Oregon State Bar Bulletin — APRIL 2012

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Legal Issues to Watch as the Case Moves On

Last November, a federal jury in Portland found a vitriolic, Montana-based blogger liable for $2.5 million for defaming an Oregon State Bar member and his company online. On March 27, 2012, a U.S. District Court judge denied the defendant’s motion for a new trial, setting the stage for an appeal that will be followed by First Amendment lawyers, bloggers and traditional journalists around the country.

UCLA School of Law Prof. Eugene Volokh teaches the First Amendment.

He writes about the First Amendment.

So, when he had an opportunity to actually litigate First Amendment issues in Obsidian Finance Group, LLC. v. Cox (No. 11-0057, 2011 WL 5999334 (D. Or. Nov. 30, 2011), an Oregon defamation case that Forbes magazine called “the $2.5 million dollar lawsuit heard round the blogosphere,” he leapt at it.

But first, Volokh registered a new Internet address, eugenevolokhsucks.com.

The name is Volokh’s tacit acknowledgement that, while his client, Crystal L. Cox, may have the high road constitutionally, she likely will reward him for his free legal expertise by at least attempting to link derogatory comments about him to her vast Internet web.

That web, says the case’s co-plaintiff, Bend lawyer Kevin Padrick, already has cost him and his company “many, many, many, many millions” of dollars, dollars they are unlikely to collect regardless of the lawsuit’s eventual outcome.

It also has caused Padrick, as well as First Amendment lawyers, bloggers and traditional journalists around the country, to ask themselves what legal protections should apply to people who use the Internet to — as a federal jury concluded that Cox did — defame others.

“The Oregon State Bar Computer and Internet Law Section has roughly 270 members this year, which means it has roughly 270 opinions about the complex intersection among the First Amendment, technological ‘advancements’ in our avenues of communication (such as blogging and tweeting), and the historical common law limitations on free speech based upon common law doctrines of defamation and privacy rights,” says the section’s chair, Charles Bowers of Portland.

Padrick says that “Three years ago, I wouldn’t have thought about these issues. Now I’m immersed in them.”

“We have to think about the interplay between the First Amendment, the Internet and speech engines,” says Padrick, who had no personal or business dealings with Cox and never met her until the day his defamation lawsuit against her was tried in Portland.

“If somebody was on a soap box, we’d just walk by and be happy he didn’t stop us,” he says. “If Cox had just formed her own website, it wouldn’t have hurt us. It (her writing) wouldn’t have been true, but it wouldn’t have hurt us. But we have search engines, and those search engines have optimization algorithms. Cox doesn’t have just one website. She has many, many, many, many websites, and by linking those websites, she creates something that drowns out anything else that is said about a company or a person. It’s truly amazing that, as a society, we’ve given these people this much power.”

The Back Story
To understand why Cox went after Padrick online, you could read the complaint filed by his attorneys, David Aman and Steven Wilker of Tonkon Torp in Portland, for whom Cox subsequently registered the online name tonkontorpsucks.com/.

You could Google the Oregonian’s Jeff Manning, whose reporting on the case resulted in Cox registering the name theoregoniansucks.com, posting that Manning is a “Whiny, Lying Bastard,” and asking for tips on “Asshole, Liar, Thug and Thief Jeff Manning…”

Or you could ask Padrick and rely on his information, since Cox, who describes herself online as an “Investigative Blogger aka Investigative Journalist,” made but failed to keep an appointment for a telephone interview with the Bulletin.

In 2003, Padrick, a former partner at Miller Nash in Portland, and another Miller Nash partner, David Brown, formed Obsidian, an investment and financial advisory firm whose office is in Lake Oswego.

In November 2008, Padrick says, they were approached about providing financial advice to the owners of real property who had entrusted funds to a Bend company, Summit Accommodators, Inc., as part of IRS “1031” real property exchanges.

“This was on a Tuesday,” says Padrick. “They (Summit) filed for bankruptcy on Friday.”

The bankruptcy was necessitated by the alleged diversion, by all four of Summit’s shareholders, of those funds, which were required to be available to the real property owners at all times.

“It worked fine for a while, just like all Ponzi schemes do,” Padrick says of the shareholders’ conduct, which resulted in one of the four pleading guilty in U.S. District Court to conspiracy to commit wire fraud and money laundering in April 2011 and the indictment of the other three in June.

