Farallon goes after StockHouse poster for libel

2004-10-08 14:58 ET - Street Wire

by Stockwatch Business Reporter

Farallon Resources Ltd., Hunter Dickinson Inc. and Ronald Thiessen have finally filed a libel lawsuit against Robert Butler and an unidentified StockHouse forum poster. The action comes after Mr. Butler arranged to post a letter from Farallon, in which the company demanded that he apologize for a series of allegedly libellous comments he had made on the company's StockHouse forum. The post was accompanied by a declaration that all of his previous comments are true. Mentioned in many of Mr. Butler's comments was the Campo Morado property, Farallon's contentious Mexican property.

This lawsuit puts Farallon back before the courts, a familiar if unwelcome development for the Vancouver company. In the late 1990s, Farallon was the target of incessant lawsuits related to Campo Morado. The man behind most of Farallon's legal trouble was David Hermiston, who was at one time president of Canadian Eagle Explorations Inc. An Alberta Securities Commission investigation found in 1989 that Mr. Hermiston's activities while he was the president of Canadian Eagle constituted fraud in the form of misappropriated company funds. Mr. Hermiston was banned for an indeterminate length of time from being involved in the Albertan markets.

Mr. Hermiston recently applied to the ASC to have his ban lifted, saying 15 years was long enough and that he had learned his lesson. The ASC apparently agreed, for on Aug. 9, 2004, the commission lifted the ban. Mr. Hermiston is once again allowed to trade and act as a director of a company in Alberta.

Lawsuit: The postings

The current lawsuit begins by stating that back in July, 2003, Mr. Butler started to post allegedly defamatory comments about the plaintiffs on the Farallon StockHouse BullBoard. Among the numerous comments made by Mr. Butler, using the pseudonym BTaffy, were implications that Hunter Dickinson had been "pumping and dumping" Farallon stock. In November, Mr. Butler said that Hunter Dickinson spent money on "crooked, illegal manipulation of the courts in both Mexico and Nevada," and that both Hunter Dickinson and Farallon were "crooks, liars and thieves." The lawsuit claims that Mr. Butler said that Farallon and Mr. Thiessen "have perpetrated an 'outrageous and despicable fraud' on their own investors."

Mr. Thiessen was subject to a particularly scathing defamation by Mr. Butler. The BullBoard postings indicated Mr. Butler thought Mr. Thiessen was part of a "house of thieves," and that he was involved in a "conspiracy" to steal the Camp Morado project. Continuing on his rant, Mr. Butler stated that Mr. Thiessen was a "poor excuse for a human being" and a "proven and continual liar."

These examples of the alleged libels by Mr. Butler are a small sampling of the 34 defamatory comments identified by Farallon in the lawsuit, and are quite representative of Mr. Butler's handiwork.

The lawsuit take pains to point out that the comments made by Mr. Butler are all false, and Mr. Butler knew it. Every statement made by Mr. Butler "was made with spite and ill will, and was calculated to disparage the Plaintiffs in their chosen business, to damage the Plaintiffs' reputation in the community, and to lower the Plaintiffs in the minds of right-thinking members of society." Since so many people have viewed the BullBoard postings, the lawsuit says, the harm has been done.

Lawsuit: the apology

On Sept. 20, 2004, a lawyer for the plaintiffs sent a polite letter to StockHouse, demanding that StockHouse remove Mr. Butler's allegedly defamatory comments off the Farallon BullBoard, and revoke BTaffy's user privileges. StockHouse complied. The lawyer then sent a letter to Mr. Butler demanding that he stop posting defamatory comments about Farallon, Hunter Dickinson or Mr. Thiessen, and that Mr. Butler issue a full apology.

On Sept. 24, 2004, Mr. Butler allegedly had a StockHouse user, with the pseudonym of mirash1, post portions of the letter on the Farallon BullBoard. This post included a letter from Mr. Butler declaring that he had only ever written the truth, that Mr. Thiessen had used "illegal and corrupt tactics" in a legal dispute, that Mr. Thiessen was a liar, and that Mr. Butler would continue to post "the truthful facts" on the matter.

Since StockHouse does not vet the comments made on its BullBoards, the plaintiffs contend that Mr. Butler will continue his libellous diatribe against Farallon and the others. They are seeking damages for libel from Mr. Butler, as well as an injunction to prevent Mr. Butler or the person behind "mirash1" from posting any further defamatory comments about the defendants. Vancouver lawyer Keith E. Clark of Lang Michener LLP filed the lawsuit on Oct. 5, 2004, in the Supreme Court of British Columbia. No defence to the allegations contained in the lawsuit has been filed.

Libel on the StockHouse forums

This is not the first time a StockHouse forum has been used as a vehicle for libellous comments about public companies. A case in Alberta pitted Vaquero Energy Ltd. and its president Robert Waldner against Nick Weir. Vaquero won damages totalling $75,000 for comments posted on StockHouse. The judge in the Vaquero case stated that an anonymous Internet posting has a greater risk of being believed, as a reader is not readily able to discount comments.

Stockwatch has also reported on other libel cases involving StockHouse. A March 19, 2004, story involved Adanac Gold Corp. and Molycor Gold Corp. suing someone using the alias of "Tooper." An Aug. 31, 2004, story covered the libel lawsuit filed by Epic Data Inc. and its chief executive officer Peter Murphy. Based on these cases, Canadian courts seem unfavourably inclined toward libel on stock forums.

