Defamation and the Disgruntled Defendant

Michael D. Drobot was the owner and operator of a company called Healthsmart Pacific Inc. (Healthsmart), which, in turn, owned and operated a hospital specializing in spinal surgery, Pacific Hospital of Long Beach. The business operation was targeted for investigation for violations of federal law, leading to criminal complaints against Drobot and his business concerns. Drobot eventually reached a plea agreement with prosecutors in which he admitted to providing “a stream of financial benefits” to California State Senator Ronald S. Calderon in order to influence him to support legislation and regulations that allowed hospitals to “'pass through' to workers' compensation insurance carriers the cost of medical hardware used in spinal surgeries.” Included in the list of such financial benefits were employment of Senator Calderon's son, free flights on a private plane, expensive meals and outings to exclusive golf resorts.

Once the favorable legislation was passed, Drobot was able to have Pacific Hospital purchase medical hardware from Drobot's company, International Implants, LLC. International Implants did not make the spinal surgery medical implants that it sold — these came from Crowder Machine & Tool Shop in Temecula, CA — but it placed on invoices for the hardware a stamp that stated International Implants was an “FDA Registered Manufacturer.” According to the plea agreement document, entered into in February 2014, International Implants sold the spinal medical devices at an inflated cost to Pacific Hospital, which then billed its patients' insurance companies for the too-expensive devices.

Drobot also admitted to paying kickbacks of more than $20 million over a 15-year period to doctors, marketers and others to induce them to refer patients to Pacific Hospital for spinal surgeries and other medical services. The kickback amounts increased if the surgeries were done using hardware supplied by International Implants.

Importantly to the defamation suit that came later, neither the charging pleading nor Drobot's plea agreement discussed any use of counterfeit or non-FDA approved medical devices in furtherance of the scheme, and no mention of prostitutes or other adult entertainers was made.

A Patient Alleges Injuries, and Her Attorneys Talk to the Media

Mary Cavalieri underwent two spinal operations at Pacific Hospital in 2010. She became concerned about the quality, safety and efficacy of her spinal implants and so brought suit against Drobot and the hospital under several theories, including battery, fraud, strict product liability, negligence, breach of express and implied warranties and negligent and intentional infliction of emotional distress. Her July 17, 2014, filing reiterated the details of the illegal activities Drobot admitted to in his February 2014 plea agreement, but also went on to aver that Drobot and his co-conspirators used “counterfeit, non-FDA approved, 'knock-off'” medical hardware, which they “implanted into thousands of patients, including [Cavalieri],” with “conscious disregard for the health, safety and well-being of the patients.”

A week later, Fox 11 television news reported on the case, including in the report excerpts of an interview with one of Cavalieri's attorneys, Brian Kabateck. This report was then posted on Fox 11's website. In the report, Kabateck said, among other things: “Basically what was happening here was, the hospitals we alleged in the complaint and the doctors were conspiring together to install effectively counterfeit hardware in people's backs.” The reporter explains that Cavalieri's spinal surgeries were not successful, then Kabateck states that his client “went and had to have another surgery and finally ended up with a legitimate, genuine doctor who was trying to help her and this doctor found out that she had counterfeit hardware installed in her back.” The report also described the background to the case and Drobot's plea agreement in the previous action, and discussed the allegations that Senator Calderon and his son accepted kickbacks in exchange for supporting legislation that would allow Drobot to further his scheme.

On Aug. 12, 2014, another of Cavalieri's attorneys, Robert Hutchinson, was interviewed in a CBS radio program called “Money 101,” with host Bob McCormick posing questions about the Drobot/Healthsmart Pacific case. On that program, Hutchinson made the following statements, among others:

• It's just a concern knowing that non-FDA approved hardware is in your spine without knowing whether it can cause infection.
• One of the ways they did that was to have a machine shop in Temecula manufacture spinal hardware used in spinal fusion surgeries. These were knock-offs.
• Patients had counterfeit or knock off screws that were not FDA approved used in their spinal fusion cases and the insurance companies were billed enormous amounts of money over and above what would have been the normal charges had they used FDA-approved hardware.
• [W]e alleged that doctors actually knew that they were using counterfeit screws and agreed to do it, and [that] they were getting kickbacks from the hospitals and some of the marketers to bring their patients to the hospitals involved and use the counterfeit screws, and that's what provided the cash flow, which in turn was — we alleged — delivered that many of these doctors in the form of kickbacks.

