Forensic Advisors, Inc. v. Matrixx Initiatives, Inc.

⁵²³ MURPHY, Chief Judge. In this appeal from the Circuit Court for Montgomery County, Forensic Advisors, Inc. and Timothy M. Mulligan, appellants, present two questions for our review: 1. Whether the circuit court erred when it failed to apply the correct legal standard by failing to quash the non-party subpoena in this SLAPP suit where Matrixx [Initiatives, Inc., appellee] failed to show that it had filed an actionable case and that it had a legitimate need for the material sought. 2. Whether the circuit court erred when it refused to rule on Forensic Advisor’s claim of the news media privilege.

For the reasons that follow, although we agree with appellants that they are entitled to assert the “news media privilege,” we also agree with the circuit court “that the deposition should go forward.” Relevant Factual Background Appellant Forensic Advisors, Incorporated (“FAI”) is a Maryland corporation that publishes The Eyeshade Report, a newsletter about publicly traded companies, which is distributed to FAI’s subscribers via the Internet. Appellant Timothy M. Mulligan, Esq. is the founder, president, and sole shareholder of FAI. Matrixx Initiatives, Inc. (“Matrixx”), a Delaware corporation, has its principal place of business in Arizona, and its stock is publicly traded on the NASDAQ stock exchange under the symbol MTXX. In the words of appellees’ brief: Through its subsidiary, Zicam, LLC, Matrixx produces and sells several different products under the Zicam brand, all of which are nasal applicants targeted at alleviating the symptoms and effects associated with the common cold, allergic reactions, and nasal congestion.

Matrixx’s stock is publicly traded ... and, as such its stock prices are negatively affected by false information and false statements published by individuals and made available to all stockhold ⁵²⁴ ers and potential investors through a variety of media, including the Internet. Over the past several years, Matrixx has been the target of a large number of negative, defamatory statements published on the Internet through message boards dedicated to stock discussions. During this time period, trading on the Matrixx stock has been unusual, characterized by relatively large-volume “short” selling activity transactions which seek to capitalize on a decrease in stock price near the time that the market closes. Upon information and belief, these defamatory statements are made and coordinated by individuals engaged in illegal short-selling schemes, who are attempting to negatively affect Matrixx’s stock price for their financial benefit.

In December of 2002, Matrixx filed a lawsuit in Maricopa County, Arizona. 1 Appellants are not parties to the Arizona lawsuit. 2 An August 2003 edition of The Eyeshade Report contained (in the words of appellants’ brief) “a detailed, 23 page report with 104 footnotes ... that expressed concerns regarding certain aspects of Matrixx’s accounting and business operations.” In the words of appellees’ brief: The [FAI] report contained a number of misleading statements regarding Matrixx’s sales growth, business relations, gross profit margins, potential earnings, statutory compliance and other operational matters [and that] [s]ome of these statements bear a striking resemblance to the types of statements and information which formed the basis for Matrixx’s lawsuit in Arizona. ⁵²⁵ On October 28, 2003, Matrixx applied to the Arizona court for leave to take a foreign deposition. That application was granted, and the Arizona court issued a commission that “authorized [Maryland] to cause to be issued a subpoena duces tecum” to appellants. On October 31, 2003, the Circuit Court for Montgomery County issued a subpoena to “FORENSIC ADVISORS INC C/O STATUTORY AGENT, TIMOTHY M. MULLIGAN,” which “commanded [that Mr. Mulligan] personally appear and ... produce [records and documents described in an attached subpoena duces tecum].” According to appellants, they responded to this subpoena by producing “383 pages of documents[.]” On August 16, 2004, Matrixx petitioned the Arizona court for another commission to take a foreign deposition of Mr. Mulligan. That petition was granted, and the Arizona court issued a commission that “authorized [Maryland] to cause to be issued an amended subpoena duces tecum for the taking of the deposition of the following individual: Mr. Timothy M. Mulligan Forensic Advisors, Inc.” On August 26, 2004, the Circuit Court for Montgomery County issued the following subpoena: To: TIMOTHY M MULLIGAN FORENSIC ADVISORS INC 8101 CONNECTICUT AVENUE # N109 CHEVY CHASE MD 20815 You are commanded to personally appear and [X] produce the following: SEE ATTACHMENT At CAPITOL PROCESS SERVICES 9892 HOLLOW GLEN PLACE, SILVER SPRING, MD 209100-1138 On Friday, the 22nd day of October, 2004 at 10:00 A.M. Attached to the subpoena was an AMENDED SUBPOENA DUCES TECUM that “commanded” Mr. Mulligan to produce “books, papers, documents, or tangible things” described in the subpoena.

