BENDIX, J.
This is an appeal from an order denying a special motion to strike under Code of Civil Procedure section 425.16.
Respondent Robert C. Baral and appellant David Schnitt owned a company, IQ BackOffice LLC (IQ), with others.
Baral contended that Schnitt determined the scope of Moss Adams's examination and knowingly gave Moss Adams false information in order to discredit Baral. He also alleged that Schnitt directed Moss Adams not to interview Baral in connection with its examination. As a result of Schnitt's claimed falsehoods, Moss Adams incorrectly concluded in its report that Baral had engaged in certain unauthorized transactions and that there was incomplete support for others. Schnitt subsequently refused to correct the false information contained in the report, which was ultimately published to both the potential purchaser and the members of IQ.
Also on May 17, 2012, the trial court ruled on Schnitt's demurrer to the other causes of action. It sustained the demurrer with leave to amend as to nine of the remaining 16 causes of action, sustained it without leave to amend as to five causes of action, and overruled the demurrer as to two causes of action. Baral filed a notice of appeal from the May 17, 2012 rulings, which he abandoned in January 2013 after he obtained new counsel. (Baral v. Schnitt (January 22, 2013, B242569, app. dism.).)
In June 2012, Baral, through his former counsel, filed a first amended complaint. The first amended complaint contained 11 causes of action; none was a defamation claim. Baral averred that Schnitt had frozen Baral out of participation in the Moss Adams audit and that Schnitt had made false representations to auditors in an effort to discredit Baral. On July 23, 2012, Schnitt filed another anti-SLAPP motion to strike 10 of the 11 causes of action from the first amended complaint.
On January 24, 2013, Baral, who was then represented by new counsel, filed a second amended complaint. The second amended complaint contained four causes of action: breach of fiduciary duty, constructive fraud, negligent misrepresentation, and declaratory relief.
Baral, Schnitt, and nonparty Dennis Foster ultimately orally agreed in 2003 to operate IQ as a new outsourcing company. They agreed to act as comanaging members, with Schnitt holding a 35 percent interest and Baral a 30 percent interest. Baral alleged that, unbeknownst to him, in September 2003 Schnitt filed with the California Secretary of State documents that identified Schnitt as the sole managing member. Also without Baral's knowledge, in October 2003 Schnitt executed an operating agreement for IQ that identified Schnitt as the sole manager and member of IQ.
Baral further alleged the parties operated IQ as comanaging partners from 2003 until 2010, when Schnitt began unilateral negotiations for the sale of IQ to LiveIt Investment, Ltd. (LiveIt). As part of the purchase agreement to sell IQ, Schnitt agreed to sell a 72.6 percent interest in IQ based on his representation that he was the sole member and manager of IQ. Schnitt negotiated an employment position and ownership interest for himself without Baral's knowledge or consent. Also in connection with the sale, in November 2010 Schnitt retained Moss Adams to audit IQ's financial statements. Moss Adams issued an auditor's report on December 15, 2010, which concluded that the financial statements fairly represented IQ's financial position.
Later, in December 2010 Schnitt discovered that Baral's son, who was a bookkeeper for IQ, had misappropriated funds belonging to IQ. When apprised of this, Baral guaranteed that he would indemnify IQ for any losses caused by his son. Schnitt retained Moss Adams to determine the amount of misappropriated assets. Baral averred that on Schnitt's instructions, Moss Adams did not interview Baral during its investigation or otherwise allow Baral to submit information to the auditors. Schnitt's motivation for excluding Baral from the investigation was to leverage Baral's cooperation with the sale of IQ.
Baral also alleged that the Moss Adams investigative report, which was distributed by Schnitt to Baral and various third parties in February 2011, contained inaccurate conclusions. Schnitt refused to instruct Moss Adams to withdraw the report or reopen the investigation to consider additional information that would be provided by Baral. In March 2011, Baral reimbursed IQ for all funds allegedly misappropriated by his son.
On February 22, 2013, Schnitt filed an anti-SLAPP motion, seeking to strike all references to the Moss Adams audit in the first (breach of fiduciary duty), second (constructive fraud), and fourth (declaratory relief) causes of action and related prayers for relief.
