2015-09-24 [mtd and motion to strike] hearing transcript(1)

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Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - [email protected]

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Pages 1 - 63

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

Before The Honorable Vince Chhabria, Judge

ADP, LLC, a Delaware limited ) Case No. 15-cv-02560-VCliability company, )

)Plaintiff, )

)v. )

)YOURPEOPLE, INC., a Delaware )corporation d.b.a Zenefits )Insurance Services, and )PARKER CONRAD, an individual, )

)Defendants. )

_______________________________)

San Francisco, CaliforniaThursday, September 24, 2015

TRANSCRIPT OF PROCEEDINGS OF THE OFFICIALELECTRONIC SOUND RECORDING - FTR 10:12-11:34

APPEARANCES:

For Plaintiff:

Bingham McCutchen LLPThree Embarcadero CenterSan Francisco, CA 94111

BY: ROBERT ARTHUR LEWIS, ATTORNEY AT LAW

Morgan, Lewis & Bockius LLPOne Market Street, Spear Street TowerSan Francisco, CA 94105

BY: KRISTEN A. PALUMBO, ATTORNEY AT LAW

Transcribed by Kelly Polvi, Contract Transcriber, utilizingcourt reporting and transcription hardware and software.

APPEARANCES CONTINUED ON FOLLOWING PAGE

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APPEARANCES (Continued):

For Defendants:

Orrick, Herrington & Sutcliffe LLP405 Howard StreetSan Francisco, CA 94105

BY: ANNETTE L. HURST, ATTORNEY AT LAW

Orrick, Herrington & Sutcliffe LLP1152 15th St. NWWashington, DC 20005

BY: JEREMY PETERMAN, ATTORNEY AT LAW(Pro Hac Vice)

Orrick, Herrington & Sutcliffe LLP1000 Marsh RoadMenlo Park, CA 94025-1015

BY: SCOTT LONARDO, ATTORNEY AT LAW

ALSO PRESENT:David Kwon, General Counsel, ADP

Hillary Smith, General Counsel, ZenefitsJosh Stein, VP of Litigation, Zenefits

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THURSDAY, SEPTEMBER 24, 2015 10:12 A.M.

P R O C E E D I N G S

---000---

THE CLERK: Calling civil case No. 15-2560, ADP, LLC,

versus YourPeople, Incorporated.

Counsels, please step forward and state your appearances.

THE COURT: Before you make your appearance, I just

wanted to say to the lawyers who are here on the Keurig case,

we're planning to call you last and we have two more hearings

before you and I expect those two hearings will take a while.

So if you want to go wander the halls or be productive or

something like that, you're free to leave and come back at

about 11:30. I don't expect to finish up with the next two

hearings until then.

I just didn't want to totally waste your time, if you

prefer to do something else.

MR. LEWIS: Robert Lewis on behalf of Plaintiff ADP.

THE COURT: Good morning.

MS. HURST: Good morning, Your Honor. Annette Hurst on

behalf of defendants Zenefits and Parker Conrad.

And also, Your Honor, my colleagues with me today are

Scott Lonardo and Jeremy Peterman.


MS. HURST: And, Your Honor, the general counsel,

Hillary Smith, and vice president of litigation, Josh Stein, of

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Zenefits, are also here, present, this morning.

Thank you.

THE COURT: Thank you.

MR. LEWIS: My introductions were incomplete.

Kristen Palumbo's here with me.


MR. LEWIS: And also, in the back of the room, is an

attorney from ADP, David Kwon.

THE COURT: Okay.

So I guess, Ms. Hurst, maybe I want to start with you.

MS. HURST: Thank you, Your Honor.

THE COURT: And I think the primary question in this case

is whether the lawsuit will die a slow death or a fast death.

And let me explain what I mean by that.

Reviewing the motion to strike and looking at the

evidence that is submitted in connection with the motion to

strike, it seems clear to me that ADP has no claim for

defamation.

And in particular, I'm focusing on the fact that there is

evidence that two or three days after all of this went down ADP

is foisting a product on Zenefits' customers, Zenefits'

clients, and saying, "This product that we're offering you

competes with Zenefits', and it's a lot easier to just use us."

To me, to the extent that on a 12(b)(6) standard the

complaint could be read to state a claim -- I'm not sure it

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can -- but to the extent it could, it strikes me that that

evidence, that email, goes a long way towards blowing ADP's

defamation claim out of the water.

So I do want to discuss whether, just reviewing the claim

on the 12(b)(6) standard, there's enough to state a claim.

There may not be, and maybe the case dies a fast death.

But the reason why I think it's at least possible that it

could die a slow death is that I don't think you can win your

anti-SLAPP motion because I think the commercial speech

exception probably applies.

And that creates this kind of procedural quandary for us;

right? Which is, I've looked at evidence submitted in

connection with the anti-SLAPP motion, which can be considered

in connection with an anti-SLAPP motion, that has led me to

conclude that ADP has likely filed a defamation lawsuit that

has no merit whatsoever.

But if I'm right about the commercial speech exception

and I'm right that I have to deny your anti-SLAPP motion I

think I cannot -- I have to sort of erase that evidence that

you've submitted from my mind when I consider your motion to

dismiss on 12(b)(6) grounds.

That's a difficult thing to do. It also may create a

Rule 11 problem for ADP's lawyers for pursuing a lawsuit which

the evidence indicates they have no chance of winning.

So that's the procedural quandary. Maybe you can get us

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out of the procedural quandary by convincing me that I'm wrong

that the commercial speech exception applies to your anti-SLAPP

motion.

MS. HURST: I'll start there, Your Honor. I also would

address implicitly the first part of the Court's question,

which is can I do this under 12(b)(6) as well. If that's all

right with the Court --

THE COURT: You can address that.

MS. HURST: -- I'll address both of those, Your Honor.

Your Honor, the complaint in paragraphs 37 through 43

premises this lawsuit on the petition that was put up at

change.org complaining that ADP's conduct was unethical and

anti-competitive.

Your Honor, in particular, paragraphs 42 and 43 of the

complaint charge that the petition gathered 571 signatures of

current or potential ADP customers and individuals, that

Zenefits' false -- allegedly false statements engendered at

least 60 comments supportive of Zenefits.

That's paragraph 42, Your Honor.

And paragraph 43, ADP goes on to allege the petition, and

some of the negative comments were broadly distributed through

other social media channels, including via Twitter and

FaceBook.

This has generated an increasing volume of discussion on

blogs and digital media forums. For example, one blog posted

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an article entitled, "ADP intentionally broke its Zenefits'

integration," and so forth.

THE COURT: But putting aside, for the moment, the

petition, and just addressing that last point you made about

the -- it going to FaceBook and generating blog posts.

MS. HURST: Yes.

THE COURT: And there was even something in Politico, as

I recall.

MS. HURST: Business Insider. Forbes. TechCrunch. It

got a lot of attention, Your Honor. This was an issue of

public concern. It is.

THE COURT: But what does that have to do with the

language of the anti-SLAPP statute that creates the commercial

speech exception?

MS. HURST: So what that means, Your Honor, is the

commercial speech exception does not apply to the petition.

Because it is a statement that is -- the petition itself is

clearly covered under 42516(e)(3). And there's nothing about

42517(c), Your Honor, that can take that out of -- the petition

out of that protection.

And the reason -- Your Honor, the reason that we know

that is from cases like GA Telesis.

In the GA Telesis case, Your Honor, the Court said, when

you have mixed speech, you have mixed speech that's clearly on

an issue of public concern, there may also be commercial speech

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involved.

I don't concede that, for purposes of discussion. But

let's suppose that's true. The pleading of, quote, unprotected

theories does not eliminate or reduce the chilling effect on

the exercise of free speech.

THE COURT: But that case also says that if the allegedly

protected speech is -- or not "allegedly." If the protected

speech is incidental to the non-protected speech, then you

can't bring an anti-SLAPP motion. Right?

MS. HURST: That's right, Your Honor. But in no way here

could the Court conclude from the way the complaint is pled

that the protected speech was the incidental speech.

THE COURT: Well, I mean, from the way -- the paragraphs

that you point me to do not talk about -- so much about what

the speech was as what happened to the speech, how the speech

traveled in the marketplace of ideas after it was uttered;

right?

