SAN RAFAEL, Calif. (HedgeWorld.com)–Overstock.com Inc.’s much-publicized litigation against Rocker Partners LP and Gradient Analytics Inc., over their alleged conspiracy to manipulate Overstock’s share price downward, survived a motion to dismiss brought by the defendants under California’s anti-SLAPP laws.

The acronym stands for “strategic lawsuits against public participation,” and California’s civil code, ?425.16 is designed to protect citizens from meritless lawsuits brought in order to chill their use of their free-speech rights.

Judge Vernon Smith found, first, that the defendants had met their initial burden in an anti-SLAPP motion, that of showing that “plaintiffs’ action arises from and/or is based on an act of defendants in furtherance of their right to free speech in connection with an issue of public interest” –specifically, analyses of the value of Overstock’s equity, published by Gradient and its predecessor Camelback and allegedly ghostwritten by employees of defendant Rocker.

But aside from that showing, the party bringing an anti-SLAPP motion must show that there is no probability that plaintiff will prevail on the merits. Judge Smith believes that the plaintiff does have a prima facie case on the merits. He was apparently favorably impressed in particular by the declaration of Demetrios Anifantis, a former customer representative for Camelback.

Mr. Anifantis’ declaration, filed with the court in connection with this lawsuit, states for example: “I recall discussions over the telephone on which I was present in which David Rocker … Marc Cohodes … or other representatives of a hedge fund called Rocker Partners LP requested that the special report contain more negative information, or that the report emphasize a specific negative fact and that the report downplay any positive facts, or make other editorial requests.” Furthermore, his declaration continues, it was Camelback’s practice to comply with such requests.

In a statement following the judge’s ruling, Gradient promised to appeal. “If this decision stands, independent financial analysts will become easy prey for the companies they study–and everyone would lose,” it said. “But we are confident that the right of free speech will prevail over the attempts by Overstock.com and Biovail to intimidate independent sell-side analysts, journalists, and others critical of their accounting practices, business models, or governance structures.”

Such an appeal will stay the case, so that the “discovery” phase (in which the parties demand evidence of one another–depositions, document exchange, etc.) won’t proceed until the SLAPP question is resolved.

CFaille@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.