Lemelson et al v. Bloomberg L.P. et al

Filing 33

District Judge Timothy S. Hillman: MEMORANDUM AND ORDER entered granting 16 Motion to Dismiss for Failure to State a Claim and granting 22 Motion to Dismiss for Failure to State a Claim. (Castles, Martin)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
)
REV. FR. EMMANUEL LEMELSON and )
LEMELSON CAPTIAL MANAGEMENT, )
CIVIL ACTION
)
LLC
)
NO. 4:16-CV-11650-TSH
)
Plaintiffs,
)
)
)
v.
)
)
BLOOMBERG LP, MATTHEW
)
ROBINSON, and JESSE WESTBROOK
)
)
Defendants.
______________________________________

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTION TO DISMISS
(Docket Nos. 16 and 22)
May 19, 2017
HILLMAN, D.J.
The present action arises out of the reporting by Bloomberg News that plaintiff Rev. Fr.
Emmanuel Lemelson (“Fr. Lemelson”), a hedge fund manager and ordained Eastern Orthodox
priest, was under investigation by the Securities Exchange Commission (“SEC”) for stock
manipulation. Plaintiffs Fr. Lemelson and his eponymous private investment firm, Lemelson
Capital Management, LLC (“LCM”), bring this action against Bloomberg, LP (“Bloomberg”) as
well as the article’s author and editor, Matthew Robinson and Jesse Westbrook, respectively,
alleging defamation (Count I); commercial disparagement (Count II); negligence (Count III); and
intentional interference with prospective economic advantage (Count IV). The Defendants move
to dismiss the complaint for failing to state a claim because, inter alia, statements asserting that a
person is the subject of a civil investigation are not defamatory as a matter of law, and the third
1

amended complaint does not plead any facts to support an inference that the Defendants published
the statements with “actual malice,” as required to state a claim for defamation of a public figure
and commercial disparagement. For the reasons outlined below, the motion to dismiss is granted.

Background
The following facts are taken from the third amended Complaint, and are assumed as true
for the purposes of this motion. Fr. Lemelson is a “world-renowned priest, religious leader,
financial expert, philanthropist, humanitarian and entrepreneur.” Compl. at 1. He is the Chief
Investment Officer of LMC, which is itself the general partner of Amvona Fund, LP, a hedge fund
launched by Lemelson in 2012. Fr. Lemelson has engaged with, and received significant attention
from, the media. He has been interviewed by several international media outlets, including Fox
News. His investment research and analysis has been cited in The Wall Street Journal, USA
Today, and the New York Post, among others. A profile piece on Fr. Lemelson and LCM featured
in the Wall Street Journal in October 2015, ran with the headline “Hedge Fund Priest: Thou Shalt
Make Money.” In it, Fr. Lemelson is quoted as claiming “my whole life I always knew things
before they happened. I guess it’s just a gift from God.”1 Opp. Ex. 1. Barron’s financial magazine
ranked LMC among the top hedge funds in the world in 2013 and 2014.
On March 18, 2016, Bloomberg published an article online titled “Hedge Fund Priest’s
Trades Probed by Wall Street Cop,” authored by Robinson (the “Article”). On March 17, prior to
publication, Robinson called Fr. Lemelson for an interview. During that call, Fr. Lemelson told
Robinson that he was aware that the SEC was investigating trading in a pharmaceutical company

1

This Wall Street Journal article is referenced in Exhibit A to the Complaint, and is also a public
record.
2

named Ligand, but that “neither he nor his firm was the target of any investigation.” Compl. ¶32.
Robinson responded, “well, I’m going to write that you are being investigated anyway.” Compl.
¶33. Robinson sent two follow up emails and left a voicemail at Fr. Lemelson’s office ahead of
the Article’s publication, seeking comment and asking Fr. Lemelson to contact him as soon as
possible. Fr. Lemelson did not respond before Bloomberg published the Article online. The
Bloomberg Article, which published online at around 10:30am, announced
A priest who sidelines as a hedge-fund manager is being investigated by U.S.
regulators for possible stock manipulation, prompting scrutiny of trading skills that
the cleric has described as a “gift from God,” according to people with knowledge
of the matter. The Securities and Exchange Commission is examining whether the
Reverend Emmanuel Lemelson of Massachusetts made false statements about
companies he was shorting, said the people who asked not to be named because the
probe isn’t public.

