(1) DENYING DEFENDANTS’ SPECIAL MOTION TO STRIKE (ANTI-SLAPP)
(2) DENYING DEFENDANTS’ MOTION FOR PARTIAL JUDGMENT
ON THE PLEADINGS;
(3)GRANTING PLAINTIFF’S MOTION TO AMEND
Before the Court are the Special Motion to Strike (Anti-SLAPP)
BACKGROUND
In or around August 2014, Larson, a Colorado based attorney, contacted Plaintiff, a California based attorney, by telephone “to request local counsel assistance” with a case involving a substantial brain injury to a Colorado resident (the “Storm case”). (Compl. ¶ 5.) Larson indicated that “$5.8 Million had been offered from the latest mediation” with the Storm defendants, and-that filing a lawsuit in California was necessary to “effectively prosecute the Storm claims” (Id.) Larson and Plaintiff agreed that Plaintiff would “file the lawsuit in San Diego Superior Court and work as California counsel on behalf of the Storm plaintiffs.” (Id.) The parties further agreed that Plaintiff would receive, as compensation for his services, forty percent (40%) of “the attorney fees attributable to an award or settlement obtained in excess of $5.8 million, based on the contingency fee” agreement between Larson and the Storm plaintiffs. (Id.)
The day after their initial conversation, Larson telephoned Plaintiff and told him the Storm defendants “had just then raised their [settlement] offer to $8 million, and that [the Storm] plaintiffs would accept $10 million to settle their case.” (Id.) Based on these representations, Plaintiff agreed to modify the original fee splitting agreement. Instead of forty percent (40%) of the attorney fees obtained in excess of $5.8 million, Plaintiff would receive forty-five percent (45%) of the attorney fees obtained in excess of $8 million. Thereafter, Plaintiff filed the Storm case
After Plaintiff began representing the Storm plaintiffs, Larson allegedly concealed from Plaintiff two settlement offers from the Storm Defendants: one for $6.3 million in October 2014, and one for $6.8 million in November 2014. Additionally, on May 18, 2015, Plaintiff attended a mediation in Larson’s Denver office, which Lar
In February 2016, Plaintiff participated in settlement negotiations with counsel for the Storm defendants. It was during these settlement negotiations that Plaintiff learned from defense counsel about Larson’s alleged misrepresentation about the timing of the Storm defendants’ $8 million offer and Larson’s alleged concealment of the October 2014 and November 2014 offers. On or about March 8, 2016, Plaintiff received the settlement checks for the Storm case, which totaled more than $10 million. Due to an inadvertent error, Plaintiffs name was omitted from the settlement checks. At the request of one of the Storm plaintiffs, Plaintiff did not have the checks reissued, and instead sent the checks directly to the Storm plaintiffs. To date, Larson has paid Plaintiff approximately ten percent (10%) of the attorney fees. Larson “agreed to hold another $425,000” in trust pending resolution of the instant action. (Compl. ¶ 10.)
On May 12, 2016, Plaintiff filed the instant action, asserting two claims for relief for fraud and quantum meruit in a California Superior Court. (Docket No. 1.) On June 13, 2016, Defendants removed this action to the federal district court on the basis of diversity jurisdiction pursuant to 28 U.S.C. §§ 1441(b) and 1446. (Id.) On June 27, 2015, Defendants concurrently filed their Motion to Strike and Motion for Partial Judgment. (Docket Nos. 6, 7.) On October 24, 2016, Plaintiff filed his Motion to Amend. (Docket No. 24.)
DISCUSSION
I. Defendants’ Special Motion to Strike (Anti-SLAPP)
Defendants filed a Special Motion to Strike (“anti-SLAPP Motion”) seeking dismissal of Plaintiffs fraud claim pursuant to California Code of Civil Procedure section 425.16.
A. California’s Anti-SLAPP Statute
“California’s anti-SLAPP statute authorizes a ‘special motion to strike’ any ‘cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech ... in connection with a public issue.’ ” Safari Club Int’l v. Rudolph,
As used in section 425.16, “an ‘act in furtherance of a person’s right of petition or free speech under the United States or
(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law,
(2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law,
(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or
(4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.
Cal. Civ. Proc. Code § 425.16(e).
Evaluating the merits of an anti-SLAPP motion requires a court to engage in a two-part inquiry. Doe v. Gangland Prods., Inc.,
The Court finds Defendants failed to establish the requisite initial showing that Plaintiffs fraud claim arose out of protected activity.