Defamation Complaints

Because of Cavalieri's attorneys' statements to the media, Drobot and Healthsmart Pacific sued Kabateck, Hutchinson and their law firms for defamation, and also sought damages for interference with their business relations. They claimed that the following false statements were made by one or both attorneys during their news interviews: that they purchased or used counterfeit or non-FDA-approved screws or related parts in spinal surgeries; that they failed to sterilize screws or other parts used in spinal surgeries; that they participated in a scheme related to counterfeit screws or related parts; that they bribed governmental officials in connection with that scheme; and that they hired or paid prostitutes as part of that scheme. The plaintiffs asserted that the attorneys knew or should have known that their statements in these regards were false.

In response, the attorney defendants filed a motion in accordance with California's anti-SLAPP statute (California Code of Civil Procedure section 425.16) to strike the complaint. The court conducted a hearing and then granted the attorneys'/defendants' motion, awarding them nearly $65,000 in fees and costs. The plaintiffs appealed.

The Anti-SLAPP Statute

California's anti-SLAPP (anti-Strategic Lawsuit Against Public Participation) statute authorizes a special motion to strike a cause of action when that action is based on the defendant's exercise of his constitutional right of petition or free speech, unless the plaintiff establishes a probability of prevailing on the claim. Code Civ. Proc., § 425.16, subd. (b); Paul v. Friedman (2002), 95 Cal.App.4th 853, 861(“A SLAPP suit is a meritless suit 'filed primarily to chill the defendant's exercise of First Amendment rights. '”). In other words, trial courts are supposed to evaluate anti-SLAPP motions using a two-step process: First, the movant has the burden of showing that the plaintiff's claim arose from activity protected by the anti-SLAPP statute; then, if this showing is made, the plaintiff has the burden of showing the probability of prevailing on the claim.

Prong One: Free Speech in Connection with a Matter of the Public Interest

As to the first prong of the test, the attorneys then had to show that the statements they made were protected by the anti-SLAPP statute. Protected activity under the statute includes “conduct in furtherance of the exercise of … the constitutional right of free speech in connection with a public issue or an issue of public interest.” (Code Civ. Proc., § 425.16, subd. (e)(4).) Here, Drobot and Healthsmart Pacific conceded that the attorneys spoke in accordance with their right to free speech, but they contended that there was no public interest in the Cavalieri case.

Thus, the appellate court's first job was to analyze just what constitutes the “public interest” or a “public issue,” as these terms are not defined in the anti-SLAPP statute. It turned out to be a less than precise exercise, but there were two cases that offered some real help. The first of these was Rivero v. American Federation of State, County and Municipal Employees, AFL-CIO (2003) 105 Cal.App.4th 913, in which a court decided that a public issue existed if the matter concerned: 1) “a person or entity in the public eye”; 2) “conduct that could directly affect a large number of people beyond the direct participants”; or 3) “a topic of widespread, public interest.”

Next, the court looked to the teachings of Weinberg v. Feisel (2003) 110 Cal.App.4th 1122, in which California's Third District proclaimed it was doubtful that “an all-encompassing definition” of the term “a matter of public interest” could be devised. Still, that court offered the following guidance: 1) “public interest” is not the same as mere curiosity; 2) a matter of public interest is something that many people are interested in, not just those involved and a small specific audience; 3) there should be some degree of closeness between the challenged statements and the asserted public interest; 4) the speaker's conduct should be focused on the public interest rather than on gathering information or support for a private dispute; and 5) those accused of defamation cannot, by their actions, have rendered the claimant a “public figure” (by, for example, publicizing the dispute so that many people become aware of who the claimant is and what the dispute concerns).