And the statute talks about what -- it doesn't talk about

where the speech goes after it is made, it talks about what

kind of speech it is. And whether the commercial speech

exception applies depends not, I think, on how the speech

travels, but what kind of speech it is.

And so -- and, you know, the way I read the email -- and

the petition -- you're focusing on the petition, so I'm happy

to focus on that -- but the way I read both the email and the

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petition is that they are motivated almost exclusively, if not

exclusively, to promoting Zenefits' products and services.

I mean, let's look at the petition. The petition is

Exhibit 2; right? Yes. The petition complains about ADP being

a big company that is using Zenefits as a pawn in its corporate

chess game, but that language is all geared towards convincing

people to do one thing, and that is to urge ADP's CEO to allow

ADP customers to use Zenefits in conjunction with ADP -- in

other words -- promoting the product.

And I don't -- just because it happens to be a petition

on change.org, I mean, at some point, in reading your brief, I

got the sense that maybe you were arguing that, in and of

itself, the fact that it's a petition on change.org means that

it cannot be considered commercial speech.

But that can't be right. I mean, to the extent people

can use change.org to urge one company to buy another company's

products, they're using change.org for the sole purpose of

promoting their products.

So -- and the petition in -- the change.org petition

basically says the same thing as the email.

And, to me, both of those seem like they're, like I said,

almost exclusively or exclusively directed at promoting

Zenefits' products, including, by the way, urging ADP

customers, offering ADP customers a thousand dollars to switch

from ADP to Intuit so that they can keep using Zenefits'

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products seamlessly with the payroll system.

MS. HURST: So this is where Simpson Strong-Tie v. Gore

comes in, Your Honor.

THE COURT: Okay.

MS. HURST: The problem is, the claim isn't premised on

Zenefits' statement about its own services. That's not where

the harm is alleged to have occurred.

And that thousand-dollar bounty is a great example.

They're not alleging the thousand-dollar bounty is false. The

statements that they allege are false that caused harm are the

statements about ADP.

And so, Your Honor, in --

THE COURT: Okay, what statements about ADP?

MS. HURST: That ADP blocked Zenefits without your

permission -- paragraph 31 and 38.

THE COURT: But that's --

MS. HURST: That ADP blocked Zenefits because it believed

that it can impede Zenefits -- 32 and 39.

That there -- ADP's measures were unethical and

anti-competitive.

This is all in the petition, Your Honor.

THE COURT: But what are those statements, if not an

effort to retain Zenefits' customers and to get people to move

from ADP to Intuit?

What are those statements, if not that?

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MS. HURST: Well, Your Honor, the bounty is not in the

petition. So let's start there. There is no thousand-dollar

bounty to switch to Intuit in the petition.

So the statements that I just read were in the petition

and the purpose is to --

THE COURT: And in the email.

MS. HURST: Yes. Absolutely.

THE COURT: Okay.

MS. HURST: And the purpose is to enlist the public's aid

in getting ADP to reverse its decision.

Zenefits already has these people as customers. They're

already -- you know, the subject -- the recipients of the

email, they're already customers.

So with the --

THE COURT: But wait a minute. So you're saying that if

it's the communication that's designed to retain customers, to

avoid losing customers, as opposed to gaining customers, that

it wouldn't be covered under the commercial speech exception?

MS. HURST: Well, it would depend on if it met the

requirements of that exception, Your Honor.

THE COURT: Right. But assuming it meets the other

requirements of the section, I mean, you're not saying that

that provision of the statute draws a distinction between

retaining customers and gaining new customers, are you?

MS. HURST: No, Your Honor.

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THE COURT: Okay.

MS. HURST: But for purposes of deciding what the

gravamen of the claim is under Simpson Strong-Tie v. Gore,

you've got to look at where the harm has alleged to have flown.

THE COURT: Okay. So show me the language in Simpson.

MS. HURST: Yes, Your Honor.

So at page -- let me just make sure I've got the right

page for the Court here.

At 49 Cal.4th at 32, the Court quotes from the way the

Court of Appeal had framed the issue in that case approvingly

and says, "The Court of Appeal stated the issue succinctly. To

the extent that Gore's advertisement consists of

representations about his services, Simpson's action does not

arise from it. To the extent that Simpson's action arises from

a representation by Gore, the representation was not about

Gore's or a competitor's services or business operations."

So, Your Honor, to the extent the statements are

laudatory about --

THE COURT: Wait, who was Gore?

MS. HURST: Gore was the --

THE COURT: Gore was the lawyer?

MS. HURST: -- lawyer, Your Honor. That's right.

THE COURT: But that's because Gore was not making the

representation about somebody who was competing with Gore.

But everything in the petition and the letter -- which

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was emailed to the ADP slash Zenefits customers, was either a

representation about ADP or Zenefits.

And as we know, to the extent there was any doubt on

June 4th, by June 7th we know that ADP and Zenefits were

competitors.

MS. HURST: Well, Your Honor, at the time the petition

was stated, and on its face, it describes a relationship of not

yet competitors.

THE COURT: Wait a minute. But -- no, because --

MS. HURST: At that relationship was one of supplier- --

THE COURT: But you -- but Zenefits characterized ADP as

a competitor.

MS. HURST: No, Zenefits characterized ADP as a future

competitor explicitly in the petition, Your Honor. It said

they believe they will some day be able to build competitive

software and, in the meantime, they want to impede us.

That's what it says --

THE COURT: And so do you believe that that's -- the

statutory exception for commercial speech draws that

distinction?

MS. HURST: Yes. Because it says "competitor." It

doesn't say "future competitor," Your Honor.

THE COURT: Well, wait a minute. What's the definition

of a future competitor? I mean, if somebody is trying to

complete with me today, or they're laying the groundwork to

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compete with me, or they're building a product that is going to

be designed to compete with me today and they don't launch the

product until next week, they're a competitor with me today,

aren't they?

MS. HURST: Not on the facts here, Your Honor. And the

reason is because the petition is not about what's going to

happen at that future point; it's about the shutoff now. And

the shutoff, Your Honor, is in the supplier relationship. The

shutoff is in the reseller relationship. The shutoff is not

about horizontal competition; it's about a vertical

relationship that existed at that moment in time between ADP

and Zenefits.

And Zenefits' petition protests the shutoff, Your Honor.

And that's the gravamen of that petition and it's the gravamen

of the email as well.

And the shutoff occurs only in the vertical relationship,

in the supplier-reseller relationship.

Sure, sure, Zenefits is saying the reason they're doing

this is because --

THE COURT: Is because they're competing.

MS. HURST: Because they want to compete with us in the

future and, you know, who could know that, you know, just two

days later you would get the email actually confirming yes,

your suspicions were correct.

But at the time that speech was made, Your Honor, it was

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made about a supplier-reseller relationship and a fear of

threatened future competition.

On its face, it describes the parties' relationships as

"not yet competitors."

THE COURT: Okay. Anything else on commercial speech?

MS. HURST: Your Honor, one of the questions here is a

relationship between 42516 and 42517.

THE COURT: Okay.

MS. HURST: Because this does meet the test for 42516.

And so a question is whether the California legislature

actually intended that everything that meets the test under

42516 would then get excluded under 42517, Your Honor.

THE COURT: Okay. Talk to me more about that. Is there

any -- I assume there's no legislative history on that.

MS. HURST: Your Honor, the only relevant legislative

history here is back-sided in the Simpson case, Your Honor.

And what it says is the legislature considered simply

saying that if it's a class of people that is businesses who

are competitors then we'll knock it out. Period.

And the legislature decided not to do that, not to make

it a matter of identity politics -- if you will -- here.

And the reason that that is important in this context,

Your Honor, is because of the long line of California cases

that say when you're speaking to consumer interests, cases such

as Long v. Jay [phonetic] in the silver filling case, when

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you're speaking to consumer interests, that is absolutely

protected under 42516.

And, Your Honor, the reason here that it matters that at

the time of the petition and the email they were not

competitors is because the content of the petition and the

content of the email is about those consumers, the small

businesses whose interests are being harmed by ADP's action.

And so the content of the speech is like all that speech

in that other long line of cases. And the only difference

here, Your Honor, is that you have a business that's

economically motivated as the proxy for those consumers to

bring the bad act to their attention.

