Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of San Diego County, No. 37-2007-00072584-CU-BC-CTL No. 37-2007-00072584-CU-BC-CTL John S. Meyer, Judge.
McCONNELL, P. J.
Willkie Farr & Gallagher, LLP (Willkie Farr), a New York Law firm, appeals an order denying its special motion to strike the City of San Diego's (the City) first amended complaint under Code of Civil Procedure section 425.16. The chief issue on appeal is whether the trial court correctly found Willkie Farr had not met its threshold burden of showing the City's claims arise from Willkie Farr's free speech or petitioning activities. While this case was pending, Division Four of the First District Court of Appeal decided U.S. Fire Ins. Co. v. Sheppard, Mullin, Richter & Hampton (2009) 171 Cal.App.4th 1617 (U.S. Fire). At Willkie Farr's request, we allowed the parties to file supplemental letter briefs addressing the application of U.S. Fire to this case. After reviewing the record and considering all of the briefing as well as the parties' oral arguments, we agree Willkie Farr has not shown the City's claims arise from Willkie Farr's free speech or petitioning activities and affirm the order.
All further statutory references are to the Code of Civil Procedure unless otherwise specified. Section 425.16 is commonly referred to as the anti-SLAPP (strategic lawsuit against public participation) statute. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 57, fn 1.)
I
The City formed the Audit Committee of the City San Diego (Audit Committee) to lead an investigation into the City's underfunding of its employees' pension plan. The City authorized the Audit Committee to engage independent counsel and the Audit Committee subsequently hired Willkie Farr. The City paid Willkie Farr's legal fees, which totaled $9,759,918.25.
Our summary of facts is taken from the first amended complaint and the other documents in the record stating the facts upon which the City's claims against Willkie Farr are based. (§ 425.16, subd. (b)(2).)
Although based in New York, Willkie Farr provided legal services to the Audit Committee through staff physically present in California and staff virtually present in California via telephone, fax, computer or other modern technical means. Willkie Farr's legal services included researching and providing the Audit Committee and the City with advice on matters of California law. However, none of Willkie Farr's attorneys who performed work for the Audit Committee was licensed to practice in California. In addition, no licensed California attorney supervised the Willkie Farr attorneys and paralegals who performed work for the Audit Committee.
Furthermore, most of Willkie Farr's invoices did not specify the tasks each of its staff members performed or how much time a staff member devoted to a given task. Instead, the invoices simply listed the total amount of time a staff member spent performing work for the Audit Committee during a particular billing cycle and the staff member's billing rate. The invoices then broke down the aggregate amount billed for all staff members into nine broad categories, such as "Projects concerning the Board of the San Diego City Employees' Retirement System." Willkie Farr's invoices did not comply with the City's internal controls, which prevented the City from properly auditing them.
Lastly, Willkie Farr's engagement letter with the Audit Committee, which the City also signed, included a provision under which the City agreed "to indemnify and hold harmless [Willkie Farr] for any claims or judgments against [Willkie Farr] arising out of this engagement... unless or until it were to be finally adjudicated that [Willkie Farr]'s actions were negligent, tortious or beyond the scope of this engagement." Willkie Farr contends this provision requires the City to reimburse Willkie Farr for the expenses Willkie Farr incurs defending this lawsuit.
Based on these facts, the City claims Willkie Farr violated Business and Professions Code section 6125 by engaging in the unauthorized practice of law in California, Business and Professions Code section 6148 by failing to provide adequate billing, and Business and Professions Code section 6451 by failing to employ a licensed California attorney to supervise the work of Willkie Farr's paralegals. The City also claims Willkie Farr violated the Rules of Professional Conduct by charging illegal and unconscionable fees and by attempting to limit its liability prospectively (by seeking indemnification for this lawsuit). The City asserts causes of action for unlawful and unfair business practices, professional negligence, money had and received, intentional fraud (concealment), and declaratory relief. The primary relief the City seeks is the return of the portion of the legal fees the City paid Willkie Farr attributable to Willkie Farr's alleged breach of its professional and ethical obligations. The City also seeks a declaration stating it is not required to reimburse Willkie Farr for the expenses Willkie Farr incurs defending this lawsuit.
Willkie Farr filed an anti-SLAPP motion, arguing as a threshold matter that the anti-SLAPP statute applies because the claims in the City's first amended complaint arise from Willkie Farr's preparation of the Audit Committee's report, which is protected speech, and Willkie Farr's handling of the federal investigations of the City's and the pension system's financial condition and disclosures, which is protected petitioning activity. The City opposed the motion, arguing the anti-SLAPP statute does not apply because the principal thrust or gravamen of the City's claims is Willkie Farr's alleged breach of its professional and ethical obligations while Willkie Farr's work on the Audit Committee report and its handling of the federal investigations are merely incidental to the City's claims. The trial court agreed with the City's position and denied the motion, finding Willkie Farr did not meet its threshold burden of establishing the anti-SLAPP statute applies to the City's claims.
Willkie Farr also filed a demurrer and a regular motion to strike. The trial court deferred these matters until the outcome of this appeal. (Varian Medical Systems, Inc. v. Defino (2005) 35 Cal.4th 180, 191 [trial court proceedings on the merits are stayed pending the appeal of the denial of anti-SLAPP motion].)
II
We review a trial court's order denying an anti-SLAPP motion de novo. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3; Flatley v. Mauro (2006) 39 Cal.4th 299, 325.) To prevail on an anti-SLAPP motion, the defendant must first show the challenged claims arise from protected activity. If the defendant meets this burden, the plaintiff must then demonstrate a probability of prevailing on the merits of the claims. (§ 425.16, subd. (b)(1); Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, 1536.) The "plaintiff, however, has no obligation to demonstrate such probability of success if the defendant fails to meet the threshold burden." (Gallimore v. State Farm Fire & Casualty Ins. Co. (2002) 102 Cal.App.4th 1388, 1396.)
The activities protected under the anti-SLAPP statute are: (1) written or oral statements made before a legislative, executive, or judicial proceeding; (2) written or oral statements made in connection with an issue under consideration or review by a legislative, executive, or judicial body; (3) written or oral statements made in a place open to the public or in a public forum in connection with an issue of public interest; or (4) any other conduct in furtherance of the exercise of the constitutional rights of petition or free speech in connection with a public issue or an issue of public interest. (§ 425.16, subd. (e).) Whether a cause of action arises from protected activity depends upon its principal thrust or gravamen. (In re Episcopal Church Cases (2009) 45 Cal.4th 467, 477; Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 188.) "[T]he critical point is whether the plaintiff's cause of action [is] 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.) In other words, "the defendant's act underlying the plaintiff's cause of action must itself have been an act in furtherance of the right of petition or free speech." (Ibid.) The anti-SLAPP statute does not apply where allegations of protected activity are only incidental to a cause of action based on unprotected activity. (Martinez v. Metabolife Internat., Inc., supra, at p. 187.)
In this case, the principal thrust or gravamen of the City's claims is that Willkie Farr's licensure, billing practices, and risk management practices violated its professional and ethical obligations. Claims that an attorney breached a fiduciary duty or otherwise violated professional or ethical rules generally do not involve protected speech or petitioning activity. (See, e.g., Freeman v. Schack (2007) 154 Cal.App.4th 719, 732-733 (Freeman); Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 671; Benasra v. Mitchell Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179, 1186.) The U.S. Fire case, which involves a former client suing to enjoin a law firm from representing a current client in an action adverse to the former client, is in accord. (U.S. Fire, supra, 171 Cal.App.4th 1617, 1620.) The court concluded "the principal thrust of the misconduct averred in the underlying complaint is the acceptance by [the law firm] of representation adverse to U.S. Fire. To the extent the complaint refers to events taking place during [the law firm's] participation in [the adverse action], its evident purpose is to support the conclusion that the two matters are substantially related, therefore making [the law firm's] disqualification in that litigation automatic. Thus, reference to protected activity is only incidental to the principal thrust of the complaint." (Id. at p. 1628.)
Although Willkie Farr acknowledges the above authorities, Willkie Farr argued for the first time at oral argument and in its supplemental briefing that their application should be limited to suits between parties that have or had an attorney-client relationship. Willkie Farr contends any third-party lawsuit against an attorney or law firm for professional or ethical violations arising from the attorney's or law firm's work for a client is necessarily an attack on the attorney's or law firm's protected activity on behalf of the client. More precisely, Willkie Farr contends, in such a lawsuit, the attorney's or law firm's protected activity is never merely incidental to the third party's claims.
With limited exceptions, "issues not raised in the trial court cannot be raised for the first time on appeal." (Estate of Westerman (1968) 68 Cal.2d 267, 279; accord, Sea & Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417.) Even if the issue is properly raised on appeal in this instance, we find no merit to it.
Whether the relationship between the parties permits or precludes one party from suing the other party typically presents a standing question. (§ 367; Killian v. Millard (1991) 228 Cal.App.3d 1601, 1605.) A defending party may not challenge a complaining party's standing by an anti-SLAPP motion because lack of standing is not a basis for an anti-SLAPP motion. (§ 425.16 (b), (e).)
Further, Willkie Farr's contention is at odds with the Supreme Court's repeated guidance that " '[t]he mere fact that an action was filed after protected activity took place does not mean the action arose from that activity for the purposes of the anti-SLAPP statute' " and " 'that a cause of action arguably may have been "triggered" by protected activity does not entail that it is one arising from such.' " (In re Episcopal Church Cases, supra, 45 Cal.4th at p. 477.) Moreover, in deciding whether the challenged claims arise from protected activity, we must consider "the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based." (§ 425.16, subd. (b)(2); Navellier v. Sletten (2002) 29 Cal.4th 82, 89.) This case-specific inquiry necessarily precludes us from adopting the type of categorical rule Willkie Farr urges.
Willkie Farr also argues application of the anti-SLAPP statute is compelled by the decision in Mission Oaks Ranch v. County of Santa Barbara (1998) 65 Cal.App.4th 713 (Mission Oaks), disapproved on another ground in Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1123, footnote 10. We disagree.
In Mission Oaks, a developer submitted an application to a county for approval of a development project. (Mission Oaks, supra, 65 Cal.App.4th at p. 718.) The county contracted with independent consultants, at the developer's expense, to prepare an environmental impact report (EIR) for the project. (Id. at pp. 718-719.) The consultants concluded the developer's project had unmitigable impacts, which ultimately led to the county's denial of the project. (Id. at p. 719.) The developer sued the consultants alleging the consultants' conclusions were false and the consultants colluded with the county to prepare a sham EIR for purposes of generating excessive fees and depriving the developer of its property rights. (Id. at p. 720.) The consultants successfully moved to strike the developer's complaint under the anti-SLAPP statute. (Ibid.) On appeal, the developer argued the anti-SLAPP statute did not apply because it sued the consultants for commercial conduct. The appellate court rejected this argument, concluding the anti-SLAPP statute protects commercial conduct or speech if made in connection with an issue under consideration by a legislative body, which the consultants' conduct and speech did. (Ibid.)
Mission Oaks is of limited assistance here since the City does not dispute the anti-SLAPP statute's application to commercial conduct or speech and Mission Oaks does not discuss the "principal thrust or gravamen" requirement. Viewed broadly, Mission Oaks supports the position the anti-SLAPP statute applies to a lawsuit challenging the substance of a consultant's report prepared for and submitted to a public agency. However, because the City is not challenging the substance of Willkie Farr's work for the Audit Committee, Mission Oaks does not support Willkie Farr's position the anti-SLAPP statute applies in this case.
Conversely, our recent decision in Freeman supports the City's position the anti-SLAPP statute does not apply in this case. In Freeman, client plaintiffs sued attorney defendants and others for breach of contract, professional negligence, and breach of fiduciary duty. (Freeman, supra, 154 Cal.App.4th at p. 725.) The plaintiffs' causes of action were based on allegations the attorney defendants represented plaintiffs in a class action lawsuit, then withdrew from representing them, began representing a new client who was a member of the same class, filed a separate class action lawsuit on the new client's behalf, and subsequently settled the class action lawsuit over the plaintiffs' objection. (Id. at pp. 728-279.) The defendants filed anti-SLAPP motions, arguing the anti-SLAPP statute applied to plaintiffs' claims because the claims related to the two underlying class actions and, therefore, arose from protected petitioning activity. (Freeman, supra, 154 Cal.App.4th at pp. 725-726.) The trial court agreed and, after finding plaintiffs had not established the probability of success on the merits, granted the motions. (Id. at p. 726.)
On appeal, we reversed and directed the trial court to deny the motions. (Freeman, supra, 154 Cal.App.4th at p. 734.) Although we recognized a major focus of plaintiffs' claims was the underlying litigation activities, we concluded the fact plaintiffs' claims were related to or associated with the underlying litigation was not enough to subject the claims to the anti-SLAPP statute. (Id. at. pp. 728-729.) We further concluded the allegations relating to defendants' litigation activities were merely incidental to plaintiffs' claims because the principal thrust of plaintiffs' claims was the defendants' breach of their duty of loyalty. (Id. at p. 732.) In other words, the allegations relating to defendants' litigation activities simply provided the context for plaintiffs' claims.
Similarly, Willkie Farr's work for the Audit Committee provides the context for the City's claims. However, as in Freeman, this context is not sufficient to establish the City's claims arise from protected activity. As the California Supreme Court recently reiterated, the fact "protected activity may lurk in the background – and may explain why the rift between the parties arose in the first place – does not transform a... dispute into a SLAPP suit." (In re Episcopal Church Cases, supra, 45 Cal.4th at p. 478.)
Accordingly, we conclude Willkie Farr failed to meet its threshold burden of establishing the City's claims arise from protected activity and the trial court properly denied Willkie Farr's anti-SLAPP motion. In view of our conclusion, we need not address whether the City demonstrated a probability of prevailing on the merits of its claims. (See City of Cotati v. Cashman, supra, 29 Cal.4th at p. 81.)
DISPOSITION
The order is affirmed. The City is awarded its costs on appeal.
WE CONCUR: HALLER, J., AARON, J.