The Hermiston and Summex Mines saga

The BullBoard postings mentioning Campo Morado are referring to what began in 1995 as an interesting legal spat between Summex Mines Ltd. and Farallon. By the end, six years later, it had become very tiresome. The story began when Summex's John Torok reported on Dec. 22, 1994, that it had agreed to purchase Minera Summit De Mexico SA de CV from Mr. Hermiston, for 3,122,014 shares. Minera Summit then owned the Campo Morado property. A few months later, Summex was forced to report that the Vancouver Stock Exchange was blocking the acquisition agreement. The exchange had qualms with Mr. Hermiston's involvement, due in part to his run-in with the ASC as previously described.

On Oct. 16, 1995, Farallon reported it had an agreement to acquire the Campo Morado and La Alina properties from Minera Summit. The price for the deal was 750,000 shares and $1,235,388 (U.S.) before Jan. 31, 1998.

On Dec. 22, 1995, Farallon issued a press release saying the company had just found out of Summex's intention to buy Minera Summit. However, Farallon felt its due diligence on the project had been satisfactory, and it would be taking all appropriate steps to protect its interest in Minera Summit.

Summex kept trying to get its hands on Minera Summit. On Jan. 9, 1996, Summex wrote that in spite of the VSE's initial refusal of the agreement, it was forging ahead. Mr. Hermiston had transferred all of his land titles and his Minera Summit interests to Mr. Torok's Bataleur Resources International Inc. (The transfer was later disputed, as Mr. Hermiston had signed a power of attorney agreement with his Mexican lawyer, who later agreed to sell Mr. Hermiston's interest in Minera Summit to Farallon.) Summex hoped that the transfer of ownership to Bataleur Resources would be enough to get the VSE to approve the Minera Summit deal. The action was to no avail, as Farallon officially acquired Minera Summit on Jan. 10, 1997.

Summex and Mr. Torok sued Farallon and its David Jennings in B.C. on Feb. 29, 1996. Summex's lawsuit sought a declaration that Farallon was not the owner of Minera Summit. The B.C. Supreme Court later dismissed Summex's lawsuit on July 17, 1998, when the judge confirmed Farallon's 100-per-cent title to the property.

On Feb. 28, 1996, Summex reported that in a Nevada court action, Dr. Joe Berry had testified under oath with evidence that Dr. Berry and officers of Farallon had conspired to defraud Summex of the Campo Morado claims. The Nevada action took a few strange twists, including that three of the defendants were tracked down and served in odd place, such as Jesus Villagran-Ochoa being served in the sauna room of his health club in Hermosillo on May 20, 1997. Summex subsequently jointed the Nevada legal actions and sued Farallon and Hunter Dickinson, along with a myriad of other defendants, for damages.

By this time, Farallon was getting more than a little fed up with Summex. Robert Hunter of Farallon wrote on Nov. 18, 1997, that Summex and Mr. Hermiston were "attempting to use the court system to extort share or cash consideration from Farallon for Summex's failed attempt at the acquisition of Minera Summit de Mexico. Their allegations are complete fabrications."

The flurry of news releases continued until the VSE and the B.C. Securities Commission stepped into the fray and told Summex not to issue any more news releases unless they were clearly in the interests of the general public. Summex, taking the view that most anything they had to say about Campo Morado and Farallon was in such interests, continued to issue press releases keeping everyone up to date on their view of the legal proceedings.

On March 16, 1998, Summex directors voted to pull the company off the VSE, as the unnecessary halt of Summex by the VSE was allegedly done with the view to discredit the president and chief executive officer, and that the "inappropriate conduct of the VSE" led to the collapse of a private placement. Summex was officially delisted on March 17, 1998.

Farallon stated in a Feb. 17, 1999, press release, that if Mr. Torok and his companies, Bataleur Resources and Sun Bat Inc., dropped all claims against Farallon in Nevada, it would not seek to recover costs from the man. Mr. Torok did so, and that left Mr. Hermiston's lawsuit as the only one standing in Nevada. On April 28, 1999, Farallon received a favourable decision in a Nevada court, ending proceedings against Farallon in the United States. The Nevada judge dismissed the case and granted a judgment against Mr. Hermiston and his mother, Wilma Hermiston, who were the only remaining plaintiffs in the case.

The Mexican litigation evidently came to an end in October, 2001, when the Mexican court found that Mr. Hermiston's allegations against Farallon were without merit, and awarded Farallon costs and expenses.

Farallon's regard for its legal foe Summex was never in question. An Oct. 1, 1997, press release issued by Mr. Hunter on behalf of Farallon stated: "John Torok continues to use Summex Mines as a source of financing to pursue lawsuits without any specific business purpose directly related to Summex Mines. To date significant monies raised by Summex Mines have been used in the pursuit of litigation, the direct beneficiaries of which are Dave Hermiston and his associate, John Torok." (Mr. Torok later replied to the comments, denying that he was an associate of Mr. Hermiston.)

Farallon also claimed that Mr. Hermiston is still beating the drum over Campo Morado. The company said that after Mr. Torok stopped financing Mr. Hermiston's lawsuits, he had to look elsewhere for the cash, and was at last word in Mexico seeking money from former Summex shareholders.

Mr. Hermiston may have found what he was looking for, because on Sept. 6, 2004, he filed another lawsuit against Farallon in Mexico, with what appears to be a similar case as before against Farallon regarding the Campo Morado claims. Farallon reported on the latest Hermiston lawsuit in Stockwatch on Sept. 14, 2004. Farallon president Dick Whittington indicated that the company believes the latest suit is also without merit.