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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

Before The Honorable Vince Chhabria, Judge

ADP, LLC, a Delaware limited


liability company,

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

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TRANSCRIPT OF PROCEEDINGS OF THE OFFICIAL


ELECTRONIC SOUND RECORDING - FTR 10:12-11:34

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APPEARANCES:

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For Plaintiff:

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BY:

Bingham McCutchen LLP


Three Embarcadero Center
San Francisco, CA 94111
ROBERT ARTHUR LEWIS, ATTORNEY AT LAW

BY:

Morgan, Lewis & Bockius LLP


One Market Street, Spear Street Tower
San Francisco, CA 94105
KRISTEN A. PALUMBO, ATTORNEY AT LAW

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15-cv-02560-VC

San Francisco, California


Thursday, September 24, 2015

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Case No.

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Transcribed by Kelly Polvi, Contract Transcriber, utilizing


court reporting and transcription hardware and software.

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APPEARANCES CONTINUED ON FOLLOWING PAGE


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

APPEARANCES (Continued):

For Defendants:

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BY:

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BY:

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BY:

Orrick, Herrington & Sutcliffe LLP


405 Howard Street
San Francisco, CA 94105
ANNETTE L. HURST, ATTORNEY AT LAW

Orrick, Herrington & Sutcliffe LLP


1152 15th St. NW
Washington, DC 20005
JEREMY PETERMAN, ATTORNEY AT LAW
(Pro Hac Vice)

Orrick, Herrington & Sutcliffe LLP


1000 Marsh Road
Menlo Park, CA 94025-1015
SCOTT LONARDO, ATTORNEY AT LAW

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ALSO PRESENT:

David Kwon, General Counsel, ADP


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

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Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

THURSDAY, SEPTEMBER 24, 2015

P R O C E E D I N G S

---000---

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THE CLERK:

10:12 A.M.

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

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

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

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

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about 11:30.

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hearings until then.

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I don't expect to finish up with the next two

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


prefer to do something else.

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MR. LEWIS:

Robert Lewis on behalf of Plaintiff ADP.

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THE COURT:

Good morning.

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MS. HURST:

Good morning, Your Honor.

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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.

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THE COURT:

Good morning.

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MS. HURST:

And, Your Honor, the general counsel,

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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.

THE COURT:

Good morning.

MR. LEWIS:

And also, in the back of the room, is an

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attorney from ADP, David Kwon.


THE COURT:

Okay.

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

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MS. HURST:

Thank you, Your Honor.

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THE COURT:

And I think the primary question in this case

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

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And let me explain what I mean by that.

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Reviewing the motion to strike and looking at the

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evidence that is submitted in connection with the motion to

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

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defamation.

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

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

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is foisting a product on Zenefits' customers, Zenefits'

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

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

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

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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

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exception probably applies.


And that creates this kind of procedural quandary for us;

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right?

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

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

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conclude that ADP has likely filed a defamation lawsuit that

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has no merit whatsoever.

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Which is, I've looked at evidence submitted in

But if I'm right about the commercial speech exception

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

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

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

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dismiss on 12(b)(6) grounds.

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That's a difficult thing to do.

It also may create a

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

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the evidence indicates they have no chance of winning.

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So that's the procedural quandary.

Maybe you can get us

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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.

right with the Court --

If that's all

THE COURT:

You can address that.

MS. HURST:

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

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Your Honor, the complaint in paragraphs 37 through 43

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premises this lawsuit on the petition that was put up at

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

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anti-competitive.

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

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complaint charge that the petition gathered 571 signatures of

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current or potential ADP customers and individuals, that

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Zenefits' false -- allegedly false statements engendered at

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least 60 comments supportive of Zenefits.

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That's paragraph 42, Your Honor.

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

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some of the negative comments were broadly distributed through

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other social media channels, including via Twitter and

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FaceBook.

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This has generated an increasing volume of discussion on


blogs and digital media forums.

For example, one blog posted

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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

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I recall.
MS. HURST:

Business Insider.

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got a lot of attention, Your Honor.

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public concern.

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THE COURT:

Forbes.

TechCrunch.

It

This was an issue of

It is.
But what does that have to do with the

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language of the anti-SLAPP statute that creates the commercial

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speech exception?

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MS. HURST:

So what that means, Your Honor, is the

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commercial speech exception does not apply to the petition.

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

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clearly covered under 42516(e)(3).

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

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out of that protection.

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And there's nothing about

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

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

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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

But

let's suppose that's true.

theories does not eliminate or reduce the chilling effect on

the exercise of free speech.

THE COURT:

The pleading of, quote, unprotected

But that case also says that if the allegedly

protected speech is -- or not "allegedly."

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

can't bring an anti-SLAPP motion.

