Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court No. BC383720 of Los Angeles County. Jane Johnson, Judge.
Lewis Brisbois Bisgaard & Smith LLP and Jana I. Lubert, for Plaintiffs and Appellants.
Reed Smith LLP, Paul D. Fogel, Lorenzo Gasparetti, Peter J. Kennedy and Wendy S. Albers, for Defendants and Appellants.
ZELON, J.
INTRODUCTION
Respondent Kmart Corporation sued its former attorneys, Appellant Lewis Brisbois Bisgaard & Smith LLP, for professional malpractice, breach of fiduciary duty and breach of contract. Kmart’s complaint included allegations that, while representing Kmart in a related matter, Appellant filed a declaratory relief action on behalf of an insurer whose interests were adverse to Kmart. Appellant filed a motion to strike the complaint pursuant to Code of Civil Procedure Section 425.16. The trial court denied the motion and Appellant appeals the ruling. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Events Preceding Kmart’s Current Litigation
In 1993, Kmart Corporation purchased a commercial umbrella insurance policy from National Union Fire Insurance Company. The policy, which was effective from January 1, 1993 through January 1, 1994, provided a $25 million coverage limit for any liability in excess of Kmart’s $2 million “retained” liability. Kmart also obtained an excess insurance policy from Federal Insurance Company that provided an additional $25 million in liability coverage. However, the Federal Insurance policy was triggered only if the principal amount of any judgment against Kmart exceeded National Union’s coverage limit.
In May of 1994, Stanley Kolodziey and Richard Luczak filed a personal injury action against Kmart and Calstar Monrovia seeking damages for injuries sustained while performing work in a vacant store that Kmart was leasing from Calstar (the Kolodziey Action). Although Kmart notified National Union of the lