Opinion
2 CA-CV 2021-0145
01-11-2023
Lucky's, LLC, dba Love Cabaret, Plaintiff/Appellant, v. Sylvia Berman, Defendant/Appellee.
Tiffany & Bosco P.A., Phoenix By William M. Fischbach and Amy D. Sells Counsel for Plaintiff/Appellant Curl, Glasson & Patrascioiu P.L.C., Tucson By J.C. Patrascioiu and Anna C. Ceder Counsel for Defendant/Appellee
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Pima County No. C20211872 The Honorable D. Douglas Metcalf, Judge
Tiffany & Bosco P.A., Phoenix By William M. Fischbach and Amy D. Sells Counsel for Plaintiff/Appellant
Curl, Glasson & Patrascioiu P.L.C., Tucson By J.C. Patrascioiu and Anna C. Ceder Counsel for Defendant/Appellee
Presiding Judge Eppich authored the decision of the Court, in which Vice Chief Judge Staring and Judge Brearcliffe concurred.
MEMORANDUM DECISION
EPPICH, PRESIDING JUDGE:
¶1 Lucky's LLC appeals from the trial court's dismissal of its defamation action against Sylvia Berman, arising from statements made by Berman in connection with Lucky's pending liquor license application. For the following reasons, we affirm the dismissal in part, vacate in part, and remand for further proceedings consistent with this decision.
Factual and Procedural Background
¶2 In 2020, Lucky's applied for a liquor license for its recently acquired adult entertainment club, TD's East, which it had renamed Love Cabaret. Notice was posted at Love Cabaret of the upcoming public hearing before the City of Tucson Mayor and Council, which would consider the application and make a recommendation to the state liquor board as to approval or denial of a liquor license. The notice invited neighborhood associations and persons residing in, owning, or leasing property within a one-mile radius to submit written arguments in favor of or opposed to the application.
Lucky's applied for its license under the name Christie's Cabaret.
¶3 Love Cabaret is located within the boundaries of the Mitman neighborhood, which has a neighborhood association, the Mitman Neighborhood Association (MNA), purporting to represent the interests of its residents. In preparation for the hearings before Mayor and Council and the Arizona Liquor Board, Berman, as secretary for MNA, posted a series of statements on MNA's social media group; exchanged emails with neighbors and with the city councilmember within whose ward the neighborhood is located; and did outreach to two media outlets-all regarding her and MNA's opposition to Lucky's pending application. MNA submitted a letter of protest opposing the application with supporting documentation to Mayor and Council in February 2021.
At the time of the trial court's ruling, the social media group was publicly searchable and had 76 followers and 5,800 members.
These documents are not part of the record.
¶4 In March 2021, the Mayor and Council voted unanimously to recommend denial of the liquor license. Although the record does not establish the current status of the application, Love Cabaret continued to serve alcohol with a series of temporary licenses pending a final hearing before the state liquor board.
¶5 In April 2021, Lucky's sued Berman for defamation. Without identifying her statements, Lucky's alleged Berman had published "false statements" "that disparaged its business practices," stating or implying that it was engaged in "prostitution and unauthorized distribution of narcotics." Berman moved to dismiss the complaint claiming it was a strategic action designed to "silence [her] First Amendment speech regarding matters of public concern with the threat of costly litigation." Lucky's response to the motion again failed to detail the statements Berman had made or where they had been published. The trial court ordered Lucky's could conduct limited discovery and refile its response. In its second response opposing the motion to dismiss, Lucky's described nine statements made by Berman that it claimed constituted defamation per se, attaching copies of Berman's emails and social media postings.
¶6 One such statement was an email from Berman to her city councilmember where she wrote: "Poking around I came across the case of the State v. Musgrove." She continued: "Mr. Cooper is listed as an alias of Musgrove. I don't know if this is important but I felt I should pass this on."She then included what appears to be a cut-and-pasted copy of a case summary noting Musgrove's conviction for first-degree murder and his life sentence. The email was sent after the liquor license notice had been posted and before the city council hearing.
The owner of Lucky's is named Steve Cooper.
¶7 Two of the nine statements were made in emails to the MNA email listserv, reading, in part:
[Love Cabaret] is likely to argue to the City Council and Liquor Board that as new owners, they should be given a chance. However,
numerous residents have witnessed noise, drugs, prostitution, loitering, smoking, and driving through our neighborhood since they took ownership.After the City Council had voted to recommend denying the license, Berman wrote:
If you see something, please let me know. It may not be 911 call worthy, but it could be important in our testimony to the Liquor Board . . . . We have reports of prostitution. If you see someone loitering[-]that's what it might be about. I thought I heard gunshots a few times[-]anyone else?She also wrote, to unidentified parties:
Love Cabaret is appealing the decision of the City Council at the State Liquor Board on April 1 . . . . Please call 911 to report anything you can . . . . It wouldn't hurt to drive by and look over there. You might notice something. Also, we now have reports of prostitution on McKinley by the Southwest Book Store. You can report them too. People are not standing around there, simply loitering. It is best if you call 911 but [if] you are not comfortable, email me and I will pass along the information to [police]. Love Cabaret is having a big St. Patrick's Day party. You know what that means. Let's report them all we can!And, in response to someone who notified Berman that they had observed Love Cabaret put up a poster about a "4 20 Party":
Thanx [redacted] I looked up the ad on Facebook. Will copy [councilmember] & [police]. Its "liquid" marijuana that they are
selling. When does their temporary liquor license run out? I think I should mention it to [councilmember] and City Attorney. Find out if they really can do this. See if there is any way to shut them down. Really[-]they are just flaunting the law! If its illegal to consume MJ on their premises, it would make a nice violation at the State Liquor Dept.!About a week later, she emailed another unidentified person:
As you know, we won the Protest at the City Council Hearing . . . . The State is very concerned about neighborhood impact . . . . It is important that we report everything that happens over at Love Cabaret. Right now, residents have made 4 reports to the State Liquor Board of stuff like noise, traffic, trash, seeing prostitutes (it's getting bad) and fighting. I've heard gun shots. They are having a big party on Tuesday. "4-20" apparently is a code for Marijuana. They are advertising drinks called "Liquid Marijuana" which turns out to be grain alcohol. If you are disturbed or if you see something Tuesday night (or any night), can you please either report it to me[-]or directly to the State Liquor Board?And to a fellow MNA board member she wrote:
If they ever thought they could stop me from testifying at the State [Liquor Board] Hearing, that ship has sailed. Their lawsuit will be dismissed long before and I have nothing to fear. Meanwhile there are daily reports of prostitution on McKinley between 1st and Speedway as well as messages about gang activity. I pass these messages on to [police].The remaining two statements identified by Lucky's were made in emails to news outlets, in which Berman asked the outlets to cover the story of her neighborhood's opposition to Lucky's liquor license application. In one, she wrote, "We have been abused for 50 years. Now we have drugs, prostitution, fighting in our neighborhood again." In another email, she called the Love Cabaret a "sex club" and wrote:
I have a stack of letters, emails, and petitions which we provided to the City Council from the residents. They told stories of men with guns walking through the neighborhood, drug deals behind their homes, noise at all hours of the night, people parking in front of their homes to engage in sex and drug activities (and leaving evidence in the street). We watched as residents routinely cleaned the street near their homes of drug and sex paraphernalia on many mornings after.
The trial court permitted Berman to redact names of non-parties, but the context suggests that most recipients were neighbors.
¶8 Following oral argument, the trial court granted Berman's motion to dismiss with prejudice pursuant to former A.R.S. § 12-752 (2006), which provided an expedited mechanism for resolving actions predicated on public participation in government. The court found Berman's statements were constitutionally protected free speech and an exercise of the right of petition, and that Lucky's had not met its burden of showing the statements lacked any reasonable factual support or arguable basis in law and that it had suffered actual compensable injury. Lucky's appealed and we have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1), 12-2101(A)(1)
For ease of reference, we cite to the former § 12-752 throughout, which has since been amended. See 2022 Ariz. Sess. Laws, ch. 267, § 2.
Although not applicable here, the revisions include a special appeal provision requiring this court to expedite appeals from rulings on motions to dismiss pursuant to the current statute. See 2022 Ariz. Sess. Laws, ch. 267, §§ 2, 3.
Discussion
¶9Lucky's claims the trial court erred by dismissing its action under § 12-752 because Berman's statements were not made before or submitted to a governmental proceeding, such that the statute is inapplicable. Alternatively, it argues that even if § 12-752 applies, the court erred in finding that it had failed to show the statements lacked reasonable factual support and that it had suffered an actual compensable injury. Berman responds that her speech was protected by § 12-752, and regardless, her statements were not actionable because they were not capable of bearing a defamatory meaning.
¶10 We review de novo the dismissal of a complaint where, as here, the trial court was presented with and considered "matters outside a motion to dismiss." BLK III, LLC v. Skelton, 252 Ariz. 583, ¶ 6 (App. 2022) (§ 12-752(B) "expressly instructs a superior court to consider affidavits as part of its dismissal analysis"); cf. Rogers v. Mroz, 252 Ariz. 335, ¶ 11 (2022) (motion for summary judgment on defamation claim). We also review de novo issues of statutory interpretation. Lattin v. Shamrock Materials, LLC, 252 Ariz. 352, ¶ 9 (2022). We "effectuate any clear and unambiguous text without resort to secondary interpretive principles," id., and give terms and phrases in a statute their ordinary, commonsense meaning, State Comp. Fund v. Nelson, 153 Ariz. 450, 453 (1987).
¶11 Section 12-752(A) provides that in "any legal action that involves a party's exercise of the right of petition, the defending party may file a motion to dismiss the action under this section." Former § 12-751(1) (2006), A.R.S., defines the "exercise of the right of petition" as "any written or oral statement that falls within the constitutional protection of free speech" that is all of the following:
This statute has since been repealed. See 2022 Ariz. Sess. Laws, ch. 267, § 1.
(a) Made before or submitted to a legislative or executive body or any other governmental proceeding.
(b) Made in connection with an issue that is under consideration or review by a legislative or executive body or any other governmental proceeding.
(c) Made for the purpose of influencing a governmental action, decision or result.A "governmental proceeding" means "any proceeding, other than a judicial proceeding, by an officer, official or body of this state and any political subdivision of this state, including boards and commissions." § 12-751(2).
¶12 The trial court is directed to grant a motion to dismiss under § 12-752 "unless the party against whom the motion is made shows that the moving party's exercise of the right of petition did not contain any reasonable factual support or any arguable basis in law and that the moving party's acts caused actual compensable injury to the responding party." In addition to the pleadings, the court must consider supporting and opposing affidavits stating facts supporting the claims or defenses. Id.
Exercise of the Right of Petition
¶13 Lucky's first argues that Berman's statements were not made before a governmental proceeding and therefore cannot be an exercise of the right of petition under § 12-752. It contends the trial court gave the statute an overly broad reading that went beyond its unambiguous, plain text and was "[inconsistent with well-established principles of statutory construction." Relying on this court's opinion in BLK III, Berman urges us to apply a broad definition of "governmental proceeding."
¶14 In BLK III, we concluded that formal complaints to a police officer meet the definition of a "governmental proceeding" by an "officer, official or body of this state and any political subdivision of this state." § 12-751(2); see also BLK III, 252 Ariz. 583, ¶ 19. We also determined that communications with two city councilmembers acting in their official capacity in meetings with constituents fell within the plain meaning of statements made before "any proceeding, other than a judicial proceeding" by "an officer" of "any political subdivision of this state." BLK III, 252 Ariz. 583, ¶¶ 18-19 (emphasis added in BLK III) (quoting § 12-751(2)).
¶15 Absent any ambiguity in the plain text of § 12-751 or § 12-752, our interpretation of an "exercise of the right of petition" is limited to the statutory language. See Lattin, 252 Ariz. 352, ¶ 9. And Berman points to no ambiguity in the statutes or any plain language that would suggest that communications among neighbors could be considered a governmental proceeding. Even applying a broad definition of "any proceeding" "by an officer, official or body of this state and any political subdivision," including boards and commissions, we are unable to conclude that emails to neighbors or media outlets and postings to a neighborhood association social media group were "made before" a "governmental proceeding." See § 12-751 (emphasis added). Unlike the communications in BLK III, which were made directly to officials of the state acting in their official capacity, the intended recipients of Berman's social media postings and emails were her neighbors and the media, with one exception which we discuss below. Although MNA ultimately was preparing to lobby its city council and the state liquor board, § 12-752 does not shield publications not made before or submitted to a governmental proceeding. See § 12-751(1)(a). Thus, the trial court erred in determining those statements fell within the purview of § 12-752.