The trial court denied the anti-SLAPP motion on December 13, 2013. Without expressly deciding whether the second amended complaint contained allegations of protected activity, the trial court concluded: "[The] Anti-SLAPP motion still applies to causes of action or to an entire complaint, not allegations. Cases cited state that if a cause of action contains portions that are subject to anti-SLAPP and portions that are not, the defendant can move to strike those portions that are subject, i.e. the cause of action would be considered to contain two `counts'; one count subject and one count not. No case allows striking allegations per se under [section] 425.16; that is within the province of a regular motion to strike." Schnitt filed this timely appeal.
After the trial court denied Schnitt's anti-SLAPP motion, Schnitt filed a motion to quash Baral's subpoena to Moss Adams, which was denied on September 23, 2014 (September 23 Order). In the September 23 Order, the trial court stated that the "[l]ititgation privilege is not a discovery privilege.... The audit goes directly to the issues and may lead to the discovery of admissible evidence."
Schnitt also filed a motion to stay the trial court proceedings pending appeal. When the trial court denied that motion and Baral threatened to initiate contempt proceedings if Schnitt did not comply with Baral's discovery requests, Schnitt filed a petition for writ of supersedeas to stay all trial court proceedings pending the instant appeal and to vacate the September 23 Order.
At oral argument, Baral contended that Schnitt did not have standing to assert the litigation privilege because IQ had retained Moss Adams, and IQ was no longer a party. Schnitt responded that by contesting standing for the first time at oral argument on appeal, Baral had waived the argument, and that because Baral abandoned his appeal from the anti-SLAPP motion as to the defamation claims in the original complaint, this court may not revisit the merits of the litigation privilege as to the anti-SLAPP motion regarding the Moss Adams allegations in the second amended complaint. We asked for and received letter briefs on these issues, as well as the issue of if we were to affirm the trial court, whether Schnitt would be foreclosed from asserting the litigation privilege upon remand.
Schnitt asserts that Baral's causes of action are mixed. Schnitt denies the relevance of whether Baral would have had a probability of prevailing on allegations of breach of fiduciary duty not based on the Moss Adams audit. Instead, he contends that all allegations in the second amended complaint about the Moss Adams audit are governed by the trial court's prior anti-SLAPP ruling regarding the defamation claims in the original complaint.
Schnitt further contends, as he did below, that Cho, supra, 219 Cal.App.4th 521, and City of Colton, supra, 206 Cal.App.4th 751, require striking the Moss Adams audit allegations even though such a ruling would not eliminate any cause of action. Any ruling to the contrary would allow artful pleading as a means to evade the purpose of the anti-SLAPP statute, especially here, where the trial court already had struck Baral's claims regarding the Moss Adams audit from the original complaint.
Baral responds that Schnitt mischaracterizes the second amended complaint when he equates the Moss Adams allegations therein to the defamation claims in the original complaint. The allegations about the Moss Adams audit
Finally, Baral contends that the trial court correctly followed Mann, supra, 120 Cal.App.4th 90, and Oasis, supra, 51 Cal.4th 811. All causes of action would remain given Schnitt's admitted failure to argue that Baral could not prevail on the merits of breaches of fiduciary duty and fraud not relating to the Moss Adams audit. To hold otherwise would (1) contravene the language of the anti-SLAPP statute, which expressly refers to a cause of action, and its underlying purpose of preventing defendants from incurring litigation costs that would chill First Amendment and redress rights; and (2) force courts to engage in time-consuming evaluations of all allegations in a cause of action without achieving any appreciable reduction in trial time.
Section 425.16, subdivision (a) provides: "The Legislature finds and declares that there has been a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances. The Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process. To this end, this section shall be construed broadly."
Section 425.16, subdivision (b)(1) provides: "A 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 under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim."
Section 425.16, subdivision (e) states: "As used in this section, `act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue' includes: (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
Second, if the defendant satisfies this first prong, the burden shifts to the plaintiff to establish a legally sufficient claim and a probability of prevailing on the merits of that claim. (§ 425.16, subd. (b)(1); Flatley, supra, 39 Cal.4th at p. 314; Rusheen, supra, 37 Cal.4th at p. 1056.) The plaintiff meets this burden by making a prima facie showing, with admissible evidence, of facts that would sustain a favorable judgment if the plaintiff's evidence were credited. (Oasis, supra, 51 Cal.4th at p. 820.) In considering the second prong of the anti-SLAPP analysis, the trial court cannot weigh evidence. (Flatley, supra, 39 Cal.4th at pp. 323, 326.) Instead, the trial court must accept as true evidence that is favorable to the plaintiff; it may consider the defendant's evidence only to determine whether the cause of action fails as a matter of law. (Id. at p. 326.)
