LENNAR HOMES OF CALIFORNIA, INC., Plaintiff and Appellant, v. STELLA STEPHENS et al., Defendants and Respondents.
No. E057280
Court of Appeal, Fourth District, Division Two, California
Dec. 18, 2014.
232 Cal.App.4th 673
Jones Day, Richard S. Ruben, Darren K. Cottriel and Nathaniel P. Garrett for Plaintiff and Appellant.
McCune Wright, Richard D. McCune, David C. Wright and Jae (Eddie) K. Kim for Defendants and Respondents.
OPINION
HOLLENHORST, J.—Defendants and respondents Stella Stephens, Timothy Young, and Melissa Young purchased homes from plaintiff and appellant Lennar Homes of California, Inc. (Lennar). The agreements between Lennar and Stephens and between Lennar and the Youngs contain identical indemnity clauses. In this lawsuit, Lennar attempts to enforce those indemnity clauses, seeking to recover attorney fees and costs incurred in defending a class action lawsuit, brought initially by Stephens, and later joined by Timothy Young—but not Melissa Young—in the United States District Court for the Central District of California.
Lennar appeals the trial court‘s order granting defendants’ special motion to strike the complaint as a strategic lawsuit against public participation (anti-SLAPP motion) pursuant to
Lennar describes itself in its complaint as a corporation “engaged in the business of building quality new homes in residential communities in various parts of California.” Stephens purchased a home from Lennar on June 25, 2005. The Youngs, who are a married couple, purchased a home from Lennar on July 22, 2006. The “Homebuyer Disclosure Statement” for both transactions contains the following indemnity clause:
“Wherever in this Disclosure Buyer has been informed regarding disclosure items, Buyer represents that Buyer will not make any claims against Builder for nondisclosure of disclosure items or for alleged improper disclosure of such items. Buyer shall indemnify, protect, defend and hold harmless Builder from any costs, expenses (including, without limitation, attorneys’ fees and costs), liabilities, actions, demands and damages arising out of claims made by Buyer for nondisclosure or incomplete disclosure of the general disclosure items and items separately disclosed to Buyer in writing, or damages or harm to Buyer arising from such items.”
Stephens was the named plaintiff in a class action lawsuit filed against Lennar on September 3, 2009, in the United States District Court, Central District of California, which was later consolidated with seven related cases. Timothy Young—but not Melissa Young—was named along with Stephens as a plaintiff in the first amended complaint, filed December 21, 2009. Their second amended complaint, filed December 2, 2011, alleges fraudulent nondisclosure and misrepresentation under a variety of legal theories.3 On March 26, 2012, the district court dismissed the second amended complaint without leave to amend. As of the time of briefing in the present appeal, the appeal of the district court‘s dismissal of the second amended complaint remained pending in the Ninth Circuit Court of Appeals.
Lennar‘s complaint in the present case was filed on May 1, 2012. Lennar asserts a single cause of action against each of the defendants for express contractual indemnity, seeking to recover attorney fees and costs expended defending the allegations brought in federal court by Stephens and the Youngs, as well as the attorney fees and costs of the present action, pursuant to the indemnity clause.
