Business School Professors May Be Liable for Defamatory Blog Post–ZAGG v. Catanach

By Eric Goldman

ZAGG, Inc. v. Catanach, 2012 WL 4462813 (E.D. Pa. Sept. 27, 2012)

Anthony H. Catanach Jr. and J. Edward Ketz are business school professors, Canatach at Villanova’s business school and Ketz at Penn State’s business school. Together, they co-blog at the “Grumpy Old Accountants” blog. With a curmudgeonly name like that, it seems almost inevitable that they’ll have to rename the blog “Grumpy Old Defendants.”

The lawsuit involves a blog post entitled “Don’t Gag on Zagg.” They appear to have removed the post, but it was fairly widely distributed and discussed, and you can see the intro here. The court uses the passive voice in characterizing the post’s author, so I couldn’t tell if it was co-authored or only one of the co-bloggers wrote the post. As I explain in my Co-Blogging Law article, if only one of the co-bloggers wrote it, the other should be able to claim a 47 USC 230 defense for the other blogger’s post.

The post in question has harsh words for Zagg, implying or outright asserting various types of managerial misconduct, particularly misstated financial statements. The allegedly tortious statements include:

a. “The numbers are giving off so much smoke that we think management may have blinded both the auditors and investors.”

b. “At worst, management may be ‘cooking the books.'”

c. “ZAGG’s balance sheet is littered with items prompting valuation and disclosure concerns.”

d. “The company includes accounts receivables from credit card processors in its reported cash balances. You know how we feel about this right? … Instead of the Company reporting positive cash flow for 2011, it really ‘burned’ cash.”

e. “[I]t is ironic and worrying that the ifrogz business segment is losing money right out of the gate.”

f. “Still not convinced that ZAGG management is massaging the numbers? Maybe the following will make the hairs on the back of your neck stand up.”

g. “This is a financial reporting debacle in the making.”

h. “It makes us grumpy when a firm overstates its cash by adding in some receivables, as note 1 explains. And why did ZAGG do this? In an attempt to fool investors about its cash flows!”

The defendants tried a motion to dismiss, applying Utah state law. Utah has a narrow anti-SLAPP law of no help here, but even a broader anti-SLAPP law like California’s or Kyl’s proposed federal anti-SLAPP law might not have helped the defendants. Many of the statements quoted above read like opinions or hypotheses, but the statements may give the overall impression that ZAGG is “cooking the books”–a serious allegation, as doing so probably violates state and federal criminal laws–and that impression may be enough to survive an anti-SLAPP challenge even if the broader laws applied.

The court further nudges the statements into the “fact” category of the fact/opinion divide because the author(s) supported the arguments by cross-referencing ZAGG’s 10-K. In fact, if the post’s arguments were supported by that document, a case like Redmond v. Gawker suggests that the readers’ ability to verify the facts by consulting the 10-K should have pushed the blog post’s statements back over to the opinion side of the fact/opinion divide. The court turns this argument on its head.

The defendants only lost a motion to dismiss. They could still win on a number of grounds, including of course that their statements were true. Nevertheless, this case is a potent reminder that we as bloggers are betting our house with each blog post we make–and where we disseminate “negative” information that gores someone’s ox, the wounded ox just might gore us back. It’s one of the reasons why, after 2,000+ blog posts over nearly 8 years, my fingers still tremble a bit when I hit “publish” on a blog post that trashes a real live company or person. You as the readers tend to enjoy the bloodsport, but it’s only fun and games until someone gets sued.