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MS. HURST:

If the protected

Right?

That's right, Your Honor.

But in no way here

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could the Court conclude from the way the complaint is pled

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that the protected speech was the incidental speech.

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THE COURT:

Well, I mean, from the way -- the paragraphs

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

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

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traveled in the marketplace of ideas after it was uttered;

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right?

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

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

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kind of speech it is.

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

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travels, but what kind of speech it is.

And whether the commercial speech

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

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

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to focus on that -- but the way I read both the email and the
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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.

Exhibit 2; right?

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.

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Yes.

The petition is

The petition complains about ADP being

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

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

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

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

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it cannot be considered commercial speech.

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But that can't be right.

I mean, to the extent people

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

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

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promoting their products.

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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,

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almost exclusively or exclusively directed at promoting

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

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customers, offering ADP customers a thousand dollars to switch

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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.

the harm is alleged to have occurred.

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That's not where

And that thousand-dollar bounty is a great example.


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

The

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statements that they allege are false that caused harm are the

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statements about ADP.

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And so, Your Honor, in --

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THE COURT:

Okay, what statements about ADP?

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MS. HURST:

That ADP blocked Zenefits without your

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permission -- paragraph 31 and 38.

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THE COURT:

But that's --

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MS. HURST:

That ADP blocked Zenefits because it believed

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that it can impede Zenefits -- 32 and 39.


That there -- ADP's measures were unethical and
anti-competitive.

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This is all in the petition, Your Honor.

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THE COURT:

But what are those statements, if not an

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

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from ADP to Intuit?

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What are those statements, if not that?


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MS. HURST:

Well, Your Honor, the bounty is not in the

petition.

bounty to switch to Intuit in the petition.

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So let's start there.

There is no thousand-dollar

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.

THE COURT:

Okay.

MS. HURST:

And the purpose is to enlist the public's aid

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Absolutely.

in getting ADP to reverse its decision.

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Zenefits already has these people as customers.

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

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email, they're already customers.

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So with the --

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THE COURT:

But wait a minute.

They're

So you're saying that if

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

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avoid losing customers, as opposed to gaining customers, that

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

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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

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

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that provision of the statute draws a distinction between

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retaining customers and gaining new customers, are you?

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MS. HURST:

No, Your Honor.

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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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.

MS. HURST:

Yes, Your Honor.

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

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So show me the language in Simpson.

page for the Court here.


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

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Court of Appeal had framed the issue in that case approvingly

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

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the extent that Gore's advertisement consists of

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representations about his services, Simpson's action does not

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arise from it.

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a representation by Gore, the representation was not about

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

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So, Your Honor, to the extent the statements are

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To the extent that Simpson's action arises from

laudatory about --

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THE COURT:

Wait, who was Gore?

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MS. HURST:

Gore was the --

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THE COURT:

Gore was the lawyer?

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MS. HURST:

-- lawyer, Your Honor.

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THE COURT:

But that's because Gore was not making the

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To

That's right.

representation about somebody who was competing with Gore.


But everything in the petition and the letter -- which
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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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.

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MS. HURST:

At that relationship was one of supplier- --

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THE COURT:

But you -- but Zenefits characterized ADP as

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But -- no, because --

a competitor.
MS. HURST:

No, Zenefits characterized ADP as a future

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competitor explicitly in the petition, Your Honor.

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they believe they will some day be able to build competitive

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

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That's what it says --

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THE COURT:

It said

And so do you believe that that's -- the

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statutory exception for commercial speech draws that

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distinction?

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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

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of a future competitor?

I mean, if somebody is trying to

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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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.

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

shutoff is in the reseller relationship.

And
The

The shutoff is not

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about horizontal competition; it's about a vertical

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relationship that existed at that moment in time between ADP

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and Zenefits.

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And Zenefits' petition protests the shutoff, Your Honor.

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

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of the email as well.

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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 --

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THE COURT:

Is because they're competing.

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MS. HURST:

Because they want to compete with us in the

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

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days later you would get the email actually confirming yes,

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your suspicions were correct.

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But at the time that speech was made, Your Honor, it was
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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made about a supplier-reseller relationship and a fear of

threatened future competition.

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On its face, it describes the parties' relationships as


"not yet competitors."

THE COURT:

Okay.

MS. HURST:

Your Honor, one of the questions here is a

Anything else on commercial speech?

relationship between 42516 and 42517.

THE COURT:

Okay.

MS. HURST:

Because this does meet the test for 42516.

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And so a question is whether the California legislature

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actually intended that everything that meets the test under

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42516 would then get excluded under 42517, Your Honor.

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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

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

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are competitors then we'll knock it out.

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Period.

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


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

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And the reason that that is important in this context,

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

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

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

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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.

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


in that other long line of cases.

And the only difference

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

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economically motivated as the proxy for those consumers to

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bring the bad act to their attention.

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

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

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decide to just disqualify the thing from 42516 based on whether

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it was a business.

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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,

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Your Honor.

Because in GA Telesis and the other mixed-message

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

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

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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.

protective of the speech on the issue of public concern.

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

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

language.

supposed to be broadly construed.

say that 42517 was supposed to be broadly construed.

Because the statutory language still says 42516 is


And the legislature did not

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

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

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the protected speech.

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They're not allowed to do that.

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

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respectfully submit the commercial speech exception does not

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apply to either the petition or the email.

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THE COURT:

Okay.

I'll look at that further.

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

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

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12(b)(6)?

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MS. HURST:

Yes.

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So, Your Honor, recognizing the problem that the Court

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

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evidentiary presentation.

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THE COURT:

Could I ask -- sorry to interrupt.

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MS. HURST:

Yes.

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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?

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MS. HURST:

Not that I've seen, Your Honor.

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THE COURT:

Okay.

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MS. HURST:

Usually they grant both, yeah, so -- or deny

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both.

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would be legally defective in the motion to dismiss context

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would also support the motion to strike.

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

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

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submitted is the materials that can properly be considered on

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

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referenced in the complaint.

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

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

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petition and the email and other matters in the complaint.

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In any event, the Court can certainly consider those,

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

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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.

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That the pretty strong implication of

that email is that there's a security issue.

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MS. HURST:

Very strong, Your Honor.

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THE COURT:

Okay.

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MS. HURST:

"Anyone with administrative access to your

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

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historical reports, your HR details and documents.

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"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
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

20

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.

10

THE COURT:

Right.

11

MS. HURST:

In fact, they admit it was not the actual

12

reason, and so this conclusion of pretext was correct.

13

THE COURT:

Okay.

I get that.

14

MS. HURST:

So why does this matter -- why does it

15

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

16

started it."

17

Your Honor.

18

It matters for the Public Figure Doctrine,


Really matters.

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

19

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

20

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

21

started it" sequence of events here, they injected themselves

22

by starting this controversy among hundreds, if not thousands,

23

of mutual customers.

24

THE COURT:

25

Well, they didn't, like, you know, urge

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


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

21

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.

6
7

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


really --

THE COURT:

Well, could I ask you one question about

10

MS. HURST:

Yes.

11

THE COURT:

You're saying that it's relevant to the

that?

12

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

13

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

14

statements are act- -- the statements by Zenefits are

15

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

16

private dispute?

17

MS. HURST:

Yes.

Yes.

Because it provides the context

18

and the tenor, Your Honor, of a public argument.

19

very widespread argument among a lot of small businesses.

20

THE COURT:

Or at least a

But why does it matter that it's public?

21

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

22

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

23

of customers, Zenefits' customers, that effectively trashed

24

Zenefits, and then ADP shut Zenefits out and Zenefits is

25

understandably very upset about this and sends a somewhat


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22

1
2

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?

10

MS. HURST:

It is, Your Honor.

It is relevant.

11

THE COURT:

And why?

12

MS. HURST:

Because the audience has all the information

13

they need to understand what's happening here.

14

are these mutual customers.

15

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

16

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

17

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

18

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

19

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

20

Your Honor.

21

argument.

22

argument about this."

23

The audience

They've first gotten one

An appeal to collective action.

That's an

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

Then you've got the colorful language:


Unethical.

High-handed.

24

Corporate chess game.

Anti-competitive.

25

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

The

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

23

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.

5
6
7
8
9

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

10

continued the debate by putting things on their website, that

11

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

12

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

13

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

14

that's when they came to court.

15

But we can stop there at the response and know,

16

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

17

dismiss should be granted.

18

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

19

just whether the issue was one of public interest.

20

question is whether ADP is a general or limited purpose public

21

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

22

public interest speech or not.

23

The

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

24

the Court would have traded newsworthiness as the central

25

consideration, and it's not clear whether the Court carved back
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24

1
2

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.

figures usually enjoy significantly greater access to the

channels of effective communications.

10
11
12
13

First, the availability of self help.

Public

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

14

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

15

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

16

they're a giant public company.

17

customers in 125 countries.

18
19
20
21
22

They are a public figure.

They process 625,000 business

$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

23

email to their customers who also used Zenefits.

And they

24

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

25

They sent an email to their customers.


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

25

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.

5
6
7
8
9
10

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.

11

(Pause in proceedings.)

12

MS. HURST:

13

There

Your Honor, I'm mistaken.

I was thinking of

GA Telesis rather than Beech.

14

THE COURT:

Okay.

15

MS. HURST:

I apologize.

16

THE COURT:

That case, I've read.

