Not a Lexis Advance subscriber? Try it out for free., Inc. v. Gradient Analytics, Inc.

Court of Appeal of California, First Appellate District, Division Four

May 30, 2007, Filed



 [**33]  REARDON, J.—A company that produces and publishes subscriber-based  [***2] analytic reports on public companies, regularly collaborating with the principals of hedge funds and other institutional investors to produce custom, negative reports on targeted companies, stepped over the line into defamation and other torts with respect to the flurry and timing of reports on an online closeout retailer. The hedge fund principals took short positions in the stock and worked closely with the publisher to put out reports that were anything but the purported unbiased and objective assessment promised to subscribers. So says the targeted company in its complaint, and so aver various declarants in the papers opposing the anti-SLAPP 1 motions prosecuted by the publisher and the hedge fund  [**34]  parties. In this scenario, and at this early stage of discovery, the trial court correctly declined to strike respondents' complaint. Accordingly, we affirm the judgment.


A. The Parties

1., Inc. 2

According to Overstock's first amended complaint, Overstock is an online closeout retailer. It offers customers an opportunity to shop online for brand name merchandise at heavily discounted prices, while offering suppliers an alternative way to distribute inventory liquidation. Overstock launched its first Web site for customers in 1999. Its stock is publicly traded on the NASDAQ (National Association of Securities Dealers Automated Quotation system).

2. The Gradient Appellants3

Gradient, formerly Camelback Research Alliance, Inc. (Camelback), provides analytical reporting services on publicly traded companies through a  [*694]  subscription program. Its customer base of approximately 125 subscribers consists almost exclusively of large institutional investors. One product is the earnings quality analytics (EQA) report. The EQA reports rate public companies on an “A” through “F” scale, with “A” being the highest mark.

The base price to subscribe to Gradient services is approximately $25,000 to $40,000 or more per year. For the base fee customers receive access to all of Gradient's newly published reports, as well as historic reports on publicly traded companies. Additionally, subscribers are entitled to order two custom reports on a specific company, at any time. Beyond that, subscribers can pay for more custom reports. As a marketing strategy, Gradient commonly offered the service free of charge to hedge fund managers for up to several months before it invoiced the investor and required payment.

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151 Cal. App. 4th 688 *; 61 Cal. Rptr. 3d 29 **; 2007 Cal. App. LEXIS 876 ***; 2007 Cal. Daily Op. Service 6200; 35 Media L. Rep. 2135

OVERSTOCK.COM, INC., et al., Plaintiffs and Respondents, v. GRADIENT ANALYTICS, INC., et al., Defendants and Appellants.

Subsequent History: Rehearing denied by Inc. v. Gradient Analytics, Inc., 2007 Cal. App. LEXIS 1510 (Cal. App. 1st Dist., June 27, 2007)

Time for Granting or Denying Review Extended Overstock, 2007 Cal. LEXIS 10436 (Cal., Aug. 24, 2007)

Application granted by, Review denied by, Inc. v. Gradient Analytics, Inc., 2007 Cal. LEXIS 10104 (Cal., Sept. 19, 2007)

Prior History:  [***1] Superior Court of Marin County, No. CV053693, Vernon F. Smith.


stock, customer, accounting, subscribers, defamatory, negative report, implies, funds, hedge, declaration, requesting, investors, positions, provably, targeted, shares, defamatory statement, cash flow, appellants', probability, practices, falsity, publish, cause of action, shareholders, anti-SLAPP, consumer, traded, false assertion, false statement

Civil Procedure, Appeals, Standards of Review, General Overview, Defenses, Demurrers & Objections, Motions to Strike, De Novo Review, Torts, Intentional Torts, Defamation, Libel, Elements, Defenses, Fair Comment & Opinion, Prospective Advantage, Intentional Interference, Elements, Business Torts, Unfair Business Practices, Securities Law, Civil Liability, Blue Sky Fraud