Sparrow Fund Management LP v. Mimedx Group, Inc.

Background

Sparrow alleged that MiMedx Group, Inc., Parker H. Petit, and anonymous Twitter users made false and defamatory statements about Sparrow in connection with an earlier lawsuit brought by MiMedx. Sparrow characterized that earlier lawsuit as malicious prosecution. The earlier lawsuit accused Sparrow and others of defaming MiMedx through blog posts and tweets attributed to the pseudonym Aurelius Value. The earlier lawsuit was dismissed after MiMedx did not file an amended complaint.

Sparrow originally asserted defamation per se and civil-conspiracy claims in this action. On March 31, 2019, the court dismissed the original complaint, including the claims against Petit for lack of personal jurisdiction, but allowed Sparrow to seek permission to amend. Sparrow then proposed adding a malicious-prosecution claim and revising its defamation claim.

Report and Recommendation

Judge Parker recommended granting Sparrow leave to amend to assert a malicious-prosecution claim against MiMedx and defamation claims based on Statements 1, 2, and 3. She recommended denying leave as to the other alleged defamatory statements and as to the claims against Petit. Both sides objected.

Malicious Prosecution

The court concluded that Sparrow adequately pleaded the required elements of malicious prosecution: an earlier proceeding brought against Sparrow, a favorable termination, lack of probable cause, actual malice, and special injury. Sparrow alleged that MiMedx lacked a factual basis to accuse it of being Aurelius Value, that MiMedx pursued the earlier lawsuit to obtain Aurelius’s identity, and that the lawsuit caused Sparrow to lose 60 percent of its annual revenue and lose the ability to attract new investment capital.

The court rejected MiMedx’s argument that an attorney’s declaration established probable cause at the pleading stage. Because the parties disputed whether the described investigation actually occurred and disputed the declaration’s accuracy, the court held that probable cause could not be resolved as a matter of law at that stage. The court also found adequately pleaded allegations of actual malice and special injury. It further agreed that the Noerr-Pennington doctrine did not bar the claim because the alleged lawsuit could qualify as sham litigation.

Defamation

The court allowed amendment of the defamation claim based on Statements 1, 2, and 3. Those statements were made in MiMedx’s complaint in the earlier lawsuit. Although statements made in legal proceedings ordinarily receive absolute or qualified protection from defamation claims, the court held that the protection does not apply to statements made as part of a sham or maliciously instituted lawsuit when a malicious-prosecution claim has been adequately pleaded.

The court denied leave to amend based on Statement 7 because its generalized references to multiple short sellers and lawsuits would not lead a reader to identify Sparrow specifically. Sparrow did not object to the recommendation concerning Statements 4 through 6 and 8 through 12, and the court found no clear error in denying leave as to those statements.

Personal Jurisdiction Over Petit

The court held that Sparrow had not shown a basis for personal jurisdiction over Petit under New York’s long-arm statute. The court found that the alleged activities either lacked a sufficient connection to Sparrow’s claims or were based on alleged defamatory statements, which could not serve as the required basis for jurisdiction under the provisions Sparrow invoked. Petit’s alleged travel to New York and statements to investors did not establish qualifying business activity connected to Sparrow’s claims.

The court also held that unrelated Securities and Exchange Commission and Department of Justice proceedings against Petit did not establish personal jurisdiction under New York’s long-arm statute. It denied Sparrow’s request to transfer the claims against Petit to the Northern District of Georgia because Sparrow had not provided enough information showing that the proposed transferee court would be an appropriate forum. It also denied jurisdictional discovery because Sparrow had not shown that discovery was likely to produce facts establishing jurisdiction.

Disposition

Judge Paul G. Gardephe adopted Judge Parker’s report and recommendation in its entirety. Sparrow’s motion for leave to file an amended complaint was granted in part and denied in part: amendment was allowed for a malicious-prosecution claim and for defamation based on Statements 1, 2, and 3 against MiMedx, and was denied in all other respects.