On August 21, 2012, Lennar filed a “Motion to Request Ruling on or Clarification of Portions of Order Granting Defendants’ Special Anti-SLAPP Motion to Strike Complaint” (some capitalization omitted), focusing specifically on the trial court‘s ruling with respect to Melissa Young. Defendants opposed Lennar‘s motion, submitting among other things a declaration from Melissa Young regarding her role in the federal litigation, averring she had actively assisted and supported her husband, and the decision to pursue the federal litigation related to their joint purchase of a house “was a married couple‘s decision.” In an order issued October 2, 2012, the trial court specified it found Melissa Young‘s actions to be protected activity under the anti-SLAPP statute, and reaffirmed its previous decision to grant defendants’ anti-SLAPP motion with respect to all defendants.5
II. DISCUSSION
A. Overview of Anti-SLAPP Motions
Courts construe the anti-SLAPP statute broadly to protect the constitutional rights of petition and free speech. (
“‘[I]t is the principal thrust or gravamen of the plaintiff‘s cause of action that determines whether the anti-SLAPP statute applies....‘” (Raining Data Corp. v. Barrenechea (2009) 175 Cal.App.4th 1363, 1369 [97 Cal.Rptr.3d 196].) “[T]he critical point is whether the plaintiff‘s cause of action itself was based on an act in furtherance of the defendant‘s right of petition or free speech.” (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78 [124 Cal.Rptr.2d 519, 52 P.3d 695] (Cotati).) If the moving party meets its burden, the burden shifts to the plaintiff to establish a probability that he or she will prevail on the merits. (
“‘Review of an order granting or denying a motion to strike under section 425.16 is de novo. [Citation.] We consider “the pleadings, and supporting and opposing affidavits ... upon which the liability or defense is based.” [Citation.] However, we neither “weigh credibility [nor] compare the weight of the evidence. Rather, [we] accept as true the evidence favorable to the plaintiff [citation] and evaluate the defendant‘s evidence only to determine if it has defeated that submitted by the plaintiff as a matter of law.“‘” (Flatley, supra, 39 Cal.4th at pp. 325-326.)
B. Analysis
1. Lennar‘s Cause of Action Arises from Protected Activity.
Lennar has not disputed on appeal that its cause of action as asserted against Stephens and Timothy Young arises from actions in furtherance of their rights of petition, namely, filing and litigating the federal class action. Lennar contends, however, that Melissa Young failed to satisfy the first prong of the anti-SLAPP analysis because, unlike her husband, she was not named as a plaintiff in the federal litigation. Additionally, Lennar emphasizes that defendants submitted no evidence with respect to any participation in the federal litigation as a nonparty except in response to Lennar‘s motion seeking “clarification” of the trial court‘s initial ruling. We agree with the trial court that Lennar‘s cause of action as to Melissa Young arises out of activity protected under the anti-SLAPP statute.
“‘Filing a lawsuit is an act in furtherance of the constitutional right of petition, regardless of whether it has merit.‘” (Trapp v. Naiman (2013) 218 Cal.App.4th 113, 120 [159 Cal.Rptr.3d 462] [Fourth Dist., Div. Two].) The protections of the anti-SLAPP statute extend, moreover, to “any act” in furtherance of a person‘s right of petition. (
Applying these principles, we conclude that the federal litigation joined by Timothy Young also constitutes an act in furtherance of Melissa Young‘s right of petition, even though she was not named as a plaintiff. Timothy Young effectively brought suit on behalf of both himself and his wife, asserting rights belonging jointly to both. (See
Moreover, we are not persuaded that Melissa Young‘s declaration should be disregarded. Lennar‘s assertion that its “clarification motion merely sought amplification of the court‘s decision on Defendants’ anti-SLAPP motion, and was not an opportunity to present new evidence in order to remedy a deficient factual record,” is both disingenuous and incorrect. The motion, despite its label, was in substance a motion for reconsideration. (See Powell v. County of Orange (2011) 197 Cal.App.4th 1573, 1577 [129 Cal.Rptr.3d 380] [name of a motion is not controlling, and a motion asking the trial court to decide the same matter previously ruled on is a motion for
Lennar contends
The only authority cited by Lennar in support of its reading of
Lennar further argues that even if Melissa Young‘s declaration is considered, she failed to establish she engaged in protected activity for two reasons:
With respect to the first issue: Lennar reads Ludwig to hold that instigating or inducing a lawsuit to be filed by another falls within the protections of the anti-SLAPP statute, while lesser levels of participation do not. Lennar argues in that regard that the “routine marital behavior” described in Melissa Young‘s declaration—assisting in gathering documents, discussing the case, joining in the “married couple‘s decision” to become involved with the lawsuit, and explicitly consenting to his being named as a plaintiff—does not rise to the level of instigation or inducement.