Appellate courts review de novo an order granting an anti-SLAPP motion. (Oasis, supra, 51 Cal.4th at p. 820.)
Baral's claims for slander and libel, respectively, in the fifth and sixth causes of action in the original complaint addressed, in major part, Schnitt's allegedly false statements to the Moss Adams auditors and the resulting "false and defamatory Investigative Report." Baral sought general, special, and punitive damages. As noted earlier, Baral further alleged in the fifth cause of action for slander that Schnitt directed Moss Adams not to interview him. The same allegation appears in the general allegations section, which was also incorporated in the fifth and sixth causes of action.
Schnitt moved to strike the fifth and sixth causes of action in their entirety under the anti-SLAPP statute. The trial court held that the defamation causes
Schnitt argues that because this ruling applies to all allegations in the second amended complaint referring to the Moss Adams audit, "The first prong is not at issue in this appeal." We are not aware of any authority that would make a trial court's anti-SLAPP ruling as to a different complaint binding on this court.
In accordance with the dictates of the anti-SLAPP statute, we now examine the pleadings and evidence that Schnitt submitted in support of his anti-SLAPP motion. We do so to determine whether Schnitt has satisfied his burden to show that the allegations regarding the Moss Adams audit in the second amended complaint describe protected activity.
The thrust of the breach of fiduciary and constructive fraud causes of action is that Schnitt endeavored to treat Baral as if he did not exist as an owner and comanager of IQ and to usurp the financial benefits of the business for himself. All this, even though Baral alleged that he invested about half of IQ's operating capital and allowed IQ to use his business moniker so that IQ could market its services based on Baral's alleged decades of successful accountancy practice. In further breach of Schnitt's fiduciary duties, Baral alleged that Schnitt held Baral's participation in the Moss Adams audit hostage to Baral's cooperation in the sale of IQ.
In contrast to the defamation claims in his original complaint, Baral does not seek compensatory or punitive damages relating to the Moss Adams audit in any of his causes of action. He seeks just an injunction that would (1) require notifying Moss Adams that it is to accept information from Baral "in connection with any disputed conclusions" in the audit and "to undertake any corrective measures that it deems appropriate under the circumstances (i.e., the issuance of a new written report)"; and (2) restrain Schnitt from objecting to Baral's submission of additional information and any corrective measures undertaken by Moss Adams as long as Baral pays Moss Adams for this additional work.
In support of the instant anti-SLAPP motion, Schnitt submitted, among other documents, the first and supplemental declarations he previously filed in support of the anti-SLAPP motion addressed to the defamation causes of action in the original complaint. His first declaration contained the conclusion that, after discovering unauthorized checks payable to Baral's son and "anticipating litigation," he hired Moss Adams to do a forensic audit. His supplemental declaration is less opaque. There, he asserted that, because Baral supervised IQ's books and records and prepared its tax returns, Schnitt had to hire a forensic auditor to discern the extent of the misappropriation and whether Baral was involved in it. He anticipated both suing others if the audit revealed that persons other than Baral's son were involved in the theft and being sued by Baral's son if Schnitt fired him, which Schnitt expected to do.
Under the unique facts of this case and the preceding authorities, the decision as to who may participate in the audit would also be "in furtherance of the right to petition." To hold otherwise — where the very subjects of the forensic audit were Baral and his son — would indeed chill exercise of "the ... right [to] petition for the redress of grievances" (§ 425.16, subd. (a)) given that the audit was evaluating potential claims against them. For all these reasons, we hold that Schnitt has satisfied his burden under the first prong of the anti-SLAPP analysis.
Schnitt contends that because (1) the trial court found that the litigation privilege provided a complete defense to the defamation claims in the original complaint, and (2) Baral abandoned his appeal from that ruling, then (3) this court must conclude that the litigation privilege applies to the Moss Adams allegations in the second amended complaint. More specifically, Schnitt asserts that California's "`one shot' rule" recognized in In re Baycol Cases I & II (2011) 51 Cal.4th 751, 761 [122 Cal.Rptr.3d 153, 248 P.3d 681], footnote 8, and in section 906 requires this conclusion.
