to expose fraud or wrongdoing for the public good, and did not publish its attacks on Silvercorp until after it established a short position in Silvercorp’s stock.
In opposition, Anthion argues that the counterclaim falls within the anti-SLAPP statute. Courts have applied the anti
Further, as the anti-SLAPP statute governs nonlocal conduct by permittees, by defining “government body” to include the federal government, there is no requirement that the conduct of applicants or permittees under the anti-SLAPP statute be local in nature.
And, the anti-SLAPP statute’s protections are not limited to financially disadvantaged individuals. Thus, Anthion’s financial position is irrelevant to this case.
Anthion argues that its criticisms of Silvercorp, made to the appropriate regulators, directly challenged Silvercorp’s permission to continue listing its stock on public exchange bodies. The August 29 and September 14 reports were delivered to Canadian regulators, members of the financial press, Silvercorp’s auditors and to the SEC and the public. Silvercorp’s ability to offer shares of its stock publicly is in the nature of a continuing license in that the registration and offering of securities is “ongoing and subject to regulators’ continued oversight, and failure to comply with securities laws can cause the revocation of that permission.” Anthion’s complaints were made directly to Canadian regulators and subsequently the SEC, both of which have the authority to suspend that permission. Thus, whether an additional stock offering was pending at the time Anthion made its complaints is irrelevant.
In matters of public concern, courts have held that the antiSLAPP statute is not limited to complaints made directly to a government agency but rather includes complaints made to the press.
In reply, Silvercorp argues that Anthion never asked that Silvercorp’s permission to list its stock be revoked. The intended audience of the letters Anthion sent was other investors, and not to comment or oppose Silvercorp’s permission to trade its stock publically. Silvercorp points out that Anthion profited
Discussion
“On a motion to dismiss for failure to state a cause of action, the pleading is to be afforded a liberal construction” (McRedmond v Sutton Place Rest. & Bar, Inc.,
Civil Rights Law § 70-a “provides a cause of action for alleged victims of ‘SLAPP’ suits,” which allows “[a] defendant in an action involving public petition and participation . . . [to] maintain an action, claim, cross claim or counterclaim to recover damages, including costs and attorney’s fees, from any person who commenced or continued such action” (Harfenes v Sea Gate Assn.,
Section 76-a (1) (b) then defines “public applicant or permit-tee” as “any person who has applied for or obtained a permit, zoning change, lease, license, certificate or other entitlement for use or permission to act from any government body.”
“The anti-SLAPP provisions of Civil Rights Law §§ 70-a and 76-a were enacted in 1992 to protect citizen activists from lawsuits commenced by well-financed public permit holders in retaliation for their public advocacy” (Guerrero v Carva,
“In order to state an anti-SLAPP counterclaim, a defendant must ‘identify . . . the application or permit being challenged or commented on,’ and his communications must have been ‘substantially related to such application or permit’ ” (Bridge Capital Corp. v Ernst at 496). Because the anti-SLAPP law is in derogation of common law, it must be narrowly construed (Hariri v Amper,
Contrary to Silvercorp’s contention, the counterclaim sufficiently pleads that Silvercorp is a “public applicant or permit-tee” within the meaning of the anti-SLAPP law. A “public applicant or permittee” is defined in Civil Rights Law § 76-a (1) (b) as “any person who has applied for or obtained a permit . . . license, certificate or other entitlement for use or permission to act from any government body.” “Government body” is defined as “any municipality .... federal government, any public benefit corporation, or any public authority, board, or commission” (Civil Rights Law § 76-a [1] [d]).
“Uniformly, the New York courts have found that the persons properly alleged to be public applicants within the meaning of the anti-SLAPP statute were persons whose proposed actions required government permission” (Chandok v Klessig,
The counterclaim alleges that Silvercorp applied for and received permission to act, i.e., issue shares of stock which are publically traded on the Toronto and New York Stock Exchanges, from the SEC and BCSC, and this allegation is sufficient to state that Silvercorp is a public applicant or permittee. It cannot be contested that Silvercorp cannot sell shares on the New York Stock Exchange without the proper permission from the SEC. Silvercorp is not simply an entity advocating a position to a town board, or an entity seeking governmental funding (cf. Hariri v Amper,
However, Anthion’s statements did not pose a direct challenge to any application for public offering of Silvercorp’s stock or impending application for same (Guerrero at 117 [“A narrow construction of the anti-SLAPP law requires that a SLAPP-suit defendant must directly challenge an application or permission in order to establish a cause of action under the Civil Rights Law” (emphasis added)]). There is no indication that Anthion’s attacks on Silvercorp in August and September 2011 were directly related to the filing, approval or continued approval of an offering of Silvercorp shares of stock. Indeed, it cannot be said that Anthion’s statements challenged any petition or application by Silvercorp given that no such petition or application was alleged to have been pending at the time the statements were made (see Guerrero,
While one court declined to limit anti-SLAPP statute protection to statements made directly to a governmental body (see Duane Reade v Clark,
Thus, in the absence of any allegation that Anthion was “petitioning an agency regarding an application or permission” of Silvercorp, the court holds that Silvercorp’s action “did not affect defendants’] rights of public petition and participation before public agencies and, accordingly,” fails to state a claim under Civil Rights Law §§ 70-a and 76-a (see Guerrero at 118).
While “affidavits may be used freely to preserve inartfully pleaded, but potentially meritorious, claims” (Finkelstein Newman Ferrara LLP v Manning,
Conclusion
Therefore, based on the foregoing, it is hereby ordered that the motion by Silvercorp Metals Inc. pursuant to CPLR 3211 (a) (7) to dismiss the counterclaim of defendant Anthion Management LLC is granted, and said counterclaim is hereby severed and dismissed; and it is further ordered that Silvercorp serve a copy of this order with notice of entry upon all parties within 20 days of entry.
Notes
. It is alleged that Anthion participated in and disseminated letters asserting defamatory and fraudulent statements about Silvercorp, dated August 29, 2011 and September 14, 2011, and Internet postings dated September 13, 14, and 19, 2011.
A “short sale” transaction proceeds as follows:
“The short seller identifies securities she believes will drop in market price, borrows these securities from a broker (prime brokers have the greatest market share), sells the borrowed securities on the open market, purchases replacement securities on the open market, and returns them to the broker — thereby closing the short seller’s position. The short seller’s profit (if any) is the difference between the market price at which she sold the borrowed securities and the market price at which she purchased the replacement securities, less borrowing fees, brokerage fees, interest, and any other charges levied by the broker” (Electronic Trading Group, LLC v Banc of Am,. Sec. LLC,588 F3d 128 , 132 [2d Cir 2009]).
. The August 29 report disclosed that the readers “should assume its authors hold a short position” in Silvercorp’s stock and would “stand[ ] to realize significant gains in the event the price of [Silvercorp’s] stock declines.” (It 27.)