Indeed, the indications are that Illinois would not extend the holding in Lyddon to the filing of complaints before regulatory bodies. In Arlington Heights National Bank v. Arlington Heights Federal Savings and Loan Association, 37 Ill.2d 546, 550-51, 229 N.E.2d 514 (1967) the Illinois Supreme Court addressed the "precise question" of the extent of the privilege to petition local legislative bodies, stating: "We hold that a private citizen's acts pursuant to his right to petition a legislative body, be it local or otherwise, are conditionally privileged .... Most courts have held ... that in a tort action for interference with contract wherein the alleged wrongful conduct is conditionally privileged, the plaintiff must show actual malice on the part of the defendant in order to sustain such a cause of action." It thus appears that under Illinois law defendants' conduct in complaining to the SEC would constitute similar petitioning activity and would be conditionally privileged, depending on whether plaintiff pleaded and proved actual malice.

"Actual malice" involves more than ill-will: "[T]here must be a desire to harm, which is independent of and unrelated to a desire to protect the acting party's rights and which is not reasonably related to the defense of a recognized property or social interest." Arlington Heights, 37 Ill.2d at 551, 229 N.E.2d 514. The bare assertion of malice is not sufficient; the complaint must set forth factual allegations supporting the existence of actual malice. Id.

Havoco's complaint alleges that defendants "knowingly and maliciously" made false accusations to the SEC in a "deliberate attempt to force the cancellation of the [proposed] public offering." These allegations do not establish the requisite actual malice.

Even assuming, arguendo, that the allegations of the complaint were sufficient, the materials submitted by Havoco negate any inference that defendants acted out of "a desire to harm ... independent of and unrelated to a desire to protect [their] rights." The materials submitted to the court show that the complaints and questions defendants communicated to the SEC pertained to the limited partnerships in which they were investors. The materials thus establish that defendants were acting in a manner reasonably related to the protection of their economic interests. That their actions may have been motivated by ill-will towards Havoco or may have had an adverse impact on Havoco's interests does not establish actual malice. Accordingly, the court concludes that defendants' conduct in complaining to the SEC was privileged under Illinois law.

Assuming, arguendo, that under Illinois law defendants' conduct was not privileged, this court agrees with the analysis of the district court for the Northern District of California in Sierra Club v. Butz, 349 F.Supp. 934 (N.D.Cal.1972). In that case, the court rejected the malice standard set forth in Arlington Heights as inadequate to protect the "breathing space" that the First Amendment right to petition requires. The court reasoned that malice is too easy to allege, and therefore concluded that the "sham" standard was the correct one, stating: "[L]iability can be imposed for activities ostensibly consisting of petitioning the government for redress of grievances only if the petitioning is a "sham," and the real purpose is not to obtain governmental action, but to otherwise injure the plaintiff." 349 F.Supp. at 939.

The Sierra Club court, in applying this "sham" standard, was relying on a line of Supreme Court cases holding that activity within the ambit of the right to petition the government for redress of grievances is privileged under the First Amendment, unless the alleged petitioning activity "is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of [another]." Eastern Railroad Presidents Conference v. Noerr Motor Freight Inc., 365 U.S. 127, 144, 81 S.Ct. 523, 533, 5 L.Ed.2d 464 (1961). See also United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); and California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972).

In California Motor Transport, the Supreme Court held that the Noerr-Pennington doctrine applied to adjudicatory proceedings before administrative agencies and to judicial proceedings. And while the doctrine evolved in the context of antitrust litigation, in Sierra Club and in other cases the doctrine has been applied to protect the First Amendment right to petition against claims of tortious interference with business relationships. See First National Bank of Omaha v. Marquette National Bank of Minneapolis, 482 F.Supp. 514, 524 (D.Minn.1979), aff'd, 636 F.2d 195 (8th Cir.1980), cert. denied, 450 U.S. 1042, 101 S.Ct. 1761, 68 L.Ed.2d 240 (1981); Pennwalt Corp. v. Zenith Laboratories, Inc., 472 F.Supp. 413, 424 (E.D.Mich.1979), appeal dism'd, 615 F.2d 1362 (6th Cir.1980).

For purposes of this motion, the court treats as undisputed the allegations that defendants registered complaints with the SEC, that as a result the SEC conducted an investigation of Havoco or its subsidiary, and that this investigation caused Havoco to postpone its planned public offering. Such conduct is privileged as petitioning activity and cannot form the basis of a claim for tortious interference with business relationships, unless, as plaintiff argues, defendants' actions were a "mere sham."