We do not read Ludwig, or the anti-SLAPP statute, so narrowly. (See Kibler, supra, 39 Cal.4th at p. 199 [anti-SLAPP statute is construed broadly to protect rights of petition and free speech].) In Ludwig, the Court of Appeal remarked that the “whole case” against the defendant invoking the protections of the anti-SLAPP statute depended “on the fact that he instigated” several lawsuits, and “encouraged” two other individuals to speak out against a construction project. (Ludwig, supra, 37 Cal.App.4th at p. 18.) But Ludwig does not hold that to be the only possible basis to conclude that one person is engaged in petitioning activity on another‘s behalf. As discussed above, we find the circumstance that Timothy Young asserted causes of action owned equally by his wife, arising out of a transaction to which she was a party, for purchase of a house that is itself community property, to be sufficient basis to conclude the lawsuit to constitute an act in furtherance of Melissa Young‘s right of petition.
Neither does Daniell, supra, 206 Cal.App.4th 1292—the new authority on which Lennar based its motion for reconsideration—require a different result. Daniell holds that when a corporate entity has acquired the assets of another entity, and the predecessor entity could have invoked the anti-SLAPP statute, the acquiring entity may invoke the anti-SLAPP statute, too, in most circumstances. (Daniell, supra, at p. 1302.) The court explicitly states that “we do not intend to prejudge the question of whether similar principles should apply to natural persons. Certainly we do not intend to preclude this possibility.” (Ibid., italics added.) Nothing in Daniell is inconsistent with our analysis above.8
We also find Lennar‘s second argument—that its cause of action against Melissa Young does not arise from any petitioning activity she may have engaged in—to be unpersuasive. Lennar characterizes its claim against Melissa Young as a “straightforward third-party indemnity claim,” viewing Melissa Young‘s agreement to the indemnity clause to be a promise “to indemnify Lennar for costs incurred in defending a meritless suit by a third party (here Mr. Young).” But no matter how the claim is characterized, it is indisputable that Lennar‘s claim is “based on” the federal court litigation brought by Timothy Young. (Cotati, supra, 29 Cal.4th at p. 78.) For the reasons discussed above, that litigation is also an exercise of Melissa Young‘s right of petition.
Navellier v. Sletten (2002) 29 Cal.4th 82 [124 Cal.Rptr.2d 530, 52 P.3d 703] is instructive. In that case, the plaintiffs filed suit in state court, alleging the defendant was liable for fraud and breach of contract for filing counterclaims in a federal action in breach of a contractual release. (Id. at pp. 86-87.) The dismissal of the state action on an anti-SLAPP motion was upheld by the California Supreme Court, in part because “but for the federal lawsuit and [defendant‘s] alleged actions taken in connection with that litigation, plaintiffs’ present claims would have no basis. This action therefore falls squarely within the ambit of the anti-SLAPP statute‘s ‘arising from’ prong.” (Navellier, supra, at p. 90.) Similarly, here, but for the federal litigation brought in part on Melissa Young‘s behalf, asserting claims that belong in part to her, Lennar‘s state law claim against her would have no basis.
In short, plaintiff‘s arguments to the contrary notwithstanding, Melissa Young is a “person whose exercise of ... petition rights resulted in [her] being sued,” so she falls within the protections of the anti-SLAPP statute. (Shekhter v. Financial Indemnity Co. (2001) 89 Cal.App.4th 141, 153 [106 Cal.Rptr.2d 843].) Thus, all three defendants adequately showed that Lennar‘s claim against them arises from protected activity. We turn, therefore, to the second prong of the anti-SLAPP analysis, whether Lennar met its burden to establish a probability that it will prevail on the merits of that claim.