17

MS. HURST:

Yep.

18

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

19
20

of companies in which multiple employees work -THE COURT:

Because in GA Telesis they sent a letter to

21

three companies; right?

The three suppliers, or manufacturers,

22

or whoever they were.

23

MS. HURST:

Yes.

24

THE COURT:

But that case went off on a different point.

25

MS. HURST:

Went off on a different ground, Your Honor.

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

26

THE COURT:

Okay.

MS. HURST:

The public figure ground.

3
4
5
6

All right.
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

10

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

11

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

12

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

13

become the subject of even greater public scrutiny.

14

So maybe this is a slow death problem.

I don't think it

15

is, Your Honor.

16

summary judgment the Court would be able to consider the fact

17

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

18

that said, "Let the marketplace decide."

19
20
21

It's clearly a slow death problem because on

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

22

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

23

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

24

put together -- to find public figure.

25

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


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27

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

10

dismiss --

11

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

12

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

13

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

14

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

15

(indiscernible.)

16

alleged lost customers.

17
18
19

That's where they -- really, where they

But that's not the false statement.


goes, Your Honor.

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

20

reason we're in federal court.

21

defective.

22

And so that claim

All the other claims are

The motion to dismiss should be granted.

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

23

would that moot the motion to strike in some way.

And the

24

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

25

amend.

Okay?

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28

1
2
3

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?

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

"Okay.

I won't seek leave to amend.

If

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.

10

THE COURT:

This case does not belong in court.

11

MS. HURST:

Correct, Your Honor.

12

THE COURT:

All right.

13

MR. LEWIS:

Well, that's a tough statement to follow up

14

on, Your Honor.

15

it certainly does belong in court.

I'm going to have to try to persuade you that

16

THE COURT:

I'm willing to be persuaded.

17

MR. LEWIS:

And my concern is that somehow the facts that

18

have been introduced by ADP in this case have been either

19

forgotten or ignored.

20

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

21

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

22

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

23

it today anyway -- somehow undoes the libel claim.

24

I don't think that works factually.

25

So let me just, for a minute -Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

29

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.

sort of summarize the dispute; all right?

product that works with ADP.

So just to

Zenefits has a

Works with ADP's product.

On June 4th --

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

9
10
11
12
13
14
15

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

16

Zenefits' customers who also use ADP for payroll.

And one of

17

the things Zenefits' CEO says is their concerns about security

18

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

19

freeze us out because they hope to introduce a competing

20

product, a product that competes with Zenefits'.

21

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

22

later -- ADP people start emailing their customers, customers

23

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

24

competes with Zenefits.

25

the Zenefits product.

You should use this product instead of

It's a lot easier to change your

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

30

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.

declarations.

8
9

Because it's in the

So here's what really happened:

Zenefits never

integrated with ADP.

10

THE COURT:

You're using -- I didn't say -- in my

11

recitation I did not use the word "integration."

And I did not

12

use the word "integration" intentionally because you are trying

13

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

14

to allege that what they said about integration is false.

15

That's -- that argument is ridiculous.

16

MR. LEWIS:

Well --

17

THE COURT:

But I didn't say -- I didn't -- so you said

18

that my recitation of the facts are wrong.

And the first thing

19

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

20

ADP.

I didn't say that.

21

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

22

MR. LEWIS:

23

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

I'll use a different word.

24

ilk do -- to properly and safely and securely obtain

25

information from ADP's RUN database.


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31

1
2

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.

10

MR. LEWIS:

-- and to try to figure out who was causing

11

those.

12

THE COURT:

Right.

13

MR. LEWIS:

In June 3 and 4, when the spikes got even

14

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

15

THE COURT:

Right.

16

MR. LEWIS:

So Mr. Anderson -- Richard Anderson, not

17

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

18

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

19

was not imperiled.

20

THE COURT:

Right.

21

MR. LEWIS:

His only reason for doing that was the danger

22

to the database that ADP had.

23
24
25

That's what they did.

That's all.

That happened on the 4th and the

5th.
So they -- so those people were cut off at Zenefits.
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

32

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.

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."

9
10

Somebody said, "That's somewhat concerning because

So that was a concern.

That was brought up to a

different group of people.

11

THE COURT:

And where's that in the complaint?

12

MR. LEWIS:

That's in the McGinness declaration.

13

THE COURT:

Where is that in the -- that's not in the

14

complaint, that's in the McGinness declaration.

15

Okay.

Okay.

16

MR. LEWIS:

And then -- well, I'd have to look.

17

be in the complaint itself.

18

anyway.

19
20
21

It may

It's in the McGinness declaration,

And so, quite independently, they decide what they should


do is -Well, they do two things.

