Lennar Homes of California, Inc. v. Stephens
181 Cal. Rptr. 3d 638
Cal. Ct. App.2014Background
- Lennar (homebuilder) included an indemnity clause in Homebuyer Disclosure Statements signed by Stella Stephens and Timothy and Melissa Young when they purchased homes.
- Stephens sued Lennar in federal court in a consolidated class action alleging fraudulent nondisclosure; Timothy Young later joined as a plaintiff; Melissa Young was not a named plaintiff.
- Lennar sued the three buyers in state court seeking contractual indemnity for attorneys’ fees and costs incurred defending the federal action, relying on the disclosure indemnity clause.
- Defendants moved under California’s anti-SLAPP statute (§ 425.16) to strike Lennar’s complaint; the trial court granted the motion, finding (1) Lennar’s claims arose from protected petitioning activity and (2) Lennar could not show a probability of success because the indemnity clause was unenforceable.
- On appeal the Court of Appeal affirmed: (1) Melissa Young’s conduct (as a co-owner and supporter of her husband’s suit) was protected petitioning activity, and (2) the indemnity clause was unconscionable and therefore unenforceable, so Lennar could not meet the anti-SLAPP second prong.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lennar’s indemnity claim arises from conduct protected by the anti‑SLAPP statute | Indemnity claim is a contract claim distinct from the federal suit; Melissa Young wasn’t a party to the federal suit so anti‑SLAPP protection shouldn’t apply to her | Filing, funding, and supporting litigation (including by a spouse asserting joint community claims) is petitioning activity; Melissa’s behind‑the‑scenes support and ownership interest bring her within protection | Held: Claim arises from protected petitioning activity as to all three defendants, including Melissa Young |
| Whether the indemnity clause is enforceable and thus whether Lennar can show likelihood of prevailing on the indemnity claim | Clause should be enforced (or at least limited to prevailing‑party fees) because defendants have not prevailed and prevailing‑party fee shifts are generally permissible | Clause is unconscionable (adhesive contract plus one‑sided clause that eliminates any possibility of recovery even for meritorious claims) and thus unenforceable | Held: Clause is procedurally (low) and substantively (high) unconscionable; unenforceable; anti‑SLAPP second prong fails |
| Whether court should reform the clause into a conventional prevailing‑party fee provision instead of voiding it entirely | Court should limit clause to prevailing‑party fee shifting (lesser remedy) | Voiding the clause is appropriate to deter overbroad contract drafting and prevent in terrorem effects on consumers | Held: Court exercised Civ. Code § 1670.5 discretion to sever and refuse to enforce the unconscionable clause (not simply recharacterize it as a prevailing‑party clause) |
| Whether the trial court abused discretion in considering Melissa Young’s late declaration and in granting reconsideration | Lennar contended the declaration was untimely and not properly considered on reconsideration | Trial court had discretion to consider evidence on reconsideration; § 425.16(f) governs filing deadlines, not evidence at reconsideration | Held: No abuse; trial court properly considered Melissa’s declaration and found her activity protected |
Key Cases Cited
- Kibler v. Northern Inyo County Local Hospital Dist., 39 Cal.4th 192 (anti‑SLAPP statute construed broadly to protect petition and free‑speech rights)
- Equilon Enterprises v. Consumer Cause, Inc., 29 Cal.4th 53 (two‑step anti‑SLAPP burden shifting framework)
- City of Cotati v. Cashman, 29 Cal.4th 69 (cause of action must arise from protected act for anti‑SLAPP to apply)
- Flatley v. Mauro, 39 Cal.4th 299 (standard for evaluating anti‑SLAPP merits burden)
- Rusheen v. Cohen, 37 Cal.4th 1048 (act in furtherance includes filing, funding, prosecuting civil action)
- Ludwig v. Superior Court, 37 Cal.App.4th 8 (supporting another’s litigation can be protected activity)
- Navellier v. Sletten, 29 Cal.4th 82 (claims ‘‘but for’’ litigation fall within anti‑SLAPP ambit)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (procedural/substantive unconscionability framework and sliding scale)
- Layman v. Combs, 994 F.2d 1344 (9th Cir.) (interpreting investor indemnity clause; discussed but distinguished)
- Harper v. Ultimo, 113 Cal.App.4th 1402 (unenforceability of contract clauses that foreclose meaningful judicial relief)