And in Simpson v. Strong-Tie -- or pardon me, Your Honor,

Simpson v. Gore, the Court noted that the legislature didn't

decide to just disqualify the thing from 42516 based on whether

it was a business.

And so what we have here, in effect, is an argument:

"Well, because they are competitors, then it's disqualified."

And that can't be right. That's not what the California

legislature decided.

And that's where the mixed-message cases come in,

Your Honor. Because in GA Telesis and the other mixed-message

cases -- even Makaeff v. Trump University, Your Honor, the

Court said some of this is about public concern and some of

it's not. Some of it's motivated to get private resolution.

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Then you really do have to apply the gravamen of the cause of

action or the incidental -- which is incidental to what test,

Your Honor. And in doing so, GA Telesis says you've got to be

protective of the speech on the issue of public concern.

And that's consistent, Your Honor, with the statutory

language. Because the statutory language still says 42516 is

supposed to be broadly construed. And the legislature did not

say that 42517 was supposed to be broadly construed.

And so the effect, as noted in GA Telesis, Your Honor, is

that the plaintiff can't mix it all up and in that way get at

the protected speech. They're not allowed to do that.

And so, Your Honor, for that additional reason I would

respectfully submit the commercial speech exception does not

apply to either the petition or the email.

THE COURT: Okay. I'll look at that further.

Now, do you want to say a little bit about what -- if

your motion to strike gets denied, can you win on your

12(b)(6)?

MS. HURST: Yes.

So, Your Honor, recognizing the problem that the Court

identified, we tried to divide it up in terms of our

evidentiary presentation.

THE COURT: Could I ask -- sorry to interrupt.

MS. HURST: Yes.

THE COURT: But let me ask you one sort of initial

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question about that.

Has any Court discussed this quandary? I mean, I'm

guessing that Courts have been put into this situation before,

when a motion to strike and a motion to dismiss is filed, and

the Court concludes that motion to strike should be denied

because it falls under one of the exceptions or something like

that and then that means it can't consider the evidence

submitted in connection with the motion to strike.

Do you know? Has anybody written on this problem?

MS. HURST: Not that I've seen, Your Honor.

THE COURT: Okay.

MS. HURST: Usually they grant both, yeah, so -- or deny

both. Because, Your Honor, for all the reasons why a claim

would be legally defective in the motion to dismiss context

would also support the motion to strike.

So, Your Honor, the request for judicial notice that we

submitted is the materials that can properly be considered on

the motion to dismiss because they're all relied upon and

referenced in the complaint.

And I take a moment to note, Your Honor, that it's

somewhat surprising that ADP didn't include the entirety of the

petition and the email and other matters in the complaint.

In any event, the Court can certainly consider those,

including, Your Honor, request for judicial notice, Exhibit 4,

which is the ADP communication that started all of this.

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Because they relied upon that in their complaint; they

discussed it at length.

So they started it with this communication that said

Zenefits access to your data in our ADP RUN system causes

security problems.

And it was in response to that --

THE COURT: They don't explicitly say that, but I guess

your character- -- I guess I do agree with your

characterization of it. That the pretty strong implication of

that email is that there's a security issue.

MS. HURST: Very strong, Your Honor.

THE COURT: Okay.

MS. HURST: "Anyone with administrative access to your

RUN account has access to your payroll and tax data, your

historical reports, your HR details and documents.

"This access can create risks with the security and

accuracy of your account.

"Keep your data safe and secure. If you need assistance

in limiting third-party access, call us."

THE COURT: I find it weird that this email does not say,

"We're shutting Zenefits down."

What do you make of that? Or what should we make of

that, in the context of this motion to dismiss?

MS. HURST: Well, what we should make of it, Your Honor,

is that they say in the complaint that that's not the reason

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they shut Zenefits down.

And the significance of that, for purpose of the motion

to dismiss, is that Zenefits was right that there were other

reasons for shutting them down.

So what Zenefits reasonably perceived -- the Court can

see from this series of events -- as a security reason for

shutting them down, but not knowing what was happening in spite

of ADP, means that Zenefits and Mr. Conrad were reasonable in

concluding that security was a pretext for the action.

THE COURT: Right.

MS. HURST: In fact, they admit it was not the actual

reason, and so this conclusion of pretext was correct.

THE COURT: Okay. I get that.

MS. HURST: So why does this matter -- why does it

matter, Your Honor -- not to be childish about it, but "ADP

started it." It matters for the Public Figure Doctrine,

Your Honor. Really matters.

So, Your Honor, we believe that ADP is a public figure

under Gertz, under both tests, both the general purpose test

and the limited purpose test, but for sure, given the "ADP

started it" sequence of events here, they injected themselves

by starting this controversy among hundreds, if not thousands,

of mutual customers.

THE COURT: Well, they didn't, like, you know, urge

people to sign a petition on change.org or anything.

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MS. HURST: No, but --

THE COURT: They just sent --

MS. HURST: -- having started the fight, they are now --

have now injected themselves in a way that absolutely satisfies

the limited purpose Public Figure Doctrine.

And then they continued to engage -- and, Your Honor, I

really --

THE COURT: Well, could I ask you one question about

that?

MS. HURST: Yes.

THE COURT: You're saying that it's relevant to the

Public Figure Doctrine, but could it also be rel- -- could the

whole "ADP started it" point also -- be relevant to whether the

statements are act- -- the statements by Zenefits are

actionable, regardless of whether it's a public dispute or a

private dispute?

MS. HURST: Yes. Yes. Because it provides the context

and the tenor, Your Honor, of a public argument. Or at least a

very widespread argument among a lot of small businesses.

THE COURT: But why does it matter that it's public? I

mean, wouldn't it also be relevant just because ADP -- whether

you consider it private or public, ADP sent an email to a bunch

of customers, Zenefits' customers, that effectively trashed

Zenefits, and then ADP shut Zenefits out and Zenefits is

understandably very upset about this and sends a somewhat

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vitriolic letter to its customers in response to that?

I mean, doesn't -- I guess what I'm asking is, I mean,

the fact that ADP quote/unquote started it, I mean, isn't that

relevant to considering the context, regardless of whether --

relevant to considering whether Zenefits' statements are

actionable --

MS. HURST: Yes.

THE COURT: -- regardless whether we characterize it as a

public or private dispute, which I find rather difficult?

MS. HURST: It is, Your Honor. It is relevant.

THE COURT: And why?

MS. HURST: Because the audience has all the information

they need to understand what's happening here. The audience

are these mutual customers. They've first gotten one

communication from ADP, as the Court put it, basically trashing

Zenefits, and then they get Zenefits' response saying, you

know, that was totally unwarranted trashing, and that is the

response in which there's, you know, the tenor is, first of

all, a petition, which is significant in terms of tenor,

Your Honor. An appeal to collective action. That's an

argument. It's, on its face, framed as, "Now we're having an

argument about this."

Then you've got the colorful language: High-handed.

Corporate chess game. Unethical. Anti-competitive. The

Court's word "vitriolic" I think is a fair one.

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And, Your Honor, then -- so then we look at those two

facts and, say, "Weigh that against anything in here that might

be susceptible being proved true or false."

Which there's not much of, Your Honor. Not much, if

anything.

And, Your Honor, the fact that they started it gives the

context for the debate in the framing of the pleading.

If we knew more, if we had also the evidence from the

motion to strike, we would also know that ADP publicly

continued the debate by putting things on their website, that

they said "Let the marketplace decide," which is the core of

the Gertz's policy, and then, when they were losing, when they

didn't like the comments and the emails they were getting,

that's when they came to court.

But we can stop there at the response and know,

Your Honor, that, from the overall context, the motion to

dismiss should be granted.

Now, Your Honor, the question on public figure is not

just whether the issue was one of public interest. The

question is whether ADP is a general or limited purpose public

figure for purposes of the speech at issue, whether you call it

public interest speech or not.

And so, Your Honor, as an aside, Your Honor, in Rosenblum

the Court would have traded newsworthiness as the central

consideration, and it's not clear whether the Court carved back

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on that in the corporate context.

But assuming that Gertz applies to a corporation and that

corporations -- big public corporations like ADP aren't just

automatically public figures -- which is one of our contentions

here, Your Honor -- nonetheless, we look at Gertz, and Gertz

says there are two reasons why the Public Figure Doctrine

should apply. First, the availability of self help. Public

figures usually enjoy significantly greater access to the

channels of effective communications. And second, Your Honor,

that the plaintiff has assumed a role of special prominence.