The trial court concluded that the indemnity clause on which Lennar‘s claims are based is unenforceable, precluding any showing of probability of success on the merits. The trial court found the analysis of the Ninth Circuit in Layman v. Combs (9th Cir. 1992) 994 F.2d 1344 (Layman) to be “persuasive.” We disagree with defendants’ assertion that the indemnity clause at issue here is “nearly identical” to the one at issue in Layman, and doubt that the analysis of the Layman majority is directly applicable to this case. Nevertheless, we agree with the trial court‘s conclusion that the indemnity clause at issue is unenforceable.
In Layman, the Ninth Circuit considered an indemnity clause in a securities subscription agreement associated with a private placement of a company‘s stock. (Layman, supra, 994 F.2d at p. 1349.) The plaintiffs were investors who later sued the sellers, alleging a variety of fraudulent acts and omissions. (Ibid.) The subscription agreement indemnity clause required investors to “indemnify and hold harmless” the company, as well as individual sellers and their agents, against “any losses, claims, damages, liabilities, expenses (including attorneys’ reasonable fees and disbursements), judgments and amounts paid in settlement resulting from the untruth of any of the warranties and representations contained herein, or the breach by the [investor] of any of the covenants made by him herein.” (Id. at p. 1350.) The sellers contended that when the plaintiffs sued them—alleging reliance on false representations made by the sellers outside of the parties’ written agreements, and claiming to have been misled regarding the risks of the investment—the plaintiffs breached representations and warranties in the subscription agreement regarding lack of any reliance on such oral representations, thereby triggering the indemnity clause. (Ibid.) The sellers sought recovery of their attorney fees on that basis. (Ibid.) The Ninth Circuit noted that the clause, as interpreted by the sellers, would on its face apply not only to attorney fees, but would also “require a successful investor litigant to pay her own recovery“—a result that the majority of the Ninth Circuit panel found “absurd,” over a strong dissent. (Id. at p. 1352; see id. at pp. 1353, 1357-1358.) The Ninth Circuit instead concluded that the clause should instead be interpreted narrowly, finding that
In contrast, the indemnity clause at issue in our case explicitly applies only to “claims made by Buyer“; that is, only to claims brought by the indemnitor. It is simply not susceptible to an interpretation that it applies at all to claims asserted by individuals not party to the agreement, let alone exclusively to such claims, as the Layman majority concluded regarding the clause at issue in that case. The indemnity clause at issue here is therefore distinguishable from the one in Layman, and the Ninth Circuit‘s holding in that case—that the clause should be interpreted narrowly so as not to apply to claims brought by the indemnitor, but only third parties—is not applicable. (See Layman, supra, 994 F.2d at p. 1354.)
Thus, we disagree with defendants’ assertion that the clause at issue here is “nearly identical” to that in Layman, and we reject the notions that the clause is “unenforceable under Layman” or that Layman is “controlling authority here.” It does not follow, however, that the trial court‘s ruling must be reversed: “‘[A] ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.‘” (D‘Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19 [112 Cal.Rptr. 786, 520 P.2d 10].) For the reasons discussed below, we agree with the trial court‘s conclusion that the clause is unenforceable under California law, not because of the reasoning in Layman, but rather because the clause is unconscionable.
Before delving into our analysis of unconscionability, we first attend to Lennar‘s argument that defendants forfeited any argument regarding unconscionability because they did not raise the issue until their reply brief below. The trial court declined to consider the issue, reasoning that Lennar had not had an opportunity to respond. Now, however, Lennar has had a full opportunity to respond, briefing the issue in both its opening and reply briefs on appeal. Moreover, unconscionability is, in the absence of a material factual dispute, a question of law that may be raised for the first time on appeal. (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 89, fn. 6 [171 Cal.Rptr.3d 42].) Lennar cites authority for the proposition that whether a particular contractual clause is unconscionable “requires the development of a factual record to inform such analysis.” (Olinick v. BMG Entertainment (2006) 138 Cal.App.4th 1286, 1293, fn. 7 [42 Cal.Rptr.3d 268].) But a factual record was developed below, and Lennar points to no
a. Background regarding unconscionability analysis
“Unconscionability analysis begins with an inquiry into whether the contract is one of adhesion. [Citation.] ‘The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.] If the contract is adhesive, the court must then determine whether ‘other factors are present which, under established legal rules—legislative or judicial—operate to render it [unenforceable].’ [Citation.] ‘Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party will not be enforced against him. [Citations.] The second—a principle of equity applicable to all contracts generally—is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or “unconscionable.“‘” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz), abrogated in part on another ground in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 [179 L.Ed.2d 742, 131 S.Ct. 1740, 1746].) But these two limitations are not, at base, separate concepts; rather, both are “aspects” of the overarching rubric of unconscionability. (Armendariz, supra, at p. 113.)
“‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘“oppression” or “surprise“’ due to unequal bargaining power, the latter on ‘“overly harsh” or “one-sided“’ results. [Citation.] ‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ [Citations.] In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is
If a court finds as a matter of law that a contract or any clause of a contract is unconscionable, the court may “refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” (
b. Procedural unconscionability
Lennar has conceded that the contracts at issue are contracts of adhesion. It argues, however, that defendants failed to prove any procedural unconscionability. We find the present record sufficient to establish only a low level of procedural unconscionability, but enough to satisfy the requisite minimum, and justify consideration of the substantive portion of the sliding scale.
The “oppression” component of procedural unconscionability “arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329 [83 Cal.Rptr.2d 348] (Kinney).) “Surprise is defined as ‘“the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.“‘” (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 581 [61 Cal.Rptr.3d 344], quoting Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1532 [60 Cal.Rptr.2d 138].)
With respect to oppression: A contract of adhesion, which Lennar has conceded the contracts at issue to be, by definition involves inequality of bargaining power and an absence of real negotiation, leaving the weaker party with only a take it or leave it choice. (See Armendariz, supra, 24 Cal.4th at p. 113.) Moreover, an inequality of bargaining power may reasonably be inferred from the circumstance that defendants are purchasers of individual homes, while Lennar is a corporation in the business of building new homes in various parts of California. Nevertheless, “[t]here can be no oppression establishing procedural unconscionability, even assuming unequal bargaining power and an adhesion contract, when the customer has meaningful choices.”10 (Wayne v. Staples, Inc. (2006) 135 Cal.App.4th 466, 482 [37
Lennar contends that defendants had reasonably available alternative sources from whom to purchase a home with a contract free of any similar indemnity provision, pointing to the circumstance that the other developers involved in the consolidated federal litigation that included defendants’ case did not include similar indemnity provisions in their contracts. Real property, however, is traditionally recognized as unique, particularly in the context of single-family dwellings. (See, e.g., Harbour Vista, LLC v. HSBC Mortgage Services Inc. (2011) 201 Cal.App.4th 1496, 1505 [134 Cal.Rptr.3d 424] [“real property is unique ...“];
We conclude that Lennar‘s concession that the contracts at issue are contracts of adhesion, together with the circumstance that the contracts are for purchase of single-family homes, entered into between a corporation that drafted the contract and individual home buyers, suffice to demonstrate some level of the inequality of bargaining power and absence of real negotiation or meaningful choice that is the essence of oppression, as that term is used in the analysis of procedural unconscionability.
Nevertheless, it must be acknowledged that the evidence regarding inequality of bargaining power and absence of real negotiation or meaningful choice is not overwhelming. There is no evidence, for example, that defendants are particularly new or unsophisticated home buyers. (Cf. Pardee Construction
Similarly, although there is some evidence of surprise, that evidence is not strong, and is balanced by countervailing evidence. It is unquestionable that the indemnity clauses are a small piece of a “prolix printed form drafted by the party seeking to enforce [the disputed terms].” (Kinney, supra, 70 Cal.App.4th at p. 1329.) However, they do appear at the end of the “Homebuyer Disclosure Statement,” on the same page as defendants’ signatures, rather than buried elsewhere in a lengthy document. And defendants did not introduce any evidence establishing that they were in fact unaware of the indemnity clause—even Melissa Young‘s declaration only states that the provision was “presented to us on a take-it-or-leave-it basis,” not that the Youngs were unaware of it.