Comp. at ¶¶42, 43, Ex. A. Plaintiffs claim that they were never the target of any regulatory
investigation, and that the Defendants knew or should have known any statements to the contrary
were false. The Article went on to state
The SEC started its investigation after companies complained to the regulator that
Lemelson, 39, had made potentially inaccurate comments about their firms in
public forums, the people said. The opening of an SEC probe is typically a
preliminary step and doesn’t mean Lemelson, who hasn’t been accused of
wrongdoing, will ever face an enforcement action.
While Lemelson’s Amvona Fund is a minnow in the $2.9 trillion hedge fund
industry, he gained attention after the Wall Street Journal published a profile of him
in October. The article said Lemelson managed about $20 million, had made
millions of dollars for his investors and quoted him as saying, “my whole life I
always knew things before they happened. I guess it’s just a gift from God”….
Investors are free to criticize companies and their management, but they can’t
spread inaccurate information in order to profit. In the Lemelson investigation, the
SEC is examining commentaries about companies including Ligand
Pharmaceuticals Inc., World Wrestling Entertainment Inc. and Skechers U.S.A.
Inc., according to one of the people.

3

A report published on the financial markets website Seeking Alpha in June 2014
under the pseudonym Amvona said Ligand was in imminent risk of declaring
bankruptcy and that demand for one of its drugs, Promacta, was rapidly declining.
Within minutes, Ligand shares fell more than 7 percent. Since then, Promacta sales
reached an all-time quarterly high and shares of the La Jolla, California-based
company have increased 50 percent to $97.22 through yesterday.
Historically, the SEC has had difficulty in bringing “short-and-distort” cases, since
the regulator has to prove a misstatement of fact rather than opinion, according to
Stephen Crimmins, a former SEC attorney who’s now with the firm Murphy &
McGonigle. Wall Street executives famously complained that short-sellers were
spreading false rumors about their banks during the 2008 financial crisis, but the
allegations didn’t result in SEC enforcement actions.
The SEC has had more success suing “pump-and-dump” fraudsters, where
scammers promote stocks with fake information to inflate prices and then sell out.

Compl. Ex. A (emphasis added). Plaintiffs allege the Article misstated the content of the research
report authored by LCM, and that several selections from the above-quoted text falsely implied
that Fr. Lemelson was dishonest, unethical and “spread false information and rumors in order to
unfairly profit.” Compl. ¶¶ 47-48.
Just after publication, Fr. Lemelson emailed Westbrook and multiple Bloomberg editors to
request an apology and retraction of the Article, and attached a press release issued by LCM.
Bloomberg updated the story shortly thereafter, to include a quote from Lemelson’s press release:
“[t]here is not now, nor has there ever been, any SEC or other regulatory investigation targeting
our firm,”….“[n]or is there a basis for one.” Compl. Ex. A.
Later that day, Bloomberg aired a short, live television interview (the “Interview”) of
Robinson that essentially mirrored what was printed in the article. In describing Fr. Lemelson, the
interviewer said “he [] fancies himself as I mentioned as some sort of a clairvoyant. I … suppose
that’s helpful if that is the case especially if you are shorting stocks.” Compl. at 64, Ex. B. Fr.
Lemelson asserts that this is false and implies that “he’s not only delusional but unethical.” Compl.