In May, they actually start

22

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

23

administrators until they can figure out something for

24

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

25

anything about the database problem because these are people in


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

33

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:

somebody administration credentials and that allows them to get

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

THE COURT:

the email says?

credentials?

MR. LEWIS:

Please be aware that you've given

Because you're given somebody?

Is that what

You've given somebody administrative

Well, it probably says "Zenefits."

10

We have it in front of us.

11

THE COURT:

"We are contacting you because we noticed

12

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

13

with Zenefits."

14

MR. LEWIS:

Yeah.

15

THE COURT:

Okay.

16

MR. LEWIS:

So that issue is for anybody where -- so all

So it's that very issue.

Sure.

17

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

18

understand that they could get to all your information and now

19

have the right to change your information.

20

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

21

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

22
23
24
25

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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34

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 --

10

that there were lots of Zenefits and ADP customers out there

11

and Zenefits was doing what it was doing.

12

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

13

MR. LEWIS:

They did not; that's right.

14

THE COURT:

But you knew that there was a relationship

15

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

16

using Zenefits to operate the payroll and benefit system --

17

MR. LEWIS:

Yes.

18

THE COURT:

-- for them.

19

MR. LEWIS:

Yes.

And we did not know how.

And the

20

problem was, when we finally figured out what they were

21

doing --

22
23

THE COURT:

It's not like, "Oh, my God.

Zenefits is

sneaking into our system."

24

MR. LEWIS:

No.

25

THE COURT:

Right.

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35

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

10

people with Zenefits' email addresses had access to customer

11

accounts?

12

MR. LEWIS:

Because they could make -- ADP normally --

13

THE COURT:

What security concern, that was written about

14
15
16
17

in this email, was presented by Zenefits?


MR. LEWIS:
that information.
THE COURT:

Because another party had, now, access to all


And so another party could be hacked -But companies -- small businesses hire

18

outside third parties all the time to administer their payroll

19

and benefits systems.

20

MR. LEWIS:

All the time.

This is different than that, though.

This

21

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

22

people into that system on particular terms and conditions.

23

These are none.

24

So that was ADP's concern.

25

ADP allows

Because they were coming in

in a way ADP didn't know.


Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

36

THE COURT:

But ADP had entered into this business

relationship with Zenefits where they were cross-promoting each

other.

4
5
6
7
8
9
10

MR. LEWIS:

I don't see the relationship at all.

is -- that's right.
THE COURT:

One

We know you have customers --

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

11

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

12

do with whether the way Zenefits does it creates a potential

13

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

14

to know about.

15

So that's a simple thing.

And that's all that thing said

16

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

17

kind of access, it has these possible ramifications.

18

all it says.

19
20
21
22

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.

23

And so --

24

THE COURT:

25

That's

So -- but the real question here is whether

the letter sent by the Zenefits CEO and the petition have
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37

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

9
10
11
12
13
14

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.

15

MR. LEWIS:

That's fine.

16

THE COURT:

You have the letter?

17

MR. LEWIS:

I do.

18

THE COURT:

Okay.

19

MR. LEWIS:

It's, in fact, Exhibit 1 to the request for

20
21

judicial notice.
So the first one is in paragraph 3.

"Yesterday, without

22

your permission, ADP systematically deactivated these

23

accounts."

24

THE COURT:

Without your permission?

25

MR. LEWIS:

Right.

Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

38

THE COURT:

But without your permission -- I mean, you

have a very hyper-technical definition of "without your

permission."

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.

7
8
9

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

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


used colloquially.
And what it means -- what it would mean to any normal

10

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

11

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

12

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

13

worry about whether their employees are going to get their

14

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

15

they made this change without your permission, without calling

16

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

17

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

18

deliver benefits to your employees."

19

That's a totally reasonable interpretation of that

20

phrase.

21

you're trying to impose on it.

22

Far more reasonable than the hyper-technical one

MR. LEWIS:

I don't need that hyper-technical one.

What

23

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

24

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

25

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


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39

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

10

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

11

statement.

12

And in the meantime --

13

THE COURT:

14
15
16

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.

17

THE COURT:

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

18

MR. LEWIS:

Exactly.

19

THE COURT:

Okay.

20

MR. LEWIS:

All right.

21
22

So this statement then, by

itself, without looking at it, is defamatory.


THE COURT:

That -- okay.

"ADP is claiming they're

23

taking this action for security reasons, but this is clearly

24

not true.

25

For years" -- blah, blah, blah, blah.

Where is it?

Where is the -- where is the sentence?

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40

1
2
3
4

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.

one day build software to compete with Zenefits.

10

That ADP believed it can

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

11

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

12

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

13

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

14

that statement to be actionable, the reader of that letter

15

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

16

what ADP believed at the time; right?

17

Is that a correct statement?