The record shows that Mr. Mulligan was ⁵²⁶ served with the subpoena duces tecum on September 13, 2004. 3 Thereafter, in a letter to Mr. Mulligan, 4 appellees’ counsel stated that Mr. Mulligan was “served with a Subpoena at [his] address ... on September 13, 2004 at 10:00 a.m.” This letter also stated: Because you have been legally served with the Subpoena, you are required by law to appear for this deposition. If you do not appear, a warrant may be issued for your arrest. Please contact me regarding the deposition. We are willing to discuss with you when and where the deposition takes place, if you find this date inconvenient.

But, in the absence of an agreement with us, we will expect you to appear for the deposition. In a letter dated October 9, 2004, Mr. Mulligan responded to appellees’ counsel, advising that he intended to file a protective order so that “discovery may not be had,” and asserted the following reasons why a protective order should issue: 1.) Neither Forensic Advisors, Inc. nor Timothy M. Mulligan were personally or properly served; 2.) The subpoena names two different entities, Timothy M. Mulligan and Forensic Advisors, Inc., without clarifying which of those two entities the plaintiff is attempting to subpoena; 3.) Neither Forensic Advisors, Inc., nor Timothy M. Mulligan ever communicated with Floyd Schneider in any manner ⁵²⁷ prior to receipt of a subpoena from the plaintiff in this manner on November 4, 2003; 4.) If there were any communications with Floyd Schneider on or after November 4, 2003 regarding the plaintiff, it would be protected by the reporter’s privilege; 5.) Neither Forensic Advisors, Inc., nor Timothy M. Mulligan has any information regarding the identities of individuals known on the Internet as “veritasconari,” “gunnallennlies,” or “painfullyblunt2004;” 6.) The Sixth Amended Complaint in this action states that “Floydtheoneandonly,” “charlespOnzi,” “thetruthseekercom,” are pseudonyms used by Floyd Schneider; 7.) Neither Forensic Advisors, Inc. nor Timothy M. Mulligan has ever communicated with anyone representing themselves as “veritsconari,” “Floydtheoneandonly,” “charlesOponzi,” “thetruthseeker,” “gunnallenlies,” or “painfullyblunt2004;” [8].) Information regarding the identity(ies) of any source(s) for Forensic Advisors, Inc. concerning the plaintiff is protected by the reporter’s privilege; [9].) Information regarding the subscriber/distribution list of Forensic Advisors, Inc. is a protected trade secret; [10].) Neither Forensic Advisors, Inc. nor Timothy M. Mulligan has any information regarding the short sale positions of any third party and, even if it did, such information is not relevant in a defamation action. Mr. Mulligan’s letter concluded with a request that he be provided in writing with whatever “basis [appellees] have as to why a Motion for Protective Order should not be filed[.]” In a letter dated October 14, 2004, appellees’ counsel addressed each of Mr. Mulligan’s issues. 5 On November 1, 2004, in the Circuit Court for Montgomery County (circuit court), appellants filed a motion entitled NON-PARTY DEPONENTS, ⁵²⁸ FORENSIC ADVISORS, INC.’S AND TIMOTHY M. MULLIGAN’S, MOTION FOR A PROTECTIVE ORDER THAT A DEPOSITION NOT BE HAD AND TO QUASH A SUBPOENA DUCES TECUM. Thereafter, Mr. Mulligan filed an affidavit stating that (1) “two customers have told me that they will drop their subscriptions if the fact that they are subscribers is revealed to anyone[,]” (2) because some of FAI’s customers are “sources” of the information provided in The Eyeshade Report, disclosure of FAI’s customer list would create a substantial likelihood that the customer/sources would no longer be willing to provide information, and (3) if he were compelled to reveal confidential and/or privileged information, he was “relatively sure that [he] will lose what is an important source of income to [him].” On January 18, 2005, the Honorable Eric M. Johnson held a hearing on appellants’ Motion for Protective Order.