4

at 65. In response to the interviewer’s inquiry into Fr. Lemelson’s take on the investigation,
Robinson replied that Fr. Lemelson “says he’s not aware of any investigation so that’s where it
stands.” Compl. Ex. B. Fr. Lemelson requested an opportunity to respond on air to the assertions,
but Bloomberg did not extend him an invitation.
Plaintiffs allege that Defendants neither contacted the SEC nor requested information from
the SEC to verify whether Fr. Lemelson or LCM were under investigation prior to publishing the
Article. Plaintiffs further contend that the Defendants “deliberately omitted facts … that they
knew would negate the alleged defamation,” specifically that they “omitted Fr. Lemelson’s
statement to Robinson that he knew of an investigation involving Ligand [but that neither he nor
his firm was the target of any investigation].” Compl. ¶¶ 32, 54.
The story was republished by numerous media sites. Plaintiffs allege that, since its
publication, they have not received inquiries from potential investors or any additional funds from
interested investors, which stemmed the growth of the fund. In addition, they allege several
vendors declined to work with the Plaintiffs, and Fr. Lemelson’s reputation was damaged within
his religious community, costing him various opportunities.
Plaintiffs seek an order enjoining Defendants from further defamatory publications about
them, and requiring Defendants to issue a public apology, as well as retraction of the article.
Plaintiffs further seek $100 million in damages, costs and attorney’s fees.
Discussion
A. Count I – Defamation
“To establish a defamation claim under Massachusetts law, four elements are required:
(1) that ‘[t]he defendant made a statement, concerning the plaintiff, to a third party’; (2) that the
statement was defamatory such that it ‘could damage the plaintiff's reputation in the community’;

5

(3) that ‘[t]he defendant was at fault in making the statement’; and (4) that ‘[t]he statement either
caused the plaintiff economic loss ... or is actionable without proof of economic loss.’” Shay v.
Walters, 702 F.3d 76, 81 (1st Cir. 2012) (quoting Ravnikar v. Bogojavlensky, 438 Mass. 627, 782
N.E.2d 508, 510–11 (2003). Defendants argue that the Complaint fails on two of these elements,
because 1) neither the Article nor the Interview contained any defamatory statements, and 2) the
Complaint does not allege Defendants acted with the requisite level of fault.
Defamatory Statements
“[I]n a defamation action, a threshold issue is whether the statement is reasonably
susceptible of a defamatory meaning, and that determination is a question of law for the court.”
Foley v. Lowell Sun Pub. Co., 404 Mass. 9, 11, 533 N.E.2d 196, 197 (1989). “[T]his
interpretation ‘requires that the court examine the statement in its totality in the context in which
it was uttered or published. The court must consider all the words used, not merely a particular
phrase or sentence.’” Id. (citing Myers v. Boston Magazine Co., 380 Mass. 336, 341-342, 403
N.E.2d 376 (1980), quoting Information Control Corp. v. Genesis One Computer Corp., 611
F.2d 781, 784 (9th Cir.1980)).
Defendants seek dismissal of the Plaintiffs’ defamation claim because neither the Article
nor the Interview contained statements accusing Fr. Lemelson and LCM of dishonest or illegal
activities, and statements merely disclosing that someone is the subject of an SEC investigation
are not defamatory as a matter of law. In support of their argument, Defendants cite Foley v.
Lowell Sun Pub. Co., 404 Mass. 9, 11, 533 N.E.2d 196, 197 (1989), in which the SJC held that
the undisputed fact of an arrest was not capable of being defamatory as a matter of law. In
Foley, the plaintiff sued the publisher of an article that stated he had been arrested “after
assaulting a police officer when he arrived on the scene.” Foley, 404 Mass. at 10, 533 N.E.2d at