1. “Arising from” Protected Activity
As discussed above, it is the defendant’s burden to make an initial showing that one or more claims arise from an act in furtherance of the defendant’s constitutional right of petition or free speech in connection with a public issud. Safari Club Int’l, supra,
In the first-step of the anti-SLAPP analysis, arguments about the merits of the claims are irrelevant. Coretronic Corp., supra,
Citing GeneThera, Inc. v. Troy & Gould Professional,
The Court finds the facts in GeneThera, Inc. are clearly distinguishable from Plaintiffs action. In GeneThera, Inc., the appellants had sued the respondents (an attorney and his firm) for intentional interference with contractual relations and negligence based on respondents’ communication of a settlement offer to one of the appellants in a separate lawsuit. Id., supra, at 905-906,
The trial court granted the respondents’ anti-SLAPP motion after it “expressly found appellants’ complaint arose from respondents’ protected activity of sending a settlement offer,” ánd appellants failed to show a reasonable probability of success on the merits of their case. Id. The California Court of Appeal affirmed the trial court’s decision, finding “[a]n attorney’s communication with opposing counsel on behalf of a client regarding pending litigation directly implicates the right to petition and thus is subject to a special motion to strike.” Id. at 908,
In .contrast, Plaintiffs Complaint alleges he and Defendants were contemplating a potential partnership in prosecuting the Storm plaintiffs’ claims, which had not yet been filed. (Compl. ¶ 5.) As noted in Plaintiffs’ Opposition, Defendants anti-SLAPP Motion did not discuss how Larson’s communications about the Storm defendants’ settlement offers to Plaintiff amounted to protected activity under any of the circumstances identified in section 425.16(e). Instead, Defendants conflate the two-part analysis by asserting Larson’s statements constituted protected activity on the assumption that the statements fell under the litigation privilege pursuant to California Code of Civil Procedure section 47. (Docket No. 6-1 at 5.)
Defendants’ assertion that the litigation privilege establishes the prima facie showing of protected activity is misplaced because affirmative defenses are not relevant to determining whether a defendant engaged in protected activity. See Birkner, supra,
Nevertheless, Defendants maintain in their Reply that “Larson met his initial burden of showing his communications fall within the protection of the Anti-SLAPP statute” because Plaintiffs fraud claim alleges Larson “misrepresented and concealed settlement offers for purposes of hiring Hart and filing the California lawsuit.” (Docket No. 21 at 2.) In other words, Defendants reiterate that their statements amounted to protected activity because they were “settlement communications.” (Id.) However, the four cases relied upon by Defendants, including GeneThera, Inc., supra, discussed above, are similarly distinguishable from Plaintiffs action because they involve settlement communications between opposing counsel or interested parties. See Navellier, supra,
In sum, none of the cases cited by Defendants supports their broad conclusion that all communications regarding settlement, regardless of the context in which they were delivered, are protected activity under section 425.16. Indeed, courts in California have stated that “where a lawsuit involves both protected and unprotected activity, the court looks to the .gravamen of the claims to determine if the case is a SLAPP.” Coretronic Corp., supra,
Here, Plaintiff’s fraud claim alleges Defendants made fraudulent statements -to induce him to enter a fee-splitting agreement for the Storm case. (Compl. ¶¶ 5-9!) Although the statements concern settlement offers from the Storm defendants, it is clear from the face of the Complaint that the statements were not “in the course of settlement negotiations.” Suarez, supra,
Therefore, the Court finds Defendants have failed to establish a prima facie showing that Plaintiffs fraud claim arises out of protected activity as defined by section 425.16.
2. Reasonable Probability of Prevailing
The Court need not evaluate whether Plaintiff has demonstrated a reasonable probability of prevailing on the merits of his claim because Defendants have not met their initial burden to demonstrate that their alleged actions constituted protected activity under section 425.16. See Doe, supra,
II. Defendants’ Motion for Partial Judgment on the Pleadings
Defendants next move for Partial Judgment as to Plaintiffs fraud claim pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. (Docket No. 7.)