Both of those things are true here. ADP has pervasive

fame and notoriety in the payroll services business.

Your Honor, the 10(k), which is also reasonably subject

to judicial notice and considerable -- to be considered on the

motion to dismiss, as well as their complaint, makes clear

they're a giant public company. They process 625,000 business

customers in 125 countries.

They are a public figure. $60 billion market cap? They

are a public figure, Your Honor.

But even if they weren't a general-purpose public figure,

here they injected themselves by starting it.

THE COURT: Well, but I don't know. I mean, they sent an

email to their customers who also used Zenefits. And they

didn't do a press release; they didn't do an announcement.

They sent an email to their customers.

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And so, you know --

MS. HURST: So that what's happened in Beech, Your Honor.

THE COURT: Mm-hm.

MS. HURST: That's also what happened in Beech. There

were, you know --

THE COURT: Remind me what Beech was about. I don't

think I've read Beech yet.

MS. HURST: Yeah, let me just make sure, Your Honor,

before I -- there's two aviation cases, Your Honor, and I want

to make sure I don't have them mixed up.

(Pause in proceedings.)

MS. HURST: Your Honor, I'm mistaken. I was thinking of

GA Telesis rather than Beech.

THE COURT: Okay.

MS. HURST: I apologize.

THE COURT: That case, I've read.

MS. HURST: Yep.

Your Honor, the fact that they sent the email to hundreds

of companies in which multiple employees work --

THE COURT: Because in GA Telesis they sent a letter to

three companies; right? The three suppliers, or manufacturers,

or whoever they were.

MS. HURST: Yes.

THE COURT: But that case went off on a different point.

MS. HURST: Went off on a different ground, Your Honor.

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THE COURT: Okay. All right.

MS. HURST: The public figure ground. The Court's

absolutely right.

Your Honor, the main cases here on public figure are

Mattel v. MCA; Beech; and Reliance, Your Honor.

In all of those cases, the Court found that the

corporation plaintiff was a public figure. And it was a

combination of, Your Honor, them being particularly notorious

in the field in which the statements were made -- which is

clearly the case here, Your Honor -- and the fact that there

were statements made before and after -- if you look at MCA

Records, Your Honor -- both before and after the matter had

become the subject of even greater public scrutiny.

So maybe this is a slow death problem. I don't think it

is, Your Honor. It's clearly a slow death problem because on

summary judgment the Court would be able to consider the fact

that they put up a posting with a point-by-point refutation

that said, "Let the marketplace decide."

That's -- you know, that's it on public figure. They're

conceding the very premise under Gertz for its application.

So should the Court wait? No. The Court should not wait

because it has enough now, with their injection, to find -- and

their notoriety, and the subject matter, all of those things

put together -- to find public figure.

And of course the significance of that, Your Honor, is

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that they did not allege actual malice.

THE COURT: Right.

MS. HURST: They did not -- and they concede they did not

allege actual malice.

Your Honor, I take to heart the Court's comments as to

whether they could properly allege actual malice on the facts

here, and so I would say in that final regard, Your Honor,

regarding the relationship between the motion to dismiss and

the motion to strike, if the Court were to grant the motion to

dismiss --

And by the way, Your Honor, just for a moment, on the

federal false advertising claim, which is the only reason we're

here in federal court, that Lexmark case makes clear that the

thousand-dollar bounty cannot be a hook for standing under the

(indiscernible.) That's where they -- really, where they

alleged lost customers.

But that's not the false statement. And so that claim

goes, Your Honor.

Your Honor, so -- when you look at that, that's the only

reason we're in federal court. All the other claims are

defective. The motion to dismiss should be granted.

Having said that, Your Honor, the question, then, is

would that moot the motion to strike in some way. And the

answer is no, if they want to -- if they really want leave to

amend. Okay?

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But, Your Honor, we're willing to let this be the end of

it.

I'm just going to say -- for Zenefits and Parker Conrad,

if they say, "You know what? I won't seek leave to amend. If

the Court's going to dismiss, that's it," we're willing to say,

"Okay. Enough is enough."

And, Your Honor, this case does not belong in federal

court. These parties can both fight it out in the court of

public opinion.

THE COURT: This case does not belong in court.

MS. HURST: Correct, Your Honor.

THE COURT: All right.

MR. LEWIS: Well, that's a tough statement to follow up

on, Your Honor. I'm going to have to try to persuade you that

it certainly does belong in court.

THE COURT: I'm willing to be persuaded.

MR. LEWIS: And my concern is that somehow the facts that

have been introduced by ADP in this case have been either

forgotten or ignored.

So, for example, such things as "ADP started this" and

the Court's concern that some email later, to which we've

objected -- and I don't think there's an evidentiary basis for

it today anyway -- somehow undoes the libel claim.

I don't think that works factually.

So let me just, for a minute --

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THE COURT: Talk to me about that.

MR. LEWIS: -- go back to what the facts --

THE COURT: Talk to me about -- talk to me, though,

about -- since you mentioned it, why does -- okay. So just to

sort of summarize the dispute; all right? Zenefits has a

product that works with ADP. Works with ADP's product.

On June 4th --

Maybe it was June 3rd; I don't remember the exact date.

I think it was June 4th. No, actually, I think it was

June 5th.

-- ADP sends an email to Zenefits' customers raising

concerns -- security concerns about Zenefits' product.

On the same day, or the day after, ADP denies access to

the ADP system for people with Zenefits emails.

On the same day, Zenefits' CEO sends an angry letter to

Zenefits' customers who also use ADP for payroll. And one of

the things Zenefits' CEO says is their concerns about security

are not true, what's really happening here is ADP's trying to

freeze us out because they hope to introduce a competing

product, a product that competes with Zenefits'.

And then, three days later -- maybe it was two days

later -- ADP people start emailing their customers, customers

who use Zenefits, and say, "Hey, we got this new product that

competes with Zenefits. You should use this product instead of

the Zenefits product. It's a lot easier to change your

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benefits person than it is to change your payroll person."

How is that not relevant to your defamation claim?

MR. LEWIS: Well, first of all, those facts are wrong, as

presented by the Court.

THE COURT: Okay, tell me why.

MR. LEWIS: Well, let me do it. Because it's in the

declarations.

So here's what really happened: Zenefits never

integrated with ADP.

THE COURT: You're using -- I didn't say -- in my

recitation I did not use the word "integration." And I did not

use the word "integration" intentionally because you are trying

to use a hyper-technical definition of the word "integration"

to allege that what they said about integration is false.

That's -- that argument is ridiculous.

MR. LEWIS: Well --

THE COURT: But I didn't say -- I didn't -- so you said

that my recitation of the facts are wrong. And the first thing

you said is that it's wrong that Zenefits was integrated with

ADP. I didn't say that.

So what about the facts that I recited to you are wrong?

MR. LEWIS: I'll use a different word.

Zenefits never worked with ADP -- as other vendors of its

ilk do -- to properly and safely and securely obtain

information from ADP's RUN database.

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THE COURT: Okay, but what about the facts that I've

recited --

MR. LEWIS: I'm getting to them.

THE COURT: -- are wrong?

MR. LEWIS: They never did that.

In late May of 2015, ADP started getting horrific

problems in their database for this RUN system and made them

have to take certain actions to try to deal with them --

THE COURT: Right.

MR. LEWIS: -- and to try to figure out who was causing

those.

THE COURT: Right.

MR. LEWIS: In June 3 and 4, when the spikes got even

worse, they figured out who it was, and it was Zenefits.

THE COURT: Right.

MR. LEWIS: So Mr. Anderson -- Richard Anderson, not

someone else -- made the decision to cut off access to the RUN

system by Zenefits.com addresses to make sure that the system

was not imperiled.

THE COURT: Right.

MR. LEWIS: His only reason for doing that was the danger

to the database that ADP had. That's all.

That's what they did. That happened on the 4th and the

5th.

So they -- so those people were cut off at Zenefits.

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Now, independently, completely differently, different

group of people, even, had he in earlier May seen that they're

getting a lot of requests from Zenefits for administration

accounts. Somebody said, "That's somewhat concerning because

that means somebody is getting into these accounts and are able

to change data in there, and so -- and we've never vetted how

they do it and the security on which they -- for they use for

it."