¶16 However, one of Berman's allegedly defamatory statements was made in an email to the councilmember representing the Mitman neighborhood, for the purpose of persuading him to oppose the liquor license application. Although Lucky's argues that a publication to a city councilmember is not made before a legislative body because he is only one individual member of that body, § 12-751(2) defines a governmental proceeding as "any proceeding" by an "officer, official or body of this state and any political subdivision of this state." A councilmember is an official of the city and thus meets the statutory definition of an "official . . . of . . . any political subdivision." § 12-751(2); see Tucson, Ariz., Charter & General Ordinances, Officials of the City of Tucson (Oct. 19, 1964) (listing mayor and councilmembers). And, as an advocate who would be representing the interests of ward constituents to the rest of the city council during the liquor license public hearing, the direct communication was "submitted to" a "governmental proceeding." See § 12-751(1)(a). It was also in connection with the consideration of Lucky's application, see § 12-751(1)(b), for the purpose of influencing votes, see § 12-751(1)(c). The trial court therefore did not err in applying § 12-752 to Berman's statements to her city councilmember.
Reasonable Factual Support and Actual Compensable Injury
¶17 Lucky's also challenges the trial court's findings that it failed to meet its burden of establishing that Berman's statements to her city councilmember "did not contain any reasonable factual support or any arguable basis in law," and that it had suffered "actual compensable injury." Berman's communication to her city councilmember made two factual assertions: (1) Steve Cooper is the owner of Christie's Cabaret; and (2) Steve Cooper is an alias of the defendant in State v. Musgrove. Lucky's argues Berman lacked reasonable factual support for the latter assertion because during her deposition, she was unable to recall the basis for believing that Musgrove's alias was Steve Cooper. Berman responds that her statement was not actionable because it was neither false nor about Lucky's.
¶18 "Libel of an individual can cause injury to a corporation if they are so interconnected that a reasonable person would perceive harm to one as harm to the other." Dombey v. Phx. Newspapers, Inc., 150 Ariz. 476, 491 (1986) (identity of interest and name where named party had unusual name and company bore family name). Steve Cooper is not a party to this action and it is Lucky's burden to show that the statement was "of and concerning" it. See Hansen v. Stoll, 130 Ariz. 454, 458 (App. 1981) (quoting Restatement (Second) of Torts §§ 564 cmt. g, 617 (1977)). Here, neither Lucky's, Christie's Cabaret, or Love Cabaret bears its owner's name, the name is not unusual, and there is no suggestion in the record that it is commonly associated with Lucky's. Nonetheless, Lucky's argues that the city councilmember would have known that Cooper was its owner and therefore the statement reasonably related to Lucky's. And, taken in context, there can be little doubt that Berman made the statement in connection with Cooper's ownership interest in Lucky's.
¶19 But even assuming the statements were "of and concerning" Lucky's and that Berman lacked reasonable factual support, Lucky's also had to show the statement had resulted in "actual compensable injury." § 12-752(B). "[A]ctual compensable injury" is not defined within § 12-752. Because any exercise of the right of petition, by definition, involves a matter of public concern, the legislature may have intended to apply the "actual injury" requirement imposed by the First Amendment. See Boswell v. Phx. Newspapers, Inc., 152 Ariz. 9, 19-20 (1986) (private plaintiff alleging defamation in matters of public concern must show actual injury). However, even if "actual compensable damage" is a heightened standard, cf. F.A.A. v. Cooper, 566 U.S. 284, 295-302 (2012) (discussing defamation damages in interpreting "actual damages" to be a heightened requirement in context of Privacy Act), Lucky's cannot meet it as it has failed to establish the lesser standard of actual injury. Actual injury is not limited to "out-of-pocket loss," and could include "impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering." Boswell, 152 Ariz. at 19-20 (quoting Gertz v. Robert Welch, Inc., 418 U.S. 323, 349-50 (1974)). Actual injury must be supported by competent evidence and is not presumed. Id. at 20.