During that hearing, Mr. Mulligan presented the following arguments: We would move for a protective order based on the fact that A) we were not served; B) the subpoena is defective because it names two different but related entities. * * * [W]e also request a protective order based on the fact that we’re entitled to the news media privilege, as well as the fact that our customer list is [confidential]. * * * I believe ... that the underlying law suit is really a [meritless] SLAPP suit. It’s an acronym that stands for Strategic Lawsuit Against Public Participation. And the Maryland legislature just recognized last fall, how burdensome and harassing these kinds of lawsuits can be when they passed Section 5-807 of the Court and Judicial [Proceedings] article. So, not only do I contend that Forensic Advisors is subject to the news media privilege, but the underlying lawsuit is [meritless].

And if an underlying ⁵²⁹ lawsuit is [meritless], ... there is no ... right to conduct discovery. The response of appellees’ counsel included the following comments: Your Honor, we simply want to take this gentleman’s deposition. As the Court observed, there is a host of information in the public domain already, put there by Mr. Mulligan in his report that we’re entitled to take his deposition on. What Mr. Mulligan would like the Court to do is to rule that he is not subject to discovery at all.

In other words, a preclusive protective order that his deposition may not be taken. As we pointed out in our papers, there is a wealth of information that Mr. Mulligan put in his [EyeShade ] report that is relevant to this Arizona litigation, which is still pending by the way, has not been dismissed.... We have an active litigation in Arizona. We have a commission to take the deposition of Mr. Mulligan.

Maryland is a member to the compact providing for subpoena of witnesses and depositions. * * * He is subject to discovery, and this is a simple deposition. This is not an effort to harass him or his subscribers. My client has agreed to enter into a protective order if necessary. ... My client is not his competitor; [and does not] want to publish a financial report to his customers.

But he is certainly subject to the normal processes of discovery. If there [are] particular issues regarding privilege that can and should be raised at a deposition, then they can and should be raised there. After receiving evidence and argument, Judge Johnson delivered an on-the-record opinion that included the following findings and conclusions: ⁵³⁰ [T]he questions that [appellants are] concerned about can be dealt with on a question-by-question basis. If it’s not admissible or if it ought to be protected, certainly the [c]ourt can, the rule will provide [appellant] that protection.

Appellants noted a timely appeal. “In situations where the aggrieved appellant, challenging a trial court discovery or similar order, is not a party to the underlying litigation in the trial court, ... Maryland law permits the aggrieved appellant to appeal the order because, analytically, it is a final judgment with respect to that appellant.” St. Joseph Medical Center, Inc. v. Cardiac Surgery Associates, P.A., et al., 392 Md. 75, 90 , 896 A.2d 304 (2006). Analysis I. When it is necessary to obtain the testimony of a person who lives in Maryland, parties to litigation in a sister state have the very same rights as parties to litigation in a Maryland court. Md.Code Ann., Cts. & Jud.

Proc. § 9-401 (Lexis-Nexis 2006). Md. Rule 2-511 permits the use of a subpoena “to compel a nonparty ... to attend, give testimony, and produce and permit inspection and copying of designated documents or other tangible things at a deposition.” Maryland Rule 2-403 provides the circuit court with authority to issue an order that will “protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense” of discovery. 6 The person seeking a protective order “has the burden of making a particular and specific demonstration of fact, as distinguished from general, conclusory statements, revealing some injustice, prejudice, or consequential harm that will result if protection is denied.” Tanis v. Crocker, 110 Md.App. 559, 574 , 678 A.2d 88 (1996). Even if ⁵³¹ the court agrees that some protection is necessary, a protective order “is not a blanket authorization for the court to prohibit disclosure of information whenever it deems it advisable to do so, but is rather a grant of power to impose conditions on discovery in order to prevent injury, harassment, or abuse of the court’s processes.” Id. at 575 , 678 A.2d 88 Appellants argue that this Court should order that the subpoenas be quashed by applying the holding of Katz v. Batavia Marine, 984 F.2d 422 (Fed.Cir.1993). Under Katz , when the party who objects to discovery makes a “prima facia showing that the information sought is burdensome and not relevant, the burden shifts to the party seeking the information to demonstrate that the requests are relevant to the subject matter involved in the pending action.” Id. at 424 .

According to appellants, this “burden shifting analysis” should also be applied to the issues of whether the information sought is “confidential,” and/or entitled to “trade secret” protection. Appellants’ suggested approach is inconsistent with the proposition that Maryland’s discovery rules are broad and comprehensive in scope, and were deliberately designed so to be.... If all of the parties have knowledge of all of the relevant, pertinent and non-privileged facts, or the