In an adjudicatory context, the bringing of a claim that an opponent or even the adjudicatory body itself considers baseless will not ordinarily result in sanctions. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 513, 92 S.Ct. 609, 613, 30 L.Ed.2d 642 (1972); Metro Cable Co. v. CATV of Rockford, Inc., 516 F.2d 220, 227 (7th Cir.1975). However, "a pattern of baseless, repetitive claims" may establish the "sham" nature of the petitioning activity and result in the loss of the privilege. California Motor Transport, id.

In California Motor Transport, the allegations were that defendants intended to oppose every application by plaintiffs for new or expanded operating rights through all stages of administrative and judicial review, regardless of the merits, in an effort to intimidate plaintiffs from seeking such rights. As the Seventh Circuit has noted: "In California Motor Transport ... the defendants were alleged to have engaged in conduct that was not genuinely aimed at securing favorable governmental action but at discouraging competitors from seeking governmental action .... [T]he plaintiffs' injury was caused, not by governmental action, but by defendants' 'sham' activities." Metro Cable, 516 F.2d at 232.

This case is unlike that in California Motor Transport. Here, there is no pattern of baseless, repetitive claims, although Havoco argues that there is. Cf. Central Bank of Clayton v. Clayton Bank, 424 F.Supp. 163, 167 (E.D.Mo.1976), aff'd 553 F.2d 102 (8th Cir.), cert. denied 433 U.S. 910, 97 S.Ct. 2978, 53 L.Ed.2d 1095 (1977) (one lawsuit does not constitute a pattern). Defendants have only been pressing one claim, rooted in their displeasure with the management of their investments, and have been seeking a forum in which to argue the merits of their claim. They contacted the NASD and discovered it had no authority. They contacted the SEC, which after investigation took a somewhat ambiguous posture, neither prosecuting nor clearing Havoco and its subsidiary. Finally, they filed a lawsuit, the merits of which have not yet been litigated.

Havoco has alleged that the SEC issued a stop order on the basis of defendant's complaints and that this prevented it from going forward with its public offering. Clearly, however, the SEC did not issue any such order. Havoco is thus left with the argument that defendants complained to the SEC, not out of any desire to protect their investments or to instigate official action, but solely out of a desire to block the public offering.

Havoco cannot allege any facts to support this argument. Defendants had substantial investments in the partnership program and the materials submitted to the court indicate an on-going dispute between plaintiff and defendants. The First Amendment guarantees defendants' right to attempt to enlist the government on their side of the dispute. That this petitioning activity may have had incidentally an adverse effect on plaintiff's business, even that defendants knew this and intended such a result, has no effect on the First Amendment's protection, as long as the activity represents a genuine attempt to influence governmental action. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 143-44, 81 S.Ct. 523, 532-33, 5 L.Ed.2d 464 (1961). Gorman Towers, Inc. v. Bogoslavsky, 626 F.2d 607, 615 (8th Cir.1980); Central Bank of Clayton v. Clayton Bank, 424 F.Supp. 163, 165 (E.D.Mo.1976), aff'd, 553 F.2d 102 (8th Cir.), cert. denied, 433 U.S. 910, 97 S.Ct. 2978, 53 L.Ed.2d 1095 (1977). Here, the allegations in Havoco's complaint represent the end defendants wanted to achieve: governmental intervention against Havoco. That they were unsuccessful does not automatically transform their attempt into a sham.

In summary, a plaintiff must do more than merely allege that defendant's petitioning activity was a sham in order to overcome the First Amendment privilege. Otherwise, the right to petition without fear of sanctions would become a mockery. The "sham" exception cannot be used to chill this constitutional right. Cf. Stern v. United States Gypsum, Inc., 547 F.2d 1329, 1345 (7th Cir.), cert. denied, 434 U.S. 975, 98 S.Ct. 533, 54 L.Ed.2d 467 (1977) (in civil rights case, Court rejects argument that knowing falsity deprives administrative complaint of constitutional protection, due to ease of alleging such knowing falsity); and Sierra Club v. Butz, 349 F.Supp. 934, 938-39 (N.D.Cal.1972) (court rejects malice standard due to ease of alleging malice). Havoco, therefore, must allege facts that demonstrate that defendants' complaints to the SEC were merely a ruse and that defendants were not truly seeking favorable governmental action. Havoco has not done so, and in the circumstances of this case as evidenced by the materials submitted, the court cannot see how it could.

Accordingly, the court grants defendants' motions for summary judgment and denies plaintiff's motion for summary judgment. The case is thereby dismissed.

/s/ SUSAN GETZENDANNER

Susan Getzendanner
United States District Judge
Dated: October 8, 1981