So that was a concern. That was brought up to a

different group of people.

THE COURT: And where's that in the complaint?

MR. LEWIS: That's in the McGinness declaration.

THE COURT: Where is that in the -- that's not in the

complaint, that's in the McGinness declaration.

Okay. Okay.

MR. LEWIS: And then -- well, I'd have to look. It may

be in the complaint itself. It's in the McGinness declaration,

anyway.

And so, quite independently, they decide what they should

do is --

Well, they do two things. In May, they actually start

cutting off new requests from Zenefits.com to sign up as

administrators until they can figure out something for

security, and then they send out, on June 3rd -- not knowing

anything about the database problem because these are people in

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a different area of ADP entirely -- they write that email,

which all it says is -- it's not intended to be pejorative or

anything, it just says: Please be aware that you've given

somebody administration credentials and that allows them to get

into your system and make changes that we don't know about.

THE COURT: Because you're given somebody? Is that what

the email says? You've given somebody administrative

credentials?

MR. LEWIS: Well, it probably says "Zenefits."

We have it in front of us.

THE COURT: "We are contacting you because we noticed

that one of your RUN powered by ADP users has an email address

with Zenefits."

MR. LEWIS: Yeah. So it's that very issue. Sure.

THE COURT: Okay.

MR. LEWIS: So that issue is for anybody where -- so all

they were doing is letting them know that -- make sure you

understand that they could get to all your information and now

have the right to change your information.

ADP doesn't know what changes are made, and so now it

can't be sure things are right or wrong in your system anymore.

So -- it doesn't say we're going to do anything about it,

it just says that.

THE COURT: Did Zenefits and ADP not have any sort of

contractual relationship at this point?

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MR. LEWIS: The only contractual relationship they had

was one that was -- started into in early 2004 and it was a

referral agreement. And so if --

THE COURT: What was the referral agreement?

MR. LEWIS: The referral agreement was if Zenefits had

customers that they've sent on to ADP that became ADP

customers, Zenefits would get some money from ADP.

THE COURT: Mm-hm. The whole idea being everybody

knew -- this was no great surprise to ADP in June of 2015 --

that there were lots of Zenefits and ADP customers out there

and Zenefits was doing what it was doing.

Maybe you didn't know how Zenefits was doing it.

MR. LEWIS: They did not; that's right.

THE COURT: But you knew that there was a relationship

between Zenefits and -- that plenty of customers out there were

using Zenefits to operate the payroll and benefit system --

MR. LEWIS: Yes.

THE COURT: -- for them.

MR. LEWIS: Yes. And we did not know how. And the

problem was, when we finally figured out what they were

doing --

THE COURT: It's not like, "Oh, my God. Zenefits is

sneaking into our system."

MR. LEWIS: No.

THE COURT: Right.

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MR. LEWIS: And I don't think ADP, as long as it didn't

create a harm, or potential harm, to the database -- because

the database isn't just for Zenefits' customers, it was -- this

particular database had --

THE COURT: So why would --

MR. LEWIS: -- 84,000 others.

THE COURT: I don't understand. If ADP was fully aware

that Zenefits was working for these companies and operating

their payroll and benefits systems, why would ADP care that

people with Zenefits' email addresses had access to customer

accounts?

MR. LEWIS: Because they could make -- ADP normally --

THE COURT: What security concern, that was written about

in this email, was presented by Zenefits?

MR. LEWIS: Because another party had, now, access to all

that information. And so another party could be hacked --

THE COURT: But companies -- small businesses hire

outside third parties all the time to administer their payroll

and benefits systems. All the time.

MR. LEWIS: This is different than that, though. This

is -- the information that's in ADP's system. ADP allows

people into that system on particular terms and conditions.

These are none.

So that was ADP's concern. Because they were coming in

in a way ADP didn't know.

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THE COURT: But ADP had entered into this business

relationship with Zenefits where they were cross-promoting each

other.

MR. LEWIS: I don't see the relationship at all. One

is -- that's right. We know you have customers --

THE COURT: What do you mean you don't see -- you

described the relationship to me just now.

MR. LEWIS: I don't understand the connection between the

two the Court's trying to draw.

The fact that Zenefits is around and has customers that

might go to ADP for which ADP might pay Zenefits has nothing to

do with whether the way Zenefits does it creates a potential

security risk that the ADP's and joint Zenefit customers ought

to know about.

So that's a simple thing. And that's all that thing said

was, you have to be aware that, since you've given them this

kind of access, it has these possible ramifications. That's

all it says. Nothing more or nothing less.

And it has nothing to do with why the Zenefits.com

addresses were cut off.

They didn't know about the group. That's in the

McGinness declaration; that's in the Anderson declaration.

And so --

THE COURT: So -- but the real question here is whether

the letter sent by the Zenefits CEO and the petition have

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actionable statements in them.

MR. LEWIS: Yes.

THE COURT: That's the real question.

MR. LEWIS: That is.

THE COURT: So why don't you tell me which statements

in -- let's start with the letter; shall we?

MR. LEWIS: Sure.

THE COURT: Why don't you tell me which statements in the

letter are actionable -- or potentially actionable, depending

on how the facts come out.

MR. LEWIS: Right. And these are pleaded and we also

have them summarized in footnotes in both of our --

THE COURT: I'm interested in the -- looking at the

actual letter, not your summary of the letter.

MR. LEWIS: That's fine.

THE COURT: You have the letter?

MR. LEWIS: I do.

THE COURT: Okay.

MR. LEWIS: It's, in fact, Exhibit 1 to the request for

judicial notice.

So the first one is in paragraph 3. "Yesterday, without

your permission, ADP systematically deactivated these

accounts."

THE COURT: Without your permission?

MR. LEWIS: Right.

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THE COURT: But without your permission -- I mean, you

have a very hyper-technical definition of "without your

permission." And these are not lawyers that you're -- to use

the language of another case -- I don't remember which one it

is -- but these are not lawyers that you were sending the

letters that -- that Zenefits was sending the letter to.

That phrase -- "without your permission," that phrase, is

used colloquially.

And what it means -- what it would mean to any normal

person is not, "Oh, when you signed up with ADP you didn't give

them the authorization to do something along these lines," what

it means, to any normal person who runs a company and has to

worry about whether their employees are going to get their

benefits or whether the system has been shut down is, "Hey,

they made this change without your permission, without calling

you, without notifying you, without letting you know, without

asking you, that is really going to affect the ability of us to

deliver benefits to your employees."

That's a totally reasonable interpretation of that

phrase. Far more reasonable than the hyper-technical one

you're trying to impose on it.

MR. LEWIS: I don't need that hyper-technical one. What

I think that really does, for somebody who is a layperson,

says, "They shut it down without your permission and they

needed your permission, so that's a bad thing."

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Why say it, otherwise?

THE COURT: Okay.

MR. LEWIS: You could just say they shut it down.

THE COURT: What else? What else?

MR. LEWIS: All right. The second one is, the reason for

this is that ADP believes that one day it can build software to

compete with Zenefits.

THE COURT: Okay.

MR. LEWIS: Now, that one could -- we'll get to this

email that you've talked about -- that one could run into that

statement.

And in the meantime --

THE COURT: Wait. Sorry. I didn't understand what you

were saying.

MR. LEWIS: Oh, I'm sorry. The Court has indicated its

reliance on an email from an ADP person.

THE COURT: Not for purposes of the 12(b)(6) motion.

MR. LEWIS: Exactly.

THE COURT: Okay.

MR. LEWIS: All right. So this statement then, by

itself, without looking at it, is defamatory.

THE COURT: That -- okay. "ADP is claiming they're

taking this action for security reasons, but this is clearly

not true. For years" -- blah, blah, blah, blah.

Where is it? Where is the -- where is the sentence?

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MR. LEWIS: Well, the one that would be wrong was in the

paragraph just before that.

"The reason for this is that ADP believes it can one day

build software to compete with Zenefits."

THE COURT: Got it.

MR. LEWIS: That's false.

THE COURT: And so that is -- so that statement, you

allege, in the complaint, is false. That ADP believed it can

one day build software to compete with Zenefits.