Schnitt arguably would be correct if Baral were arguing here that the trial court erred in granting the anti-SLAPP motion regarding statements that were
We decline the invitation to decide the merits of the litigation privilege as applied to the second amended complaint. As set forth post in part IV., even if, arguendo, Schnitt were correct that the litigation privilege applies to the Moss Adams allegations in the second amended complaint, the anti-SLAPP statute does not authorize excising allegations in mixed causes of action where the plaintiff has demonstrated a prima facie case of prevailing on part of the mixed causes of action. Once again, by so ruling, we express no opinion on what impact, if any, the litigation privilege would have on future pretrial and trial proceedings upon remand.
In Mann, supra, 120 Cal.App.4th 90, the plaintiff asserted several causes of action, including defamation, trade libel, and interference with business. The plaintiff asserted that the defendants, who were former employees, made false remarks to regulators about the plaintiff's handling of carcinogenic chemicals. The plaintiff also alleged that the defendants made false remarks to the plaintiff's customers to lure them away from the plaintiff's business and harassed the plaintiff by inundating it with facsimiles, as well as pornographic material and junk mail. The allegations regarding false statements to regulators were incorporated in the plaintiff's interference with business claims.
The appellate court recognized the policy underlying the anti-SLAPP statute "to encourage participation in matters of public significance by allowing a court to promptly dismiss unmeritorious actions or claims that are brought to chill another's valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances." (Mann, supra, 120 Cal.App.4th at p. 102.) It rejected the analogy to a motion to strike under section 436. "Stated differently, the anti-SLAPP procedure may not be used like a motion to strike under section 436, eliminating those parts of a cause of action that a plaintiff cannot substantiate. Rather, once a plaintiff shows a probability of prevailing on any part of its claim, the plaintiff has established that its cause of action has some merit and the entire cause of action stands. Thus, a court need not engage in the time-consuming task of determining whether the plaintiff can substantiate all theories presented within a single
In Oasis, supra, 51 Cal.4th 811, the plaintiff sued the defendant attorney and his law firm for breach of fiduciary duty, professional negligence, and breach of contract. The claims related to the public opposition by the individual defendant to a development project. The defendant engaged in that conduct after he had concluded the representation of the plaintiff developer in seeking approval of that very project. The defendant moved to strike all causes of action. The trial court denied the motion, which ruling was reversed on appeal.
Schnitt relies on two appellate rulings that disagreed with Mann — one (City of Colton) from the very same district that decided Mann, and the other (Cho), from Division Four of our own district.
The subject of the anti-SLAPP motion in City of Colton, supra, 206 Cal.App.4th 751, was the causes of action asserted by the City of Colton
The cross-defendant moved to strike the cross-complaint, including the causes of action for unfair business practices and injunctive relief. The appellate court found that the bribery portion of those causes of action was not protected activity, but that the cross-defendant's filing of a lawsuit was protected activity. It also held that the anti-SLAPP statute is available to strike protected allegations even within a single cause of action containing other allegations. In so holding, the appellate court relied principally on the Supreme Court's opinion in Taus v. Loftus (2007) 40 Cal.4th 683 [54 Cal.Rptr.3d 775, 151 P.3d 1185] (Taus). "Given the ruling in Taus, we conclude that the portions of the [Business and Professions Code section 17200 and injunctive relief causes of action] that concern [the cross-defendant's] lawsuit activity must be stricken from the complaint." (City of Colton, supra, 206 Cal.App.4th at p. 774.)
In Taus, the plaintiff sued, among others, the authors of several articles on recovered memory of child abuse for negligent infliction of emotional distress, invasion of privacy, fraud, and defamation. The defendants filed an anti-SLAPP motion to strike the entire pleading. Relevant to the inquiry in the instant appeal, we focus on the Supreme Court's analysis of the invasion of privacy cause of action. Noting that this cause of action was based on two theories, public disclosure of private facts and intrusion into private matters, it found protected activity as to the former, but not the latter, where the plaintiff alleged that "defendants employed fraudulent means to obtain private information from plaintiff's relatives, including misrepresenting their identity and befriending plaintiff's biological mother." (Taus, supra, 40 Cal.4th at p. 701.) The Taus court then struck all allegations except those relating to obtaining private information by fraudulent means. (Id. at p. 742.)
Other courts have criticized City of Colton's conclusion that section 425.16 can be used to parse protected allegations from a cause of action. These courts have referred to the failure of City of Colton to consider the Supreme Court's post-Taus decision in Oasis, or explain why Oasis was inapplicable.