6

196. The plaintiff argued that the article defamed him because it falsely charged him with
having actually committed the crime. Id. In affirming the lower court’s decision, the SJC held
that the statement was not defamatory as a matter of law, because when “read in the context of
the article as a whole, its clear meaning [was] to report that Foley was arrested for assaulting an
officer-and not that he either had been convicted of the offense or had actually committed the
assault,” and “a reasonable reader could not conclude that the Sun was accusing Foley of
assaulting the officer.” Id. at 11-12.
Defendants posit that, if a report of criminal arrest is not defamatory as a matter of law
then, a fortiori, a report that someone is the subject of a civil investigation is also not defamatory
as a matter of law. However, Foley, which involved the undisputed fact of an arrest is
distinguishable from the instant case, where it is the disputed allegation of investigation by the
SEC for stock manipulation that could, in the context of the entire article, be construed as
defamatory. When read in the context of the article as a whole, this court finds that the
allegation of an SEC probe of the Plaintiffs, which lacks the type of substantiation that was
available for the arrest in Foley, is capable of defamatory meaning.
Fault
In an action for defamation, “[t]he level of fault required varies between negligence (for
statements concerning private persons) and actual malice (for statements concerning public
officials and public figures).” Ravnikar, 438 Mass. at 630, 782 N.E.2d at 511. Defendants assert
that the Plaintiffs are public figures by their own admission, and are thus required to prove
Defendants acted with “actual malice.” In support, Defendants point to Plaintiffs’ own
declarations in the Complaint that Fr. Lemelson is “world-renowned,” and has received media
coverage in a wide variety of prominent media sources, while LMC is “ranked among the top

7

hedge funds in the world.” Plaintiffs now disclaim their previous assertion, and profess to be
private figures, or at worst, “limited pubic figures.”
Taking all facts pled in the Complaint as true, this court finds that Plaintiffs are not
private figures. This matter concerns market-moving information, and the fact that LCM
published content holding itself out as expert commentary in a highly public and market-relevant
forum suffices to raise LCM out of the category of private individual. Allegations in the
complaint establish that, for his part, Fr. Lemelson was “world-renowned” and subject to “a great
deal of interest and scrutiny due to his unique qualifications and unprecedented success.” The
court need not delineate the distinction between public figures and “limited public figures”
because the degree of fault Plaintiffs are required to plausibly allege is the same– that
Defendants acted with “actual malice.”
To prove Defendants acted with “actual malice,” Plaintiffs must show that the statement
was “made with knowledge of its falsehood or with reckless disregard for whether it was false.”
Astra USA, Inc. v. Bildman, 455 Mass. 116, 143, 914 N.E.2d 36, 56–57 (2009) (citing New York
Times v. Sullivan, 376 U.S. 254, 279–280, 84 S.Ct. 710 (1964)). The only facts pled that would
allow any inference that the Defendants knew their statements were false or acted with reckless
disregard for whether they were false, are that (1) the Defendants did not submit a formal inquiry
to the SEC to determine whether Plaintiffs were under investigation, and (2) Fr. Lemelson told
Robinson the day before publication of the article that neither he nor LMC were “the target” of
any investigation, but Robinson said he was going to write that Fr. Lemelson was being
investigated anyway.
First, Plaintiffs themselves point out that submitting an inquiry to the SEC to confirm
whether subjects are under investigation would have been a fruitless exercise, as the SEC has a