Now, putting aside the email from two days later from ADP

to Zenefits' customers saying, "We have software to complete

with Zenefits'," putting that aside, for purposes of this

discussion, that statement is actionable because -- I mean, for

that statement to be actionable, the reader of that letter

would have to believe that Zenefits was in a position to know

what ADP believed at the time; right?

Is that a correct statement?

For that -- for that statement to be actionable, for the

statement about ADP's belief --

MR. LEWIS: Yes.

THE COURT: -- to be actionable --

MR. LEWIS: It would have.

THE COURT: -- the reader of this letter would have to

believe that Zenefits is in a position to know what ADP

believes about its ability to build software in the future.

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Is that a correct statement of the law?

MR. LEWIS: I think that is, yes.

THE COURT: Okay.

MR. LEWIS: And here that's true because, as you're

reading in this letter, the CEO points out about their close

relationship with ADP.

So a reasonable reader of this would say, "Yeah, and

there's a guy who ought to know what he's talking about."

THE COURT: Okay.

MR. LEWIS: So I don't have a problem with that either.

THE COURT: Okay.

MR. LEWIS: The second part of that is also false. "In

the meantime, they would like to do anything they can to impede

Zenefits."

So this statement is, the reason they cut you off without

your permission was because one day they believe they can build

software, and, in the meantime, they like to do anything they

can to impede you.

THE COURT: So "they'd like to do anything they can to

impede" sort of hooks back onto the statement about the

belief --

MR. LEWIS: Yeah.

THE COURT: -- about ADP's belief that it's going to --

MR. LEWIS: It's the second explanation for the reason.

THE COURT: Okay.

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MR. LEWIS: That's exactly right. That, is also,

defamatory.

THE COURT: Okay.

MR. LEWIS: In the next sentence -- next paragraph,

"ADP's claiming that they are taking this action for security

reasons, but this is clearly not true." This is false two

ways. ADP wasn't claiming they were taking it for the security

reasons, and certainly the action wasn't taking for security

reasons. So that's doubly false.

THE COURT: Well, but wait a minute. At the same time

that ADP shut Zenefits down it sent an email to ADP's slash

Zenefits' customers saying there are security problems with

Zenefits.

So you say that it's false in two ways. I mean, isn't it

reasonable for Zenefits to conclude, in light of the context,

that the reason ADP is shutting Zenefits down is security

reasons?

MR. LEWIS: No.

THE COURT: Given that email?

MR. LEWIS: No, I don't think it is at all. Because they

also knew the problem we stated we were having, that we were

having trouble with the database. So no.

THE COURT: Okay.

MR. LEWIS: This is just false statement.

Then it says -- goes on: For years, ADP has led

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customers and third parties. They had people -- I'm

paraphrasing now. What Zenefits does is no different.

That's absolutely untrue, And Zenefits knows that's

untrue.

It's nothing like what the other people do.

THE COURT: Well, again, I think that falls in the same

category as your argument about "integrated," and it falls into

the same category as your argument about "without your

permission," is that you're being very hyper-technical about it

instead of colloquial.

I think colloquially, I think it is true that -- based on

the facts alleged, that Zenefits -- on a 10,000-foot level,

Zenefits -- or even a 1,000-foot level, Zenefits does the same

thing that another third-party administrator would do when

handling payroll and benefits for a small business. They

happen to do it in a different way, but, on a fundamental

level, they're doing the same thing.

MR. LEWIS: Well, you go on a high enough fundamental

level, we're all doing the same thing.

I'm not sure that works here, especially for these

people, who know darn well what Zenefits does -- because it's a

Zenefits customer -- and they know what they had their own

bookkeepers and stuff doing.

They know -- even they --

THE COURT: You didn't even know how Zenefits was doing

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it. Why do you think that the customers --

MR. LEWIS: Well, they know they're not -- they're not

doing it the same way as a bookkeeper.

THE COURT: Okay.

MR. LEWIS: That, they do know.

THE COURT: Next:

MR. LEWIS: In fact, even today, ADP will (indiscernible

- reading) third-party administrator (indiscernible - reading)

payroll unless they have a Zenefits.com email address.

That's not so. There's a protocol for doing that that's

in the user agreement. And that's attached to our documents as

well. That's the McGinness declaration.

So that's not a true statement either.

THE COURT: Is that material in any way?

MR. LEWIS: Well, yes, it's another false statement.

So I think these are all material.

THE COURT: Okay.

MR. LEWIS: In the next sentence, the statement is,

"Zenefits is still completely compatible with ADP payroll."

That's not true. It's not true in two ways. It was

never completely compatible, and it certainly isn't, at this

point.

THE COURT: My view on that is the same as the "without

your permission" and "integrated" and all that.

Next.

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MR. LEWIS: All right. It says that ADP has decided to

create more work for their own clients in order to attack

Zenefits.

That's not true.

Paragraph two more down: They repeat that "without your

permission" and they state ADP is creating a complication for

even their attempt to block Zenefits service. That's not true.

THE COURT: Why not? Why is that not true? I mean,

blocking Zenefits does create -- they block Zenefits' service,

and that does create complications for the clients; right?

What's not true about that?

MR. LEWIS: It would suggest that they were blocking the

service improperly with Zenefits.

THE COURT: Well, no, what it says is it's creating this

complication for you -- that's true. It created a complication

for that them -- in their attempt to block Zenefits' service.

It was an attempt to block --

MR. LEWIS: Well, I'm not sure that's true either because

there's a question about complication. Since nothing stops a

customer from still using RUN. Nothing stopped it even then.

THE COURT: Yeah, but they were using Zenefits to use

RUN.

MR. LEWIS: Right. But you could just do it in a

different way.

THE COURT: That's not a complication?

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MR. LEWIS: It would depend.

THE COURT: Okay. Next.

MR. LEWIS: That's probably it for this document.

THE COURT: Okay. Now, you wanted to talk about the

email? Or did you -- were you done talking about the email?

MR. LEWIS: This was the email.

THE COURT: The email -- I'm sorry. The email from ADP a

couple of days later to Zenefits slash ADP customers.

MR. LEWIS: Yep. First of all, as the Court has noted,

that's not in evidence on this motion. We objected to it. It

was double hearsay in the other motion, so I'm not sure it

should be in front of the Court there.

But that's an email from one ADP low-level sales

associate, and it's incorrect. It was something that later,

because --

THE COURT: What do you mean it's incorrect? What part

is it incorrect? The part that says we have a new product to

compete with Zenefits?

MR. LEWIS: As I understand it, that part's incorrect,

yes. The name of it. Of any product. There is no such name

on a product at ADP that that person had. There's no free

product at ADP.

So yes, as I understand it, it is wrong in virtually

every material respect.

Also, the Court indicated that it was under the

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impression that lots of these emails had come from ADP. That's

false. There's no evidence of that at all. The only

evidence -- and it shouldn't be evidence -- is this single

email from this one guy.

And, as I said, ADP, in the press, would add a correction

on that. Because there was some press going back and forth on

it, F-word, saying it was incorrect.

THE COURT: Is that in the record?

MR. LEWIS: That is not in the record.

THE COURT: Okay.

On a motion to strike -- I mean, if I decide that the

commercial speech exception doesn't apply, I mean, you have a

burden of showing a probability of success; right?

MR. LEWIS: I do. Although you have to first --

THE COURT: What evidence do you put in to refute

Zenefits' arguments in support of the motion to strike?

Do you --

MR. LEWIS: I have three declarations.

THE COURT: Did you put any evidence to refute the

substance of that email that the low-level employee sent to a

Zenefits' customer that you contend was completely wrong when

it offered a new product to the customer that competes with

Zenefits?

MR. LEWIS: We did not put evidence in on that point.

THE COURT: Okay.

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MR. LEWIS: Because we thought it was -- first of all --

THE COURT: Inadmissible.

MR. LEWIS: -- evidentiary-ali incorrect, and secondly --

THE COURT: Well, if you thought it was factually

incorrect you should have put evidence in to refute it. But

your contention is that it's inadmissible.

MR. LEWIS: It is inadmissible.

THE COURT: Okay.

MR. LEWIS: And, should we need a motion to amend, we

certainly can add information as to that. Because it is an

incorrect statement.