In sum, defendants have shown only a low level of procedural unconscionability. They demonstrated some degree of oppression, as that term is used in the analysis of procedural unconscionability, but not a high degree, and have made little if any showing of surprise. As such, to demonstrate unconscionability of the indemnity clause, defendants “must have established a high level of substantive unconscionability.” (Woodside, supra, 107 Cal.App.4th at p. 730.)
c. Substantive unconscionability
In the circumstances of this case, the question of whether the indemnity clause is substantively unconscionable turns on whether it matters, for purposes of answering that question, whether or not defendants’ federal litigation was successful. Lennar argues that the clause creates no unduly harsh results in this case, and thus no substantive unconscionability, because defendants have been unsuccessful in their federal litigation, and contractual provisions that shift attorney fees and costs to the prevailing party in litigation are generally enforceable. We disagree with Lennar‘s analysis.
Under the plain language of the clause, a “Buyer” who brings a claim against Lennar falling within its scope is not only responsible for paying Lennar‘s attorney fees and costs, whether the buyer prevails on the claim or not. The buyer is also responsible for “any liabilities, actions, demands and damages” arising out of such a claim. In other words, on its face, the indemnity provision precludes any possibility that a buyer who has a meritorious claim of fraud falling within the scope of the indemnity clause could be made whole; any judgment obtained would be payable by the buyer, not Lennar, and in addition the buyer would be responsible for Lennar‘s attorney fees and costs, win or lose.11
Lennar urges, however, that we look not to the scope of the language of the indemnity clause in the abstract, but rather as it is applied strictly to the facts of this case. Lennar has conceded that the clause is unenforceable as against a party who brings a suit falling within the scope of the indemnity clause that turns out to be meritorious, stating that “all parties agree that the indemnity provision would not be enforceable had Defendants prevailed on their fraud claim in federal court.” Here, defendants have not—at least so far—prevailed in their federal litigation. As such, Lennar proposes the result in this case is not unduly harsh or oppressive—fees and costs are just shifted to the prevailing party in the federal litigation, and there is “nothing substantively unconscionable” about such a result.
Some courts have taken approaches similar to the one Lennar proposes in contexts somewhat different from the present case. In Barnebey v. E.F. Hutton & Co. (M.D.Fla. 1989) 715 F.Supp. 1512 (Barnebey), for example, the defendants in a securities lawsuit counterclaimed seeking to recover attorney fees and costs from the plaintiffs based on an indemnity provision in an investor subscription agreement. (Id. at p. 1519.) The defendants contended the plaintiffs’ suit breached certain warranties in the subscription agreement,
Atari Corp. v. Ernst & Whinney (9th Cir. 1992) 981 F.2d 1025 is another example. In that case, Atari Corporation had agreed in a merger agreement that it would indemnify officers of the acquired corporation for any acts and omissions relating to their service as officers. (Id. at p. 1031.) Atari itself later sued those officers, bringing claims of securities fraud, common law fraud, and various other claims. (Id. at p. 1027.) Summary judgment was granted in favor of the officers on Atari‘s claims, and the Ninth Circuit reversed the trial court‘s denial of the officers’ counterclaims for indemnity. (Ibid.) In dictum, the court noted the public policy prohibiting one party from contracting out of its liability for intentional torts, but reasoned that “exoneration for fraud is not the issue here” because the officers had been found not liable. (Id. at p. 1032.)