With these things in mind, the court looked to the substance of attorney Kabateck's statements on the Fox 11 news program, picking out four things that were said. The first — that Cavalieri was allegedly implanted with a counterfeit medical device — concerned only her and anyone interested in her well-being. However, the other three things analyzed by the court; that there was: 1) an alleged conspiracy to similarly implant such counterfeit objects into thousands of other patients; 2) a physician referral kickback scheme involving prostitutes and valuable gifts and services; and 3) a relationship between these things and legislation authored or promoted by Senator Calderon and Drobot — certainly raised matters of public interest.

“First, because the alleged counterfeit hardware may have been installed in many thousands of Californians, there is a substantial number of people who may have been directly affected by the alleged counterfeit hardware,” stated the court. “Second, members of the public, as consumers of medical services, have an interest in being informed of issues concerning particular doctors and healthcare facilities.” And, as to the attorney's assertion that there had been a widespread illegal physician kickback scheme, that statement concerned the integrity of the health care system, which was also a matter of public concern, as were the statements alleging a senator was bribed and pushed through health care legislation because of it. The court therefore held that the first prong of the anti-SLAPP inquiry must be decided in favor of the attorneys.

Next month, we will look at the court's discussion of the second prong of California's anti-SLAPP statute and how its requirements were applied to the facts of Healthsmart Pacific Inc. v. (Brian S.) Kabateck.

*****
Janice G. Inman is Editor-in-Chief of this newsletter.

Product liability law practice can get prickly, and why not? The stakes are high. Consumer injuries (or the potential threat of them) and the bad press that may follow can lead to lost business and even bankruptcy, and individuals' careers and reputations can be ruined. It is no wonder, then, that those who find themselves on the receiving end of a product liability lawsuit and its attendant bad publicity sometimes fight back. So it was in a recent case in which a company, publicly accused by a plaintiff's lawyers of using non-FDA-approved medical devices, fought back by bringing a defamation suit against the opposing attorneys. The case was thrown out by a California court, and the plaintiff appealed. The decision in the appeal, Healthsmart Pacific Inc. v. (Brian S.) Kabateck, 17 C.D.O.C 244 (C.A. 2d 12/19/16) (Los Angeles County Super. Ct. Case No. B264300), offers some insights into what kinds of allegations may be publicized, and in what circumstances, when a product liability charge is brought.

Before the Personal Injury Lawsuit

The story began before the product liability/personal injury lawsuit was filed, with a sordid tale of political and financial goings-on that landed a company, its founder and a California State Senator in hot water.

Michael D. Drobot was the owner and operator of a company called Healthsmart Pacific Inc. (Healthsmart), which, in turn, owned and operated a hospital specializing in spinal surgery, Pacific Hospital of Long Beach. The business operation was targeted for investigation for violations of federal law, leading to criminal complaints against Drobot and his business concerns. Drobot eventually reached a plea agreement with prosecutors in which he admitted to providing “a stream of financial benefits” to California State Senator Ronald S. Calderon in order to influence him to support legislation and regulations that allowed hospitals to “'pass through' to workers' compensation insurance carriers the cost of medical hardware used in spinal surgeries.” Included in the list of such financial benefits were employment of Senator Calderon's son, free flights on a private plane, expensive meals and outings to exclusive golf resorts.

Once the favorable legislation was passed, Drobot was able to have Pacific Hospital purchase medical hardware from Drobot's company, International Implants, LLC. International Implants did not make the spinal surgery medical implants that it sold — these came from Crowder Machine & Tool Shop in Temecula, CA — but it placed on invoices for the hardware a stamp that stated International Implants was an “FDA Registered Manufacturer.” According to the plea agreement document, entered into in February 2014, International Implants sold the spinal medical devices at an inflated cost to Pacific Hospital, which then billed its patients' insurance companies for the too-expensive devices.

Drobot also admitted to paying kickbacks of more than $20 million over a 15-year period to doctors, marketers and others to induce them to refer patients to Pacific Hospital for spinal surgeries and other medical services. The kickback amounts increased if the surgeries were done using hardware supplied by International Implants.