18

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

19

statement about ADP's belief --

20

MR. LEWIS:

Yes.

21

THE COURT:

-- to be actionable --

22

MR. LEWIS:

It would have.

23

THE COURT:

-- the reader of this letter would have to

24

believe that Zenefits is in a position to know what ADP

25

believes about its ability to build software in the future.


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41

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.

10

MR. LEWIS:

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

11

THE COURT:

Okay.

12

MR. LEWIS:

The second part of that is also false.

"In

13

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

14

Zenefits."

15

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

16

your permission was because one day they believe they can build

17

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

18

can to impede you.

19

THE COURT:

So "they'd like to do anything they can to

20

impede" sort of hooks back onto the statement about the

21

belief --

22

MR. LEWIS:

Yeah.

23

THE COURT:

-- about ADP's belief that it's going to --

24

MR. LEWIS:

It's the second explanation for the reason.

25

THE COURT:

Okay.

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1
2

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."

ways.

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

reasons.

10

This is false two

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

So that's doubly false.

THE COURT:

Well, but wait a minute.

At the same time

11

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

12

Zenefits' customers saying there are security problems with

13

Zenefits.

14

So you say that it's false in two ways.

I mean, isn't it

15

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

16

that the reason ADP is shutting Zenefits down is security

17

reasons?

18

MR. LEWIS:

No.

19

THE COURT:

Given that email?

20

MR. LEWIS:

No, I don't think it is at all.

Because they

21

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

22

having trouble with the database.

So no.

23

THE COURT:

Okay.

24

MR. LEWIS:

This is just false statement.

25

Then it says -- goes on:

For years, ADP has led

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customers and third parties.

paraphrasing now.

3
4

They had people -- I'm

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

10
11

instead of colloquial.
I think colloquially, I think it is true that -- based on

12

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

13

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

14

thing that another third-party administrator would do when

15

handling payroll and benefits for a small business.

16

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

17

level, they're doing the same thing.

18
19
20

MR. LEWIS:

They

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

21

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

22

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

23

bookkeepers and stuff doing.

24

They know -- even they --

25

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.

10

That's not so.

There's a protocol for doing that that's

11

in the user agreement.

12

well.

And that's attached to our documents as

That's the McGinness declaration.

13

So that's not a true statement either.

14

THE COURT:

Is that material in any way?

15

MR. LEWIS:

Well, yes, it's another false statement.

16

So I think these are all material.

17

THE COURT:

Okay.

18

MR. LEWIS:

In the next sentence, the statement is,

19
20

"Zenefits is still completely compatible with ADP payroll."


That's not true.

It's not true in two ways.

It was

21

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

22

point.

23
24
25

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.

8
9
10

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?

11

What's not true about that?

12

MR. LEWIS:

13

That's not true.

It would suggest that they were blocking the

service improperly with Zenefits.

14

THE COURT:

Well, no, what it says is it's creating this

15

complication for you -- that's true.

16

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

17

It was an attempt to block --

18

MR. LEWIS:

Well, I'm not sure that's true either because

19

there's a question about complication.

20

customer from still using RUN.

21
22
23
24
25

It created a complication

Since nothing stops a

Nothing stopped it even then.

THE COURT:

Yeah, but they were using Zenefits to use

MR. LEWIS:

Right.

RUN.
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.

MR. LEWIS:

That's probably it for this document.

THE COURT:

Okay.

email?

Next.

Now, you wanted to talk about the

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,

10

that's not in evidence on this motion.

11

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

12

should be in front of the Court there.

13

We objected to it.

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

14

associate, and it's incorrect.

15

because --

16

THE COURT:
is it incorrect?

18

compete with Zenefits?

19

MR. LEWIS:

It was something that later,

What do you mean it's incorrect?

17

As I understand it, that part's incorrect,

yes.

21

on a product at ADP that that person had.

22

product at ADP.

24
25

What part

The part that says we have a new product to

20

23

It

The name of it.

Of any product.

There is no such name


There's no free

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.

false.

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

email from this one guy.

There's no evidence of that at all.

That's

The only

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.

10

THE COURT:

Okay.

11

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

12

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

13

burden of showing a probability of success; right?

14

MR. LEWIS:

I do.

15

THE COURT:

What evidence do you put in to refute

16

Although you have to first --

Zenefits' arguments in support of the motion to strike?

17

Do you --

18

MR. LEWIS:

I have three declarations.

19

THE COURT:

Did you put any evidence to refute the

20

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

21

Zenefits' customer that you contend was completely wrong when

22

it offered a new product to the customer that competes with

23

Zenefits?

24

MR. LEWIS:

We did not put evidence in on that point.

25

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.

your contention is that it's inadmissible.

But

MR. LEWIS:

It is inadmissible.

THE COURT:

Okay.

