I don't think writing a message on a sign qualifies as "publishing." It would be slander, not libel. Still, we're splitting hairs on that point.

Right, WBC wants a settlement, but their ability to press for a settlement hinges on what merit their suit has. I don't think a defamation suit in such a situation would have any merit. The group's past legal actions show that the statement is arguably true.

Another legal link: http://www.expertlaw.com/library/personal_injury/defamation.html

1. A false and defamatory statement concerning another;
2. The unprivileged publication of the statement to a third party (that is, somebody other than the person defamed by the statement);
3. If the defamatory matter is of public concern, fault amounting at least to negligence on the part of the publisher; and
4. Damage to the plaintiff.

One - the statement is arguably not false Two - this applies, in that third parties would witness the counter protest Three - I don't see where there would be negligence. Four - What damage? The only damage they could claim would be an infringement on their ability to execute their litigation con, which proves the statement true.

But that all applies to individuals, not groups, and not "public figures," which Phelps and the WBC most certainly are.

... where a public figure attempts to bring an action for defamation, the public figure must prove an additional element: That the statement was made with "actual malice". In translation, that means that the person making the statement knew the statement to be false, or issued the statement with reckless disregard as to its truth.

There's clearly no reckless disregard for the truth in the statement, "WBC doesn't care about fags or god. They're just looking for someone to sue."