Rule 12(c) provides: “After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12. The Ninth Circuit has stated that Rule 12(c) is “ ‘functionally identical’ to Rule 12(b)(6) and that ‘the same standard of review’ applies to motions brought under either rule.” See Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc.,
Under Federal Rule of Civil Procedure 12(b)(6), dismissal is appropriate if, taking all factual allegations as true, the complaint fails to state a plausible claim for relief on its face. Fed. R. Civ. P. 12(b)(6); Bell Atl. Corp. v. Twombly,
Under this standard, dismissal is appropriate if the complaint fails to state enough facts to raise a reasonable expectation that discovery will reveal evidence of the matter complained of, or if the complaint lacks a cognizable legal theory under which relief may be granted. Twombly,
In addition, allegations of fraud must be stated with particularity. Fed. R. Civ. P. 9(b). “In order to plead fraud with particularity, the complaint must allege the time, place, and content of the fraudulent representation; conclusory allegations, do not suffice.” Shroyer v. New Cingular Wireless Serv., Inc.,
Defendants contend that the Court should grant their Motion for Partial Judgment on the grounds that Plaintiffs claim for fraud is barred as a matter of law by California’s statutory litigation privilege. The Court finds Plaintiffs fraud claim is not barred by California’s litigation privilege and that the Complaint sufficiently alleges facts to state a claim for fraud.
A. California Litigation Privilege
California Civil Code section 47, provides in relevant part that a “privileged publication” is one made:
(b) In any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law and reviewable pursuant to Chapter 2 (commencing with Section 1084) of Title 1 of Part 3 of the Code of Civil Procedure...
Cal. Code Civ. Proc. § 47(b).. The courts have formulated a general rule, finding the litigation privilege:
[Ajpplies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.
Silberg v. Anderson,
The purposes of section 47, subdivision (b), are to afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation.
Id., citing Rusheen v. Cohen,
Whether a communication “has ‘some connection or logical relation to the action’ ” is determined by “the subject matter or context of the misstatement, not
Although reviewing courts have interpreted the scope of the litigation privilege broadly, the privilege does not apply in all situations. For example, courts have found that the litigation privilege does not apply where the false statements made were not logically related or connected to the underlying suit. See Nguyen v. Proton Technology Corp.,
B. Analysis
As set forth above, the litigation privilege:
[A]pplies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.
Silberg v. Anderson,
“The requirement that the communication be in furtherance of the objects of the litigation is, in essence, simply part of the requirement that the communication be connected with, or have some logical relation to, the action, i.e., that it not be extraneous to the action.” Id. at 219,
the “connection or logical relation” which a communication must bear to litigation in order for the privilege to apply, is a functional connection. That is to say, the communicative act ... must function as a necessary or useful step in the litigation process and must serve its purposes. This is a very different thing from saying that the communication’s content need only be related in some way to the subject matter of the litigation.
Rothman, supra,
Relying solely on Olsen v. Harbison,
In Olsen, the plaintiff was an attorney who had been retained by Kathleen Klaw-itter in a separate lawsuit (the “Klawitter action”). Id., supra, at 328,
Subsequently, the Olsen plaintiff sued the defendant on number of theories of liability, including fraud, of which the trial court granted summary adjudication after concluding the challenged communications were protected by the litigation privilege. Id. The trial court, without identifying the content of the statements, divided the alleged fraudulent communications into two categories: (1) statements made by defendant to Klawitter about plaintiff, and (2) statements made by defendant to plaintiff to induce plaintiff into asking defendant to associate into the case. Id. at 332-333,
'The trial court first ruled that the defendant’s allegedly disparaging communications about the plaintiff to Klawitter were within the litigation privilege. Id. Specifically, the trial court found that:
Application of the litigation privilege in this context promotes the public policy behind the protection by encouraging first and foremost co-counsels’ duty of loyalty and complete candor to the client which in turn promotes the utmost freedom of access to the courts, and curtailing the propagation of tangential derivative litigation arising from communications seemingly compelled by several ethical rules that guide co-counsel.
Id. (emphasis added). Next, the trial court considered the defendant’s “alleged false and fraudulent statements that induced [plaintiff] to invite [defendant] into the Klawitter representation, or accompanied the parties negotiation of terms.” Id. It found that, because the communications were “intended to serve the necessary purpose of identifying and securing co-coun
The California Court of Appeal affirmed, finding that the statements were connected to Klawitter’s litigation because the conversations between plaintiff and defendant “occurred in order to provide Klawit-ter with the best possible representation in her personal injury case,” and that “[t]he purposes behind the litigation privilege are furthered when the privilege is applied to communications made in this setting.” Id. at 336,
Here, assuming the Plaintiffs factual allegations as true, Defendants’ made the following fraudulent material misstatements or omissions:
a) Larson stated the Storm defendants had raised their settlement offer from $5.8 million to $8 million, which was untrue at the time Larson made the statement. (Compl. ¶¶ 5, 7.)
b) Larson concealed the fact that the Storm defendants had made prior settlement offer of $6.3 million after Plaintiff had been retained in the case. (Id. ¶ 8.)
c) Larson concealed the fact that the Storm defendants had made a settlement offer of $6.8 million after Plaintiff had been retained in the case. (Id.)