MR. LEWIS:

And, should we need a motion to amend, we

10

certainly can add information as to that.

11

incorrect statement.

12

Because it is an

But that statement by itself, from the statements I just

13

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

14

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

15

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

16

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

17

motion level.

18

But even --

THE COURT:

You may be right about that.

I mean, it may

19

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

20

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

21

and maybe this is one of those cases.

22

MR. LEWIS:

Well, I'm sorry the Court would characterize

23

it that way.

ADP doesn't characterize it that way.

ADP has

24

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

25

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


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49

1
2

it actually had no alternative.


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

takes them very seriously.

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

defamatory statements.

And it does believe, and we

And the mere -- well.

it as well, but my point was --

8
9

THE COURT:

And we could go off to the rest of

It seems to me that the change.org petition

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

10

anything about that.

11

same thing as the letter.

12

MR. LEWIS:

It seems to me that it's basically the


The contents are basically the same.

It's close.

13

things in it.

14

small business customers.

15

couple other ones in there.

16
17
18
19

It has a couple of additional

It says that ADP's cut off thousands of their

THE COURT:

That's false.

And so it may have a

We've noted them.

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.

20

THE COURT:

Okay.

21

MR. LEWIS:

So that was to puff it up to make it look

22

It

Okay.

like it was something more.

23

THE COURT:

Okay.

24

MR. LEWIS:

And that is a lie.

25

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


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50

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

goes anywhere.

7
8
9
10

And since we do not believe it is true,

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.

11

MR. LEWIS:

Sure.

12

THE COURT:

Which is what happens in this case if --

13

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

14

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

15

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

16

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

17

motivations were false.

18

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

19

allegation that when Zenefits said the reason ADP is doing this

20

is because they hope some day to have software that competes

21

with us, that that's false.

22

And then it turns out that the email that the ADP

23

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

24

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

25

let's say that that turns out to be true, and so you lose
Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

51

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

10

Zenefits when it shut Zenefits down?

11

MR. LEWIS:

No.

12

THE COURT:

Why not?

13
14

There's no Rule 11 problem here.


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.

15

not aware of that evidence.

16

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

I'm

So I can tell you right now

17

THE COURT:

But you filed the lawsuit.

18

MR. LEWIS:

Yes, I did.

19

THE COURT:

I mean, you have to -- your obligation is to

20

do a reasonable investigation before filing a lawsuit.

21

MR. LEWIS:

And we did.

22

THE COURT:

And certainly, when presented with an email

23
24
25

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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52

1
2
3
4

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.

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

10

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

certainty.

11

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

12

saying you know the answer and ADP was not developing software

13

to compete with Zenefits?

14
15
16
17

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?

18

MR. LEWIS:

It is not complete.

19

THE COURT:

Maybe we have should discovery in this case.

20

All right.

21

MR. LEWIS:

But, Your Honor, let me point --

22

THE COURT:

You want to talk about the anti-SLAPP motion

23
24
25

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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53

1
2

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.

10

THE COURT:

-- made.

11

MR. LEWIS:

That's correct, Your Honor.

12

THE COURT:

And you've been presented with this email

13

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

14

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

15

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

16

from Zenefits to us."

17

MR. LEWIS:

But let's be clear, again.

Because the Court

18

is going off without the fact again.

What is alleged in the

19

complaint is that Zenefits alleged that we cut off their

20

service because of an interest in developing some of this

21

software.

22

that is not true.

23

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

24

reason why he made that decision.

25

nothing do with some other product.

There is evidence right now before the Court that


We have the declaration of Richard Anderson.

And it has absolutely

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54

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.

10

MR. LEWIS:

Yes.

11

THE COURT:

And actionable as defamation.

12

MR. LEWIS:

Yes.

13

THE COURT:

Okay.

14

MR. LEWIS:

And we already have evidence that it's false

15

right now before the Court.

16

THE COURT:

17

You want to talk a little bit about the commercial speech

18
19

Okay.

All right.

issue?
MR. LEWIS:

Sure.

As to that one, I mean, the most

20

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

21

just came out recently that we referred to the Court.

22

there are other ones as well.

23
24
25

THE COURT:

But

I mean, in essence --

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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55

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?

weird.

10
11

I actually found that case a little

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

12

commercial speech at all, within the meaning of constitutional

13

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

14

statute.

15

MR. LEWIS:

Well, they did.

16

THE COURT:

So I didn't find that case very helpful at

17
18

all, either way.


MR. LEWIS:

Well, they went on the -- they went on to

19

find that also there was no public interest anyway.

20

That's what I found interesting about it.

Because it was

21

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

22

was based on an invented public interest.

23

So there, it was --

24

THE COURT:

25

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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56

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

company.