But that statement by itself, from the statements I just

went through -- and if the Court is expressing some reticent to

claim what I think the jury would find, that these are

defamatory statements, and I think the jury is, under the law,

the person who's entitled to do it, not this Court at this

motion level. But even --

THE COURT: You may be right about that. I mean, it may

be -- there are plenty of cases that don't belong in court that

Courts don't have the power to dismiss at the pleading stage,

and maybe this is one of those cases.

MR. LEWIS: Well, I'm sorry the Court would characterize

it that way. ADP doesn't characterize it that way. ADP has

spent a long time building up an enviable reputation, and it

doesn't litigate lightly, and this is one case in which it felt

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it actually had no alternative.

And so it doesn't take these things lightly at all. It

takes them very seriously. And it does believe, and we

believe, and we believe a jury would find, that these are

defamatory statements.

And the mere -- well. And we could go off to the rest of

it as well, but my point was --

THE COURT: It seems to me that the change.org petition

is basically -- I mean, I don't know if you want to say

anything about that. It seems to me that it's basically the

same thing as the letter. The contents are basically the same.

MR. LEWIS: It's close. It has a couple of additional

things in it. It says that ADP's cut off thousands of their

small business customers. That's false. And so it may have a

couple other ones in there. We've noted them.

THE COURT: Why is it false that ADP has cut off

thousands of customers?

MR. LEWIS: Because there were only 700 that were

involved in this thing.

THE COURT: Okay. Okay.

MR. LEWIS: So that was to puff it up to make it look

like it was something more.

THE COURT: Okay.

MR. LEWIS: And that is a lie.

So I'm not sure where -- well, so my last point on that

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was even if you were to credit that one email, it only relates

to one of the statements I've talked about.

So for the truth as a defense point, that would only

negate one of them. And since we do not believe it is true,

and would not be evidence for that anyway, I don't think that

goes anywhere.

So I could go on and talk more about the defamation

points, or I can briefly talk about the anti-SLAPP motion.

THE COURT: Why don't you turn to that. But let me just

ask you one question, before you turn to that.

MR. LEWIS: Sure.

THE COURT: Which is what happens in this case if --

let's say I were to conclude that the motion to dismiss should

be denied, and the reason I conclude that the motion to dismiss

should be denied is that at the motion to dismiss stage I have

to accept ADP's assertion that Zenefits' assertion about ADP's

motivations were false.

That is to say, when Zenefits -- I have to accept your

allegation that when Zenefits said the reason ADP is doing this

is because they hope some day to have software that competes

with us, that that's false.

And then it turns out that the email that the ADP

employees sent to the Zenefits customer two days later, saying,

"We have a new product that competes with Zenefits" is true --

let's say that that turns out to be true, and so you lose

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clearly on summary judgment on the question whether Zenefits'

statement about ADP's motivations was actionable.

At that point do you have a Rule 11 problem? Does ADP

have a Rule 11 problem, and do its lawyers have a Rule 11

problem?

MR. LEWIS: I don't believe so, Your Honor.

THE COURT: By pursuing the lawsuit where there's

evidence that everybody by now should be fully aware of about

whether ADP in fact was producing a product to compete with

Zenefits when it shut Zenefits down?

MR. LEWIS: No. There's no Rule 11 problem here.

THE COURT: Why not? I mean, if that evidence is out

there now, why wouldn't that be a problem, a Rule 11 problem?

MR. LEWIS: Well, I can't exactly speculate on that. I'm

not aware of that evidence. So I can tell you right now

there's no Rule 11 because I don't know anything about it.

THE COURT: But you filed the lawsuit.

MR. LEWIS: Yes, I did.

THE COURT: I mean, you have to -- your obligation is to

do a reasonable investigation before filing a lawsuit.

MR. LEWIS: And we did.

THE COURT: And certainly, when presented with an email

like this, your obligation is to investigate it thoroughly.

So is your answer to that simply that it is not true --

are you telling me right now, on the record, that it is not

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true that ADP was working on software to compete with Zenefits?

MR. LEWIS: I have no knowledge that ADP was working on

any software to compete with Zenefits; that is correct.

THE COURT: Okay. But you, as a lawyer who brought this

lawsuit, should now be in a position to know the answer to that

question. You should now be in a position, as an officer of

the court who has brought a lawsuit that's based on an

allegation that Zenefits' assertion about ADP's motivations was

false, you should know the answer to that question by now, to a

certainty.

Are you saying that you don't know the answer, or are you

saying you know the answer and ADP was not developing software

to compete with Zenefits?

MR. LEWIS: At this moment today I could not tell you

with a certainty all the evidence.

THE COURT: Have you done a thorough investigation of

that question?

MR. LEWIS: It is not complete.

THE COURT: Maybe we have should discovery in this case.

All right.

MR. LEWIS: But, Your Honor, let me point --

THE COURT: You want to talk about the anti-SLAPP motion

briefly?

MR. LEWIS: Let's go back to that one more time. That

issue only goes to one of the defamatory statements.

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THE COURT: Right. And my question was if I find that

that's the only one that's potentially actionable.

MR. LEWIS: Well.

THE COURT: And, by the way, even if some other statement

was actionable, you're suing on that statement.

MR. LEWIS: I understand that.

THE COURT: And you're alleging in a lawsuit that that

statement is false that Zenefits --

MR. LEWIS: We are doing that.

THE COURT: -- made.

MR. LEWIS: That's correct, Your Honor.

THE COURT: And you've been presented with this email

from an ADP employee to a Zenefits customer saying -- two days

later, saying, "We have a product that competes with Zenefits

and we're offering it to you and we suggest that you switch

from Zenefits to us."

MR. LEWIS: But let's be clear, again. Because the Court

is going off without the fact again. What is alleged in the

complaint is that Zenefits alleged that we cut off their

service because of an interest in developing some of this

software. There is evidence right now before the Court that

that is not true. We have the declaration of Richard Anderson.

He made the decision to cut it off, and he explains the sole

reason why he made that decision. And it has absolutely

nothing do with some other product.

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So right now --

THE COURT: Yeah, but if it turns out --

MR. LEWIS: -- we know there's no Rule 11 issue anyway.

THE COURT: Okay. So you're saying that even if it turns

out that Zenefits was developing software --

MR. LEWIS: ADP was.

THE COURT: -- or had developed software to compete

with -- excuse me -- ADP had developed software to compete with

Zenefits, that statement would still be false.

MR. LEWIS: Yes.

THE COURT: And actionable as defamation.

MR. LEWIS: Yes.

THE COURT: Okay.

MR. LEWIS: And we already have evidence that it's false

right now before the Court.

THE COURT: Okay. All right.

You want to talk a little bit about the commercial speech

issue?

MR. LEWIS: Sure. As to that one, I mean, the most

relevant case I think on that, really, is the LA Taxi case that

just came out recently that we referred to the Court. But

there are other ones as well. I mean, in essence --

THE COURT: Why is that rel-- -- I read that case. Why

is that relevant?

MR. LEWIS: Well just because they went through the --

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none of these are rocket science in a sense that you simply go

through the requirements of the statute and, if they're met,

then this exemption applies, and, if they're not, they're not.

So you read case after case --

THE COURT: Right.

MR. LEWIS: -- and the Court goes through.

THE COURT: But why is that -- I mean, why was that case

particularly relevant? I actually found that case a little

weird. Because it went through this analysis of whether it was

commercial speech at all.

But the question under the statute is not whether it's

commercial speech at all, within the meaning of constitutional

law, it's a question of whether it meets the definition of the

statute.

MR. LEWIS: Well, they did.

THE COURT: So I didn't find that case very helpful at

all, either way.

MR. LEWIS: Well, they went on the -- they went on to

find that also there was no public interest anyway.

That's what I found interesting about it. Because it was

a case like this one, where, in that one, the anti-SLAPP motion

was based on an invented public interest.

So there, it was --

THE COURT: Yeah, but that was just a pure sort of false

advertising thing where they figured out a way for one cab

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company to come up on a Google search instead of another cab

company.

MR. LEWIS: Sure. But the point was --

THE COURT: The argument was that the public has an

interest in the taxicab industry.

MR. LEWIS: Right.

THE COURT: And the Court said well, that's not enough.

MR. LEWIS: Right.

THE COURT: These are two companies --

MR. LEWIS: Into those cases it said sure you can

extrapolate anything --

THE COURT: Right. Okay.

MR. LEWIS: -- into some public interest finally.