Importantly to the defamation suit that came later, neither the charging pleading nor Drobot's plea agreement discussed any use of counterfeit or non-FDA approved medical devices in furtherance of the scheme, and no mention of prostitutes or other adult entertainers was made.

A Patient Alleges Injuries, and Her Attorneys Talk to the Media

Mary Cavalieri underwent two spinal operations at Pacific Hospital in 2010. She became concerned about the quality, safety and efficacy of her spinal implants and so brought suit against Drobot and the hospital under several theories, including battery, fraud, strict product liability, negligence, breach of express and implied warranties and negligent and intentional infliction of emotional distress. Her July 17, 2014, filing reiterated the details of the illegal activities Drobot admitted to in his February 2014 plea agreement, but also went on to aver that Drobot and his co-conspirators used “counterfeit, non-FDA approved, 'knock-off'” medical hardware, which they “implanted into thousands of patients, including [Cavalieri],” with “conscious disregard for the health, safety and well-being of the patients.”

A week later, Fox 11 television news reported on the case, including in the report excerpts of an interview with one of Cavalieri's attorneys, Brian Kabateck. This report was then posted on Fox 11's website. In the report, Kabateck said, among other things: “Basically what was happening here was, the hospitals we alleged in the complaint and the doctors were conspiring together to install effectively counterfeit hardware in people's backs.” The reporter explains that Cavalieri's spinal surgeries were not successful, then Kabateck states that his client “went and had to have another surgery and finally ended up with a legitimate, genuine doctor who was trying to help her and this doctor found out that she had counterfeit hardware installed in her back.” The report also described the background to the case and Drobot's plea agreement in the previous action, and discussed the allegations that Senator Calderon and his son accepted kickbacks in exchange for supporting legislation that would allow Drobot to further his scheme.

On Aug. 12, 2014, another of Cavalieri's attorneys, Robert Hutchinson, was interviewed in a CBS radio program called “Money 101,” with host Bob McCormick posing questions about the Drobot/Healthsmart Pacific case. On that program, Hutchinson made the following statements, among others:

• It's just a concern knowing that non-FDA approved hardware is in your spine without knowing whether it can cause infection.
• One of the ways they did that was to have a machine shop in Temecula manufacture spinal hardware used in spinal fusion surgeries. These were knock-offs.
• Patients had counterfeit or knock off screws that were not FDA approved used in their spinal fusion cases and the insurance companies were billed enormous amounts of money over and above what would have been the normal charges had they used FDA-approved hardware.
• [W]e alleged that doctors actually knew that they were using counterfeit screws and agreed to do it, and [that] they were getting kickbacks from the hospitals and some of the marketers to bring their patients to the hospitals involved and use the counterfeit screws, and that's what provided the cash flow, which in turn was — we alleged — delivered that many of these doctors in the form of kickbacks.

Defamation Complaints

Because of Cavalieri's attorneys' statements to the media, Drobot and Healthsmart Pacific sued Kabateck, Hutchinson and their law firms for defamation, and also sought damages for interference with their business relations. They claimed that the following false statements were made by one or both attorneys during their news interviews: that they purchased or used counterfeit or non-FDA-approved screws or related parts in spinal surgeries; that they failed to sterilize screws or other parts used in spinal surgeries; that they participated in a scheme related to counterfeit screws or related parts; that they bribed governmental officials in connection with that scheme; and that they hired or paid prostitutes as part of that scheme. The plaintiffs asserted that the attorneys knew or should have known that their statements in these regards were false.

In response, the attorney defendants filed a motion in accordance with California's anti-SLAPP statute (California Code of Civil Procedure section 425.16) to strike the complaint. The court conducted a hearing and then granted the attorneys'/defendants' motion, awarding them nearly $65,000 in fees and costs. The plaintiffs appealed.