Although Plaintiff alleges Larson sought his association as counsel in the Storm case to file and prosecute the Storm claims, Plaintiff also alleges that Larson’s misrepresentations about facts relevant to the ease were made in the context of determining how the fee between them would be split. (Compl. ¶¶ 5-6.) Notably, Plaintiff alleged Larson already had an existing fee agreement with the Storm plaintiffs, and Larson’s alleged misrepresentations arose out their discussions on division of the existing fee arrangement. (Id.) Thus, unlike in Olsen, where the statements between the attorneys were for the purposes of “identifying and securing co-counsel to competently represent” a client, the statements here were delivered for the purposes of negotiating a fee arrangement, presumably after Defendants determined Plaintiffs competency. Olsen, supra,
Furthermore, a reasonable inference may be drawn that Larson’s purpose in making the alleged misrepresentations was to secure the most advantageous fee splitting arrangement for himself, rather than “providing] [the Storm plaintiffs] with the best possible representation.” Id. at 336,
Additionally, Defendants’ assertions that the litigation privilege should apply to the statements concerning the Storm defendants’ settlement offers are not persuasive. The Court must consider the context in which the Defendant’s alleged misstatements were delivered, not only “the isolated misstatement itself.” Sacramento Brewing Co., supra,
As a matter of policy, the Court disagrees that extension of the litigation privilege to Defendants’ statements in this context would further the stated purpose of providing “litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation.” Jacob B., supra,
In sum, the Court finds the functional context of these communications do not “have some connection or logical relation to the action” to warrant application of the litigation privilege. Silberg, supra,
III. Plaintiffs Motion to Amend
Finally, Plaintiff requests leave to amend his complaint to add two additional defendants to his claim for quantum meru-it. (Docket No. 24.) Defendants oppose Plaintiffs Motion on the grounds that the proposed amendments are futile. (Docket No. 25.)
Leave to amend under Rule 15(a)(2) should be “freely give[n] ... when justice so requires.” Fed. R. Civ. P. 15(a)(2). The Ninth Circuit “has noted on several occasions ... that the Supreme Court has instructed the lower federal courts to heed carefully the command of Rule 15(a), ... by freely granting leave to amend when justice so requires.” DCD Programs, Ltd. v. Leighton,
Courts consider “undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party, and futility of the proposed amendment” in deciding whether justice requires granting leave to amend under Rule 15. Moore v. Kayport Package Express, Inc.,
Accordingly, Plaintiffs request for leave to amend is GRANTED.
CONCLUSION
For the reasons set forth above, Defendants’ Special Motion to Strike (Anti-SLAPP) and Motion for Partial Judgment on the Pleadings are DENIED. Plaintiffs
IT IS SO ORDERED.
. SLAPP is an acronym for "strategic lawsuit against public participation.” Mindys Cosmetics, Inc. v. Dakar,
. The following overview of the facts are drawn from the allegations of Plaintiff’s Complaint. The Court is not making findings of fact. The allegations relevant to each motion are detailed in analyzing the individual motions.
. All further statutory references in Section I of this Order are to the California Code of Civil Procedure unless otherwise indicated.
. The Court notes that this is a diversity case, and Plaintiff did not contest the applicability of California law. The Court concludes Plaintiff concedes his claims are subject to California Code of Civil Procedure section 425.16.
. Although the parties did not brief the issue, the Court questions the existence of the first element, i.e. whether any "judicial or quasi-judicial proceedings” had commenced or were imminent at the time of the disputed communications. Additionally, Plaintiffs Opposition raised an argument that Defendants’ communications amounted to the illegal conduct of wire fraud because the communications were made from Colorado, "using the telephone and internet mail systems of interstate commerce,” and thus Defendants were not entitled to the litigation privilege. (Docket No. 14 at 2-3.) The Court may not consider this argument at this time, as wire fraud was not alleged in Plaintiff's Complaint. As discussed above, in ruling on a Rule 12(c) motion, the Court is limited to review of the factual pleadings in the operative complaint.
. The Court also notes Olsen v. Harbison is persuasive authority; neither party briefed a California Supreme Court case with facts similar to Plaintiff’s case.