THE COURT: I understand your point.

MR. LEWIS: Which is --

THE COURT: I understand your point now. And I --

MR. LEWIS: Which is a better effort than has been done

by Zenefits here with the data lock-in thing that is totally

invented. So I don't think the Court needs to get to that.

THE COURT: I'm more -- yeah, I'm more interested not so

much on the public/private distinction as I am on the question

whether this is -- this meets the commercial speech exception

of the anti-SLAPP statute.

MR. LEWIS: Right. And it certainly does. And we simply

point out all the evidence in our brief, line by line, that

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applies. And there's just no question about any piece of it.

THE COURT: Mm-hm. What about the change.org part?

MR. LEWIS: Well, what about it? I mean, for purposes

here, you don't necessarily --

THE COURT: They're asking people to sign a petition.

It's not just -- they're not just communicating with their

customers; they're sort of putting a communication out to the

public and --

MR. LEWIS: Well, I don't need -- yeah. I don't need

change.org because I'll simply take the communication to the

customers.

That's the crucial piece. That's the piece that is

indisputably --

THE COURT: So are you abandoning your argument that the

change.org petition was defamatory?

MR. LEWIS: No. It is defamatory.

THE COURT: Okay. So then answer the question. I mean,

what, about the fact that they put out a petition on change.org

that was a communication to everyone, not just their customers,

and it talks about big company versus small company and, you

know, competition and stuff like that, why wouldn't that take

it sort of out of the realm of the commercial speech exception?

MR. LEWIS: Because, as the Court has already noted, it

really echos the June 5 email. And so it is mostly just the

same thing, which is the communication about Zenefits'

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services.

So I don't think that changes anything.

The mere fact you start putting stuff on change.org does

not give everybody a pass now to commit libel.

THE COURT: Fair enough. Okay. I'll think further about

all this. Very interesting.

Is there any interest in sitting down with a magistrate

and trying to resolve this, or is this the type of case where

you just take the view that this is ridiculous and there's no

way that -- you know, there's no way that this case can be

settled, short of a ruling that Zenefits didn't libel ADP?

MS. HURST: Your Honor --

THE COURT: I mean, is there a benefit to sitting down

with a magistrate and, you know, maybe it would help sort of --

in addition to dealing with this suit, help repair the business

relationship, or something along those lines? I don't know.

MS. HURST: Your Honor, we're certainly willing to do

that. In fact, Mr. Conrad tried to do that before it ever came

to litigation.

And yesterday we had our Rule 26(f) conference and we

proposed that we engage in private mediation at JAMS, for

example, Your Honor. The plaintiff was not prepared yet to say

what his position was on ADR at that point.

A settlement conference with Judge Spero, Judge Grewal,

noted good settlement judges, would be great by us, Your Honor.

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Either one of those options.

Your Honor, I had three points that I swear are not

repeats of anything.

THE COURT: Hold on a second.

MS. HURST: Okay.

THE COURT: Hold on a second.

Do you want to respond to that?

MR. LEWIS: Respond to that?

THE COURT: On the -- yeah, on the idea of --

MR. LEWIS: Yeah. We are in the position that we are

going to, in fact, send in our reply, and we are amen- --

THE COURT: Sorry. Send in what?

MR. LEWIS: Send in our reply on ADR, which is that we

are amenable to going to JAMS.

THE COURT: Okay. And you think that would --

MR. LEWIS: And ADP --

THE COURT: Do you think that would be preferable to -- I

mean, part of -- you know, I mean, I won't express any further

views of my own about this case at this point; I think I've

sort of been clear enough. But -- and maybe part of it is a

lawyer problem, but it also seems like this is a situation

where, you know, somebody in a -- you know, I'm just wondering

if, you know, if conversation with -- if the clients

participated in a conversation with somebody with a robe, like,

it might be of some assistance.

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But, you know, if you think it's better to go to JAMS,

that's fine too.

MR. LEWIS: Well, I don't think we made a final decision.

ADP also tried to --

THE COURT: I'm sorry. What?

MR. LEWIS: We haven't made a final decision, so.

MS. HURST: Your Honor, we're amenable to a settlement

conference. It was my understanding the Court often likes to

ration the judicial resources in settlement conferences, so

that was why we had gone the other direction. But we are

certainly amenable to a settlement conference before a

magistrate judge.

THE COURT: Mm-hm. Okay. I may send you all to an early

settlement conference before a magistrate judge with your

clients. I think that may -- there may be some -- depending

on -- yeah, I think there may be some benefit to that.

But anyway, you wanted to make three -- please, very

quick. Because we have several other cases still on the

calendar.

MS. HURST: I understand, Your Honor.

First, Docket 20, Exhibit 5, that's the email the Court's

been referring to, was not sent by some low-level mistaken

person, it was sent by Mason Underato [phonetic], the senior

district manager and licensed broker with his license number on

it in California.

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THE COURT: Okay.

MS. HURST: That leads me to the notion that this --

these motions -- if the Court's not going to grant both of

these motions in its entirety, then it ought to convert it

under Rule 12(d) and grant summary judgment.

THE COURT: Well, I don't know. I mean, I don't think

that would be appropriate. The discovery floodgates haven't

opened yet and -- if we're going to do discovery on this case,

I'm pretty interested in ADP's efforts to develop software to

compete with Zenefits.

MS. HURST: Understood, Your Honor.

THE COURT: So we're going to find out all about that, if

we do discovery in this case.

MS. HURST: I understand that, Your Honor. But at a

minimum, the Court could issue an order to show cause asking

for a 56(d) from them before deciding.

THE COURT: Okay.

MS. HURST: Because, Your Honor, you know, Zene- -- I

appreciate the Court's comments and honestly I can't wait

either, but Zenefits is really not a big company, and

Mr. Conrad is a private individual and they sued him personally

here, Your Honor.

THE COURT: Oh, they did? I didn't notice that.

MS. HURST: They had nothing to gain from that,

Your Honor, other than retribution and deterrence. They're not

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getting any extra enforceable judgment out of suing Mr. Conrad

personally, and he shouldn't have been sued personally.

And that shows the degree to which the anti-SLAPP statute

should apply here, Your Honor. Because it was designed to

chill him in continuing to defend Zenefits in the marketplace,

Your Honor.

And so he should not be put to discovery. Zenefits

should not be put to discovery. The Court should grant the

motions, both of them, Your Honor.

If it is at all troubled, though, I would ask the Court

to convert to a 12(d) -- under 12(d) to a Rule 56 and grant

summary judgment. And they don't need anything else because

they knew they were in jeopardy on the motion to strike and the

standard on the part two of the motion to strike is pretty much

the same thing as the summary judgment standard.

So they had every incentive to come forward with evidence

to support their claim.

And if the Court doesn't want to go that step, then at a

minimum it could issue an order to show cause, let them file a

56(d), and then let us respond and then grant summary judgment.

Because, Your Honor, while I, with the Court, would like

nothing more than to cross-examine these folks and find out

what's really going on here, for Mr. Conrad, who's a new

father, for a start-up like Zenefits that's revenues -- you

know, it may have gotten funding, but its revenues are not that

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great. It really is the David to this Goliath, Your Honor. We

would like this case to be over.

THE COURT: Okay. I'll consider all that and take it

under submission and, like I said, I will probably refer you

all to a magistrate judge for a settlement conference.

Thank you.

MR. LEWIS: Thank you.

(Proceedings adjourned at 11:34 A.M.)

CERTIFICATE OF CONTRACT TRANSCRIBER

I, Kelly Polvi, CSR, RMR, FCRR, certify that the

foregoing is a true and correct transcript, to the best of my

ability, of the above pages of the official electronic sound

recording provided to me by the U.S. District Court, Northern

District of California, of the proceedings taken on the date

and time previously stated in the above matter.

I further certify that I am neither counsel for,

related to, nor employed by any of the parties to the action

in which this hearing was taken, and further, that I am not

financially nor otherwise interested in the outcome of the

action.

Dated October 12, 2015.

_________________________________Kelly Polvi, CSR #6389, RMR, FCRRContract Transcriber

Kelly Polvi, CSR, RMR, FCRRP.O. Box 1427Alameda, CA 94501(503) 779-7406; [email protected]

2015-09-24 [mtd and motion to strike] hearing transcript(1)

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