The Anti-SLAPP Statute

California's anti-SLAPP (anti-Strategic Lawsuit Against Public Participation) statute authorizes a special motion to strike a cause of action when that action is based on the defendant's exercise of his constitutional right of petition or free speech, unless the plaintiff establishes a probability of prevailing on the claim. Code Civ. Proc., § 425.16, subd. (b); Paul v. Friedman (2002), 95 Cal.App.4th 853, 861(“A SLAPP suit is a meritless suit 'filed primarily to chill the defendant's exercise of First Amendment rights. '”). In other words, trial courts are supposed to evaluate anti-SLAPP motions using a two-step process: First, the movant has the burden of showing that the plaintiff's claim arose from activity protected by the anti-SLAPP statute; then, if this showing is made, the plaintiff has the burden of showing the probability of prevailing on the claim.

Prong One: Free Speech in Connection with a Matter of the Public Interest

As to the first prong of the test, the attorneys then had to show that the statements they made were protected by the anti-SLAPP statute. Protected activity under the statute includes “conduct in furtherance of the exercise of … the constitutional right of free speech in connection with a public issue or an issue of public interest.” (Code Civ. Proc., § 425.16, subd. (e)(4).) Here, Drobot and Healthsmart Pacific conceded that the attorneys spoke in accordance with their right to free speech, but they contended that there was no public interest in the Cavalieri case.

Thus, the appellate court's first job was to analyze just what constitutes the “public interest” or a “public issue,” as these terms are not defined in the anti-SLAPP statute. It turned out to be a less than precise exercise, but there were two cases that offered some real help. The first of these was Rivero v. American Federation of State, County and Municipal Employees, AFL-CIO (2003) 105 Cal.App.4th 913, in which a court decided that a public issue existed if the matter concerned: 1) “a person or entity in the public eye”; 2) “conduct that could directly affect a large number of people beyond the direct participants”; or 3) “a topic of widespread, public interest.”

Next, the court looked to the teachings of Weinberg v. Feisel (2003) 110 Cal.App.4th 1122, in which California's Third District proclaimed it was doubtful that “an all-encompassing definition” of the term “a matter of public interest” could be devised. Still, that court offered the following guidance: 1) “public interest” is not the same as mere curiosity; 2) a matter of public interest is something that many people are interested in, not just those involved and a small specific audience; 3) there should be some degree of closeness between the challenged statements and the asserted public interest; 4) the speaker's conduct should be focused on the public interest rather than on gathering information or support for a private dispute; and 5) those accused of defamation cannot, by their actions, have rendered the claimant a “public figure” (by, for example, publicizing the dispute so that many people become aware of who the claimant is and what the dispute concerns).

With these things in mind, the court looked to the substance of attorney Kabateck's statements on the Fox 11 news program, picking out four things that were said. The first — that Cavalieri was allegedly implanted with a counterfeit medical device — concerned only her and anyone interested in her well-being. However, the other three things analyzed by the court; that there was: 1) an alleged conspiracy to similarly implant such counterfeit objects into thousands of other patients; 2) a physician referral kickback scheme involving prostitutes and valuable gifts and services; and 3) a relationship between these things and legislation authored or promoted by Senator Calderon and Drobot — certainly raised matters of public interest.

“First, because the alleged counterfeit hardware may have been installed in many thousands of Californians, there is a substantial number of people who may have been directly affected by the alleged counterfeit hardware,” stated the court. “Second, members of the public, as consumers of medical services, have an interest in being informed of issues concerning particular doctors and healthcare facilities.” And, as to the attorney's assertion that there had been a widespread illegal physician kickback scheme, that statement concerned the integrity of the health care system, which was also a matter of public concern, as were the statements alleging a senator was bribed and pushed through health care legislation because of it. The court therefore held that the first prong of the anti-SLAPP inquiry must be decided in favor of the attorneys.

Next month, we will look at the court's discussion of the second prong of California's anti-SLAPP statute and how its requirements were applied to the facts of Healthsmart Pacific Inc. v. (Brian S.) Kabateck.

*****
Janice G. Inman is Editor-in-Chief of this newsletter.