Even in the context of securities litigation, however, courts do not uniformly follow the Barnebey and Atari courts’ analytical method, whereby the indemnitee‘s liability or lack thereof is seen to have some bearing on the enforceability of the indemnity clause triggered by the indemnitor‘s suit. In Doody v. E.F. Hutton & Co., Inc. (D.Minn. 1984) 587 F.Supp. 829, for example, the investor plaintiffs brought securities fraud claims; the defendants counterclaimed for indemnity pursuant to a clause in an investor subscription agreement, which the defendants contended to be triggered by the suit. (Id. at p. 831.) The district court declined to enforce the indemnity clause, granting summary judgment to the plaintiffs with respect to the counterclaims, reasoning that the indemnity clause was counter to the public policy of encouraging the prosecution of securities fraud actions. (Id. at p. 833.) Importantly, the court‘s reasoning with respect to the enforceability of the indemnity clause was completely independent of whether or not the plaintiffs’ suit had merit—that was a matter left to be determined at a later trial. (Ibid.)
Moreover, the circumstances of this case are distinguishable from those of each of the cases relied on by Lennar. The present case does not involve the obligation of a corporation to indemnify its officers, and we agree with the trial court that any analogy to such cases is “nonsensical.” Neither are the circumstances giving rise to securities litigation fairly comparable to those of
More analogous to the circumstances of this case is authority involving arbitration provisions in contracts between corporations and consumers. In such cases, as here, courts often analyze provisions in contracts of adhesion between corporation and consumer having the practical effect of limiting the consumer‘s recourse to the courts in the event of a dispute. In those contexts, there are “any number of cases” where arbitration clauses effectively limiting the defendant corporation‘s exposure to damages have been found substantively unconscionable. (Harper, supra, 113 Cal.App.4th at p. 1407 [collecting cases].) In deciding whether arbitration clauses are unconscionable, courts have not looked to the merits of the plaintiffs’ claims; a motion to compel arbitration is naturally considered before the merits of the cause. Rather, they look to the language of the clause at issue. (Ibid. [finding arbitration clause unconscionable based on the “bare language” of the contract]; see id. at p. 1411 [regarding the potential outcome of the future trial of plaintiffs’ underlying claims, stating “who knows?“].) Clauses that, on their face, leave the consumer with no practical means of redress—let alone language precluding even a theoretical possibility of meaningful recovery—have “met with uniform judicial opprobrium.” (Id. at p. 1407.)
Here, under the bare language of the indemnity clause, there is not even the theoretical possibility a home buyer could be made whole for any damages arising from fraud committed by Lennar with respect to disclosures. The clause is a paradigmatic example of a “heads I win, tails you lose” proposition, purporting to bar any possibility of meaningful recovery for claims falling within its scope, regardless of merit. (Harper, supra, 113 Cal.App.4th at p. 1407.) We find this to establish a high degree of substantive unconscionability, at least within the circumstances of this case—sufficiently high as to outweigh the relatively low degree of procedural unconscionability. We therefore conclude that the indemnity clause is unconscionable.
d. Application of Civil Code section 1670.5
Having concluded that the indemnity clause at issue is unconscionable, we must determine how to exercise our discretion pursuant to
In suggesting that we instead take the second alternative, Lennar again makes much of the circumstance that defendants’ federal litigation has, to this point, been unsuccessful, at least at the trial level. Lennar in essence urges us to enforce the indemnity clause as if it were a typical prevailing party fee-shifting clause, thereby “holding Defendants to their promise to pay for the expenses their meritless claims have generated.”
We agree with Lennar that there is nothing generally absurd or unconscionable about prevailing party clauses.
We decline Lennar‘s proposal to limit the indemnity clause to act as a typical prevailing party clause—in other words, to impose no limitation at all, as applied to the facts of this case. We instead exercise our discretion to “enforce the remainder of the contract without the unconscionable clause,” thereby giving the indemnity clause no force or effect. (
Absent an enforceable indemnity clause, Lennar cannot show a likelihood of success on its claims for express contractual indemnification. Lennar therefore cannot satisfy its burden under the second prong of the anti-SLAPP analysis, and defendants’ anti-SLAPP motion was properly granted.
The order appealed from is affirmed. Defendants shall recover their costs on appeal.
Ramirez, P. J., and Miller, J., concurred.