43 Cal.App.5th 87
Cal. Ct. App.2019Background
- Margaret Williams formed Margaret Williams, LLC in 2006 because the Long Beach Unified School District (District) required a business entity to contract with it; the LLC worked almost exclusively for the District for nearly a decade.
- Williams, designated project manager for a DTSC-mandated cleanup at a school site, alleges exposure to arsenic during work; she and her LLC sued the District for retaliatory termination and personal-injury and contract claims (the Underlying Action).
- The 2013 contract between the District and Williams LLC contained a broad indemnity and duty-to-defend clause that the District invoked, tendering defense and indemnity for all claims in the Underlying Action. Williams LLC refused.
- The District filed a cross-complaint seeking breach of contract, declaratory relief, equitable indemnity, and apportionment of fault based on Williams LLC’s refusal to defend/indemnify; Williams LLC moved to strike under the anti‑SLAPP statute, arguing the cross-complaint arose from protected petitioning activity and the indemnity clause was unconscionable.
- The trial court granted the anti‑SLAPP motion; the Court of Appeal affirmed, holding the cross-claims arose from protected activity and that the indemnity clause was substantively and procedurally unconscionable as applied (the court limited the clause to avoid unconscionable results).
Issues
| Issue | Plaintiff's Argument (District) | Defendant's Argument (Williams LLC) | Held |
|---|---|---|---|
| 1. Do the District’s cross-claims arise from protected activity under the anti‑SLAPP statute? | Cross-claims arise from Williams LLC’s contractual refusal to defend/indemnify (not from the Underlying Action) and thus are unprotected contract disputes. | Cross-claims seek defense/indemnity for litigation costs incurred in the Underlying Action, so they arise from and are connected to protected petitioning activity. | Held: Cross-claims arise from protected activity (the Underlying Action and related refusal to fund litigation are protected). |
| 2. At step two of anti‑SLAPP, did the District show a probability of prevailing on its contract and declaratory claims? | The indemnity clause potentially covers the District’s exposure and is enforceable; District can prevail. | The indemnity clause is unconscionable (both substantively and procedurally) so District cannot show probability of prevailing. | Held: District failed to show probability of prevailing because the indemnity clause is unconscionable as applied. |
| 3. Is the indemnity clause unconscionable (substantive/procedural)? | Clause is limited by an exception for sole/active negligence or willful misconduct and is therefore enforceable. | Clause bars meaningful recovery by the LLC (and would force the LLC to fund defense/judgments on its own or its principal’s claims); contract was adhesive with oppression and surprise. | Held: High substantive unconscionability ("heads I win, tails you lose") plus moderate procedural unconscionability (adhesion, oppression, surprise) make the clause unconscionable as applied. Court limits clause to exclude claims brought by Williams LLC and by Williams. |
| 4. Did the trial court abuse discretion by denying 9 extra pages in District’s opposition brief? | Denial prevented full argument and prejudiced District. | Denial was within court’s discretion; extra pages would not have changed outcome. | Held: No abuse of discretion; no prejudice shown. |
Key Cases Cited
- Baral v. Schnitt, 1 Cal.5th 376 (Cal. 2016) (explains the two-step anti‑SLAPP analysis and burdens at each step)
- Lennar Homes of California, Inc. v. Stephens, 232 Cal.App.4th 673 (Cal. Ct. App. 2014) (indemnity requiring a plaintiff to pay defendant’s defense and any judgment on the plaintiff’s own meritorious claims is substantively unconscionable)
- Takhar v. People ex rel. Feather River Air Quality Management Dist., 27 Cal.App.5th 15 (Cal. Ct. App. 2018) (litigation-funding and related decisions are protected petitioning activity)
- OTO, L.L.C. v. Kho, 8 Cal.5th 111 (Cal. 2019) (framework for evaluating procedural and substantive unconscionability; context-sensitive approach)
- Crawford v. Weather Shield Mfg., Inc., 44 Cal.4th 541 (Cal. 2008) (discusses allocation of legal fault and risks in indemnity contexts)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (Cal. 2015) (clarifies how degrees of procedural and substantive unconscionability interact)