¶20 Lucky's asserts that it need not show "actual compensable injury" because it is a private figure and Berman's statement was a matter of private concern, such that its damages may be presumed. See Hirsch v. Cooper, 153 Ariz. 454, 457 (App. 1986) (damages presumed for slander of private plaintiff in matter of private concern). This argument is unavailing, however, because although Lucky's is a private figure, the statement concerned its suitability for a liquor license, a matter of public interest and concern. See Dombey, 150 Ariz. at 484 (person does not become public figure by "being swept up in controversy" over public matter). Thus, unlike the common law of defamation, which allows recovery of "purportedly compensatory damages without evidence of actual loss," Gertz, 418 U.S. at 349, in this context both the First Amendment and § 12-752 impose an additional requirement, that Lucky's prove "actual compensable injury," § 12-752, or "actual injury," Boswell, 152 Ariz. at 19-20.
¶21 To prove actual injury, Lucky's submitted an affidavit by Cooper in which he attested that the opposition to the liquor license application required Lucky's to retain counsel and incur attorney fees. However, merely stating that general neighborhood opposition to its application resulted in legal expenses is insufficient to establish that the specific statement made by Berman to her councilmember resulted in an actual injury. See Desert Palm Surgical Grp., P.L.C. v. Petta, 236 Ariz. 568, ¶ 41 (App. 2015) (evidence based solely on plaintiffs' "non-specific, vague, and conclusory testimony" insufficient to establish damages). Cooper also attested that the "unfounded allegations regarding prostitution, pornography, or illegal drug activity harm Love Cabaret's business reputation, accusing Love Cabaret of criminal conduct and bringing it into disrepute." But the affidavit does not reference Berman's statement that Cooper was an alias of Musgrove as a cause of this purported harm. Thus, the attestation is insufficient to create a nexus between Berman's email to her city councilmember and an actual, compensable injury based on a harm to Lucky's reputation. Therefore, the trial court did not err in finding Lucky's failed to meet its burden under § 12-752 and in dismissing its claim as to that statement.
The First Amendment and Defamation
¶22 In Berman's motion to dismiss, she alternatively argued that her statements were not actionable as a matter of law. Defamatory publications against a private figure on matters of public concern "must be provable as false," and "must be reasonably perceived as stating actual facts about an individual, rather than imaginative expression or rhetorical hyperbole." Rogers, 252 Ariz. 335, ¶¶ 20, 22. These are questions of law typically subject to enhanced appellate review. Id. ¶ 22. However, the trial court did not discuss this argument and found only that Berman's statements were constitutionally protected speech as part of its analysis under § 12-752. If Berman's statements were not about Lucky's, or were not "provable as false," or were "rhetorical hyperbole" or "imaginative expression," or if Lucky's had failed to allege a statement's falsity, as Berman contended below and again on appeal, those may be alternative grounds for dismissal. See Turner v. Devlin, 174 Ariz. 201, 204, 207 (1993) (affirming grant of summary judgment where statement not susceptible to "proof of truth or falsity" and could not be reasonably interpreted as stating actual facts); Milkovich v. Lorain J. Co., 497 U.S. 1, 2 (1990) ("imaginative expression" and "rhetorical hyperbole" add to public discourse); Rogers, 252 Ariz. 335, ¶ 19 (statements nonactionable if "insulated by the First Amendment as a matter of law"); see also Ariz. R. Civ. P. 12(b)(6) ("failure to state a claim upon which relief can be granted"). The court needs to reach Berman's alternative arguments given that it mistakenly applied § 12-752 to her other statements. Accordingly, we remand for further proceedings for the court to consider in the first instance whether the statements were actionable as a matter of law.
Attorney Fees
¶23 Both Berman and Lucky's have requested attorney fees and costs. We defer any award of attorney fees incurred on appeal for this claim to the trial court's discretion. See § 12-752(D) (moving party must be awarded costs and reasonable attorney fees if court grants motion to dismiss); cf. Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, ¶ 37 (App. 2007) (deferring award of attorney fees to trial court pending resolution of matter). As the prevailing party on appeal, Lucky's is entitled to an award of costs upon compliance with Rule 21, Ariz. R. Civ. App. P. See A.R.S. § 12-341.
Disposition
¶24 For the foregoing reasons, we affirm in part, vacate in part, and remand for further proceedings.