8

policy of not confirming or denying investigations of particular individuals. Second, Plaintiffs
concede that they published a report concerning Ligand, and that the SEC was investigating
Ligand. It follows that Plaintiffs’ public statements on Ligand were subject to investigation by the
SEC. Lemelson’s denial of the investigation, in consideration of these factors, simply does not
create a scenario where it is plausible that Defendants’ publication of allegations that the Plaintiffs
were being investigated by the SEC was made knowing such statements to be false, or with
reckless disregard for their falsity.
Moreover, Lemelson’s personal assertion to Robinson that he was not the target of an SEC
investigation is not sufficient to support the contention that Defendants published the allegations
knowing them to be false or with reckless disregard for their falsity, because “such denials are so
commonplace in the world of polemical charge and countercharge that, in themselves, they hardly
alert the conscientious reporter to the likelihood of error.” Harte-Hanks Commc'ns, Inc. v.
Connaughton, 491 U.S. 657, 692, 109 S. Ct. 2678, 2698 n.37 (1989) (quoting Edwards v. National
Audubon Society, Inc., 556 F.2d 113, 121 (2nd Cir. 1977) (“Surely liability under the “clear and
convincing proof” standard of New York Times v. Sullivan cannot be predicated on mere denials,
however vehement….”)). If a subject’s simple denial is sufficient to demonstrate that subsequent
publication shows a reckless disregard for the truth, then no disputed fact could ever safely be
published. Alleging publication in the face of Fr. Lemelson’s denial is simply not enough to meet
the high bar required to plausibly plead “actual malice.” Accordingly, Count I is dismissed.

Count II – Commercial Disparagement
“[I]n order to prevail on a claim alleging commercial disparagement, a plaintiff must prove
that a defendant: (1) published a false statement to a person other than the plaintiff; (2) “of and

9

concerning” the plaintiff's products or services; (3) with knowledge of the statement's falsity or
with reckless disregard of its truth or falsity; (4) where pecuniary harm to the plaintiff's interests
was intended or foreseeable; and (5) such publication resulted in special damages in the form of
pecuniary loss.” HipSaver, Inc. v. Kiel, 464 Mass. 517, 523, 984 N.E.2d 755, 763 (2013). The
SJC has noted that the knowledge standard required to prove commercial disparagement “mirrors
what has been termed ‘actual malice’ in the defamation context.” Id. at 529-30. As discussed
above, the Plaintiffs have not pled sufficient facts to allow a plausible inference that the Defendants
acted with “actual malice.” Accordingly, Count II is dismissed.

Count III – Negligence
Defendants argue that Plaintiffs’ claim for negligence is “an inappropriate attempt to
circumvent the First Amendment by alleging a common law tort with a lower standard of fault
than is required to plead defamation.” Mot. at 16. This court agrees. As discussed above, the
Defendants may be held liable for defamation only if the Plaintiffs prove they acted with “actual
malice,” and their Complaint failed to allege facts that supported Defendants acted with that degree
of fault. The Plaintiffs’ negligence claim “is simply a restatement of [their] defamation claim
under a different heading. That being so, it is not imaginable that it could escape the same
constitutional constraint as [their] defamation claim.” Brown v. Hearst Corp., 54 F.3d 21, 27 (1st
Cir. 1995). Count III is therefore dismissed.

Count IV – Intentional Interference with Prospective Economic Advantage
“To make a successful claim for intentional interference with advantageous relations, a
plaintiff must prove that (1) he had an advantageous relationship with a third party (e.g., a present

10

or prospective contract or employment relationship); (2) the defendant knowingly induced a
breaking of the relationship; (3) the defendant's interference with the relationship, in addition to
being intentional, was improper in motive or means; and (4) the plaintiff was harmed by the
defendant's actions. Blackstone v. Cashman, 448 Mass. 255, 260, 860 N.E.2d 7, 12–13 (2007)
(citing Weber v. Community Teamwork, Inc., 434 Mass. 761, 781, 752 N.E.2d 700 (2001)).
This court agrees with the Defendants that the Plaintiffs have failed to plead the facts
necessary to state a claim for intentional interference with prospective economic advantage. The
Complaint does not plead any specific relationships that were injured by the Article, nor any facts
to support that Defendants knowingly induced a breaking of the relationship, nor any facts to show
that they published their Article with “improper motive or means.” Accordingly, Count IV is also
dismissed.

Conclusion
Defendants’ motion to dismiss the Complaint (Docket Nos. 16 and 22) is granted.

SO ORDERED.

/s/ Timothy S. Hillman
TIMOTHY S. HILLMAN
DISTRICT JUDGE

11