In early 2009, the U.S. Trustee’s Office appointed Padrick trustee in Summit’s bankruptcy case, making him responsible for attempting to get its assets back and liquidating them for the benefit of its creditors.

According to the chair of the bankruptcy case’s Official Unsecured Creditors Committee, Padrick “did a very good job.”

“If I ever was in the same situation again,” she told The New York Times, “he would be my first choice.”

But Cox, who had no dealings with Summit, Padrick or Obsidian whatsoever, begged to differ, blogging that Padrick was, among other things, a “Cruel, Evil, Discriminating Liar” and “the Crookedest Lawyer Ever” and suggesting that he had hired a hit man to kill her.

Why Cox did so became, for Padrick, literally a multi-million dollar question.

“She’s told three different stories,” he says. “I don’t know if any, or parts of them, are true. There were many, many people who were responsible [for Summit’s wrongdoing], and one was one of the shareholders’ daughter. She [the daughter], on the theory that the best defense is a good offense, decided to pursue me. Supposedly, depending on which story you want to believe, she got in contact with Cox.”

According to the New York Times, Padrick and Obsidian weren’t Cox’s only victims.

“She has written that Bruce Sewell, the general counsel of Apple, ‘aids and abets criminals’; that Jeffrey Bewkes, the chief executive of Time Warner, is ‘a proven technology thief’; and that various Proskauer Rose lawyers have engaged in a pattern of ‘conspiracy,’” that paper reported after Padrick’s lawsuit against Cox was tried. “And don’t get her started on the local officials in and around her hometown, Eureka, Montana.”

Padrick says that Cox’s blogging campaign against him “went on for almost two years.”

“Essentially she taunted me,” he says, “blogging ‘Why haven’t you tried to stop me?’”

Padrick says he finally decided to sue Cox for defamation after his attorneys’ “cease and desist” letter resulted in an offer, from Cox, to protect his online reputation and promote his business for $2,500 a month, and he realized how much her blogging had negatively affected Obsidian.

“We knew it was impacting it, but we didn’t realize how much,” he says. “You don’t know what you don’t know.”

“It’s cost hundreds of thousands of dollars just in attorneys’ fees and costs,” Padrick told the Bulletin in mid-February, while the court’s ruling on Cox’s motion for a new trial still was outstanding. “Our advisory revenue is way down. In terms of raising capital, we’ve been told by banks, directly, that it is very hard to do business with us. The overall impact is in the tens of millions.”

Padrick speculates that potential clients took Cox’s blogging seriously — despite the fact that her postings seem, as a Forbes Magazine writer put it, “unhinged” — for a number of reasons. These include his belief that people have been conditioned, by the mainstream media, to believe that “If people are writing about something, it has to have something to it”; that people “are afraid of Crystal Cox writing about them”; and that, in the case of the large financial organizations with which Obsidian does business, “They are very concerned about their reputations.”

“They have to say to themselves,” says Padrick of such organizations, “‘Why are you doing business with Obsidian? Look at all of the crimes they’ve been accused of. Somebody is going to come into the office some day and say, ‘Why did we allow our firm to become associated with this firm that’s been accused of all these things?’”

The Case
Padrick and Obsidian sued Cox in U.S. District Court in Oregon, based on diversity jurisdiction, in January 2011, alleging that Cox had defamed them in 10 separate blog postings on www.obsidianfinancesucks.com.

They sought summary judgment on the issue of liability, asserting that Cox’ postings constituted defamation as a matter of law because she had “no evidence to support the truth of any of her statements.”

The case was assigned to Marco Hernandez, a former Washington County circuit court judge who had been on the federal bench only since February.

Cox, who represented herself, filed an answer.

On July 7, Hernandez denied the plaintiffs’ motion for partial summary judgment, holding that they had failed “to address the obvious First Amendment issues raised by defendant’s statements[.]” Hernandez concluded that Cox’s statements were, as a matter of law, expressions of opinion and therefore protected by the First Amendment and not actionable.

Not only that, Hernandez told the parties, he intended to, on his own motion, grant summary judgment in favor of Cox unless the plaintiffs could change his mind.

On Aug. 23, the plaintiffs having failed to do so, Hernandez granted summary judgment in favor of Cox on all but one of the posts.

Hernandez’ written opinion included the observation that “… while generally, ‘online speech stands on the same footing as other speech [cite omitted], blogs are a species of online speech which inherently suggest that statements made there are not likely provable assertions of fact.”