Next comes the ruling of Division Four of our district in Cho, supra, 219 Cal.App.4th 521. There, the plaintiff sued the defendant for, among other causes of action, sexual harassment. The defendant cross-claimed, alleging defamation and intentional infliction of emotional distress based on statements the plaintiff made to the Equal Employment Opportunity Commission and the California's Department of Fair Employment and Housing in obtaining her right-to-sue letter and statements to her coworkers. The plaintiff filed an anti-SLAPP motion as to the cross-complaint. The Cho court affirmed the trial court's grant of the anti-SLAPP motion as to the allegations about the statements made to the governmental entities and denial of the motion as to the allegations about statements made to coworkers. (Cho, at pp. 527-528.)
The Cho court acknowledged Taus and Oasis, but observed that neither "is a mixed cause of action." (Cho, supra, 219 Cal.App.4th at p. 527.) Eschewing a "broad[]" reading of Oasis, the appellate court counseled that "the guiding principle in applying the anti-SLAPP statute to a mixed cause of action case is that `a plaintiff cannot frustrate the purposes of the SLAPP statute through a pleading tactic of combining allegations of protected and nonprotected activity under the label of one "cause of action."' [Citation.]" (Cho, at p. 527.) Where each cause of action combined allegations of conduct that is protected by section 425.16 with conduct that is not, "the better view in such a case is that the trial court may strike the allegations ... attacking the protected activity while allowing the unprotected theories to remain." (Cho, at p. 523.)
Cho cited the policy of the anti-SLAPP statute and section 436 to conclude that it "would make little sense if the anti-SLAPP law could be defeated by a pleading ... in which several claims are combined into a single cause of action, some alleging protected activity and some not." (Cho, supra, 219 Cal.App.4th at p. 527.) "Striking the entire cause of action would plainly be inconsistent with the purposes of the statute. Striking the claims that invoke protected activity but allowing those alleging nonprotected activity to remain would defeat none of them. Doing so also is consonant with the historic effect of a motion to strike: `to reach certain kinds of defects in a pleading that are not subject to demurrer.' (See 5 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 1008, p. 420.)" (Cho, supra, 219 Cal.App.4th at p. 527 [referring to Witkin's discussion of motions to strike under §§ 435 and 436].)
Second, section 425.16 was enacted "to dispose of lawsuits that are brought to chill the valid exercise of constitutional rights" of petition or free speech. (Rusheen, supra, 37 Cal.4th at pp.1055-1056.) "[T]he core purpose... is not to pose new impediments to all lawsuits arising from speech and petitioning activity but to remedy a very specific pattern by which contestants in the arena of public affairs were using meritless litigation as a device to silence and punish their adversaries." (Old Republic Construction Program Group v. The Boccardo Law Firm, Inc. (2014) 230 Cal.App.4th 859, 876 [179 Cal.Rptr.3d 129], italics omitted.) This "core" purpose would not be served by granting the motion in this case.
It is undisputed that were we to reverse the order denying the instant motion, not a single cause of action would be eliminated from the second amended complaint. Each would be the subject of pretrial and potential trial proceedings in the trial court. There would be no appreciable time saving if certain portions of the claims were struck. This is not a case in which the plaintiff merely rebranded a prior defamation claim and thereby implicated concerns about artful pleading. Instead, the second amended complaint describes several acts of self-dealing and breaches of fiduciary duty aimed at depriving Baral of the financial benefits of his investments of time and labor in IQ, of which the Moss Adams allegations are but a small part.
For a defendant to get the benefit of these extraordinary consequences merely by filing a motion aimed at some allegations would encourage a
We appreciate that there are competing policies at stake. On the one hand is the policy behind the anti-SLAPP statute aimed at protecting redress and free speech rights against unmeritorious claims. On the other are other procedural rules aimed at giving the parties their day in court and promoting efficient pretrial and trial proceedings. We also appreciate that reasonable minds may differ on how to balance these competing policies in a mixed cause of action. For the reasons set forth above, we conclude that the balance tips in favor of allowing mixed causes of action containing potentially meritorious claims to proceed unencumbered by the special procedures of the anti-SLAPP statute. For all these reasons, we affirm.
The order denying the special motion to strike is affirmed. Baral is awarded his costs on appeal. The writ of supersedeas and the September 23, 2014 order are vacated.
Chaney, Acting P. J., and Johnson, J., concurred.