MR. LEWIS:

Sure.

THE COURT:

The argument was that the public has an

But the point was --

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 --

10

MR. LEWIS:

Into those cases it said sure you can

11

extrapolate anything --

12

THE COURT:

Right.

Okay.

13

MR. LEWIS:

-- into some public interest finally.

14

THE COURT:

I understand your point.

15

MR. LEWIS:

Which is --

16

THE COURT:

I understand your point now.

17

MR. LEWIS:

Which is a better effort than has been done

And I --

18

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

19

invented.

20

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

THE COURT:

I'm more -- yeah, I'm more interested not so

21

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

22

whether this is -- this meets the commercial speech exception

23

of the anti-SLAPP statute.

24
25

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.

MR. LEWIS:

Well, what about it?

4
5

What about the change.org part?


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

10

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

11

customers.

12

That's the crucial piece.

13

indisputably --

14

THE COURT:

15

That's the piece that is

So are you abandoning your argument that the

change.org petition was defamatory?

16

MR. LEWIS:

No.

17

THE COURT:

Okay.

It is defamatory.
So then answer the question.

I mean,

18

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

19

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

20

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

21

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

22

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

23

MR. LEWIS:

Because, as the Court has already noted, it

24

really echos the June 5 email.

And so it is mostly just the

25

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.

5
6

THE COURT:
all this.

Fair enough.

Okay.

I'll think further about

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

10

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

11

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

12

MS. HURST:

Your Honor --

13

THE COURT:

I mean, is there a benefit to sitting down

14

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

15

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

16

relationship, or something along those lines?

17

MS. HURST:

18

that.

19

to litigation.

20

I don't know.

Your Honor, we're certainly willing to do

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

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

21

proposed that we engage in private mediation at JAMS, for

22

example, Your Honor.

23

what his position was on ADR at that point.

24
25

The plaintiff was not prepared yet to say

A settlement conference with Judge Spero, Judge Grewal,


noted good settlement judges, would be great by us, Your Honor.
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1
2

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 --

10

MR. LEWIS:

Yeah.

11

We are in the position that we are

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

12

THE COURT:

Sorry.

13

MR. LEWIS:

Send in our reply on ADR, which is that we

14

Send in what?

are amenable to going to JAMS.

15

THE COURT:

Okay.

And you think that would --

16

MR. LEWIS:

And ADP --

17

THE COURT:

Do you think that would be preferable to -- I

18

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

19

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

20

sort of been clear enough.

21

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

22

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

23

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

24

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

25

it might be of some assistance.

But -- and maybe part of it is a

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1
2

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.

MR. LEWIS:

We haven't made a final decision, so.

MS. HURST:

Your Honor, we're amenable to a settlement

What?

conference.

It was my understanding the Court often likes to

ration the judicial resources in settlement conferences, so

10

that was why we had gone the other direction.

11

certainly amenable to a settlement conference before a

12

magistrate judge.

13

THE COURT:

Mm-hm.

Okay.

But we are

I may send you all to an early

14

settlement conference before a magistrate judge with your

15

clients.

16

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

17

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

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

18

quick.

Because we have several other cases still on the

19

calendar.

20

MS. HURST:

I understand, Your Honor.

21

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

22

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

23

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

24

district manager and licensed broker with his license number on

25

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.

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

10

The discovery floodgates haven't

compete with Zenefits.

11

MS. HURST:

Understood, Your Honor.

12

THE COURT:

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

13
14

we do discovery in this case.


MS. HURST:

I understand that, Your Honor.

But at a

15

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

16

for a 56(d) from them before deciding.

17

THE COURT:

Okay.

18

MS. HURST:

Because, Your Honor, you know, Zene- -- I

19

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

20

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

21

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

22

here, Your Honor.

23

THE COURT:

Oh, they did?

24

MS. HURST:

They had nothing to gain from that,

25

I didn't notice 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.

chill him in continuing to defend Zenefits in the marketplace,

Your Honor.

Because it was designed to

And so he should not be put to discovery.

should not be put to discovery.

motions, both of them, Your Honor.

10

Zenefits

The Court should grant the

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

11

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

12

summary judgment.

13

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

14

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

15

the same thing as the summary judgment standard.

16
17
18

And they don't need anything else because

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

19

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

20

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

21

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

22

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

23

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

24

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

25

know, it may have gotten funding, but its revenues are not that
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63

great.

would like this case to be over.

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

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:

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

Thank you.

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Kelly Lee Polvi, CSR, RMR, FCRR - 503.779.7406 - kpolvi@comcast.net

We

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, FCRR
Contract Transcriber

Kelly Polvi, CSR, RMR, FCRR


P.O. Box 1427
Alameda, CA 94501
(503) 779-7406; kpolvi@comcast.net