With regard to the remaining post, which Cox had made on a different site and which the plaintiffs had submitted only after Hernandez’ July 7 ruling, he concluded that “…reasonable readers could reach differing conclusions about whether the statements contain or imply an assertion of objective facts…” He therefore did not grant summary judgment with regard to that one post.

In the view of Portland media lawyer Duane Bosworth, Hernandez “did a yeoman’s job in the first instance because the plaintiffs came with 10 blogs and the judge remarkably, without any help [from an attorney representing Cox], said that they were protected by First Amendment. Then the plaintiffs came back with [16] new statements [by Cox], and the judge found 15 of them to be protected by the First Amendment. So only one out of 26 [was allowed to go to trial]. And he probably should have thrown out that one, too.”

But Padrick’s view of Hernandez’ ruling was, understandably, less enthusiastic.

“He [Hernandez] said that a real person could not believe virtually everything she had said,” Padrick says. “It would be nice if that were true.”

Padrick says that as a result of Hernandez’s Aug. 23 ruling restricting the case to one blog post, “We limited our damages to a fraction of what we originally asked for: $1 million for Obsidian and an unspecified amount for me.”

The trial, which took place on Nov. 29, lasted one day. The plaintiffs’ case included several experts and Cox’s testimony via deposition. Cox, who did not testify, cross-examined the experts and the plaintiffs’ other witnesses and did her own opening and closing arguments.

The jury, whose members’ names are not available to the public, was out for 75 minutes and awarded Obsidian its requested $1 million and another $1.5 million to Padrick.

Cox, says Padrick, “still hasn’t taken down the post that resulted in the $2.5 million judgment against her.”

“She holds that out,” he says, “as a badge of how much power she has.”

Case Reaction
How significant is Obsidian v. Cox to the world of traditional journalists, bloggers and First Amendment lawyers?

On Dec. 6, the blog Seattle Weekly triggered a firestorm of media reaction by posting a story that began, “A U.S. District Court judge in Portland has drawn a line in the sand between ‘journalist’ and ‘blogger.’ And for Crystal Cox, a woman on the latter end of that comparison, the distinction has cost her $2.5 million.”

“Speaking to Seattle Weekly,” the story continued, “Cox says that the judgment could have impacts on bloggers everywhere.”

“‘This should matter to everyone who writes on the Internet,’” it quoted her as saying.

The story went on to say that “Representing herself in court, Cox had argued that her writing was a mixture of facts, commentary and opinion (like a million other blogs on the web) and moved to have the case dismissed. Dismissed it wasn’t, however, and after throwing out all but one of the blog posts cited by Obsidian Financial, the judge ruled that this single post was indeed defamatory because it was presented, essentially, as more factual in tone than her other posts, and therefore a reasonable person could conclude it was factual. The judge ruled against Cox on that post and awarded $2.5 million to the investment firm.”

Other journalists, however, quickly figured out that not only had the judge not awarded anybody anything, the rulings that he did make likely would not affect them or their fellow journalists.

For example, on Dec. 7, Kashmir Hill of Forbes magazine, who called the case “the $2.5 million dollar lawsuit heard round the blogosphere,” wrote that “This [the Seattle Weekly story] has led to a slew of angry stories, pointing out that bloggers are journalists. But these stories have not dug deeply enough. The facts in the case are far more complicated, and after hearing them, most journalists will not want to include Cox in their camp.”

And on Dec. 11, David Carr of the New York Times wrote that “Last week, a story came across my desk that seemed to suggest that a blogger had been unfairly nailed with a $2.5 million defamation award after a judge refused to give her standing as a journalist.”

“A businessman who was the target of the blogger’s inquiries brought the suit,” Carr continued. “I went to work on a blog post, filled with filial umbrage, saddened that the Man once again had used a boot heel to crush truth and free speech. But after doing a little reporting, I began to think that what scanned as an example of a rich businessman using the power of the courts to silence his critic was actually something else: a case of a blogger using the Web in unaccountable ways to decimate the reputation of someone who didn’t seem to have it coming.”

Even Cox’ fellow bloggers recognized that, there but for the grace of God, they did not go.

For example, on Dec. 8 a blogger on www.electric-law.com wrote that “I just spent the morning studying Obsidian Finance v. Cox, the instantly famous case involving Crystal Cox. …The bottom line is that regardless of the medium, when you start accusing people of committing crimes, you may get sued. And if you do get sued, you may not be able to require the plaintiff to prove you were negligent unless you are prepared to prove that you are at least as careful as a mainstream journalist. I’m not sure that’s such a bad thing.”

First Amendment lawyers and organizations that are concerned about the intersection of law and media, however, did not so quickly dismiss Obsidian v. Cox as just desserts for a blogger who — as Hernandez found — didn’t adhere to “journalistic standards.”

“I think it’s pretty significant,” says Eugene Volokh, the UCLA law professor and nationally recognized expert on the First Amendment who, along with Benjamin Souede of Angeli Law Group in Portland, now represent Cox and filed a motion for a new trial or remittitur on Jan. 4, 2012.

Volokh says the case raises the question of “whether the First Amendment treats equally all users or gives special protection to the institutional press.”

“There are now millions of users of mass media who are not part of the institutional press,” says Volokh, a native of what is now Ukraine who immigrated to the United States at age 7; graduated from UCLA at 15; clerked for a U.S. Supreme Court justice and, among numerous other endeavors, founded and co-authors the widely read weblog, The Volokh Conspiracy.

“District court decisions become really important,” he says, “because there are no U.S. Supreme Court decisions [on this issue].”

Volokh, who told the Bulletin that he is representing Cox pro bono as part of his “part, part, part, part-time” work as an academic affiliate for the global law firm Mayer Brown, says he learned of the case when his computer flagged it and someone other than Cox brought it to his attention. He said he has talked to Cox by telephone but has not met her.

Volokh’s view of the case’s importance is underscored by the opinions of other lawyers, as well as the fact that it has received attention from the Harvard-based Citizen Media Law Project, which referred to Padrick’s and Obsidian’s lawsuit as a “legal threat,”, and the San Francisco-based Electronic Frontier Foundation (EFF), which filed an amicus curiae brief on Jan. 11. (The EFF and its local counsel, Richard McLeod of Klarquist Sparkman in Portland, did not respond to the Bulletin’s requests for comments.)

“I do think the case is nationally significant, and Eugene Volokh’s involvement is suggestive of that,” says Volokh’s local counsel, Souede, who attended Harvard Law School with Volokh’s younger brother Alexander “Sasha” Volokh, now an assistant professor at Emory University School of Law. “No matter where you come out on the issues, the question of how you are going to treat new media with respect to the protections generally afforded those who speak to the public is essential. It’s a powerful means of communication, and the lines need to be clear.”

Souede says that while his firm typically focuses on defending complex criminal and regulatory cases, “We always have an eye out for interesting public policy cases that we would like to get involved with. I knew the case involved a blogger, and Prof. (Eugene) Volokh is a pretty prominent blogger. He put up a post that he needed local counsel, and I knew the case to which he was referring.”

Duane Bosworth, a partner at Davis Wright Tremaine in Portland who has represented The Oregonian, other print media and numerous television stations, says that he thinks traditional media outlets “are alarmed” by the case, particularly by Hernandez’s pretrial ruling that bloggers are not covered by Oregon’s right-of-retraction statute.

“This case has an unbelievable number of moving parts,” says Bosworth, who has written about it for the National Media Law Resource Center, a national consortium of newspaper publishers. “It’s been discussed all over: Forbes, the New York Times. It’s significant because it has elements about publishing on the Internet that have concerns for traditional publishers, and it raises concerns for bloggers about whether they have protection under statutes and the constitution.” (See sidebar story for a discussion of some of the case’s specific legal issues.)

Like Souede, Bosworth comments on Eugene Volokh’s presence in the case.

“A noted scholar at UCLA has stepped in to represent the blogger,” he says.

But for Padrick, Volokh’s involvement means something different than it does to Souede and Bosworth.

“Like many First Amendment lawyers,” he says, “it is the academic issue that is most compelling to them. To [Volokh], this is an academic issue, not a human issue. We had to lay people off [as a result of Cox’s impact on Obsidian), highly paid attorneys and CPAs. What’s the impact on those people’s lives, their spouses’ lives and their kids’ lives?”

“Eugene Volokh is a nice enough guy,” concludes Padrick, who has met him. “But I think he’s wrong in terms of what he thinks the law is. I think he’s arguing what he thinks the law should be.”


Janine Robben has been a member of the Oregon State Bar since 1980 and is a frequent contributor to the Bulletin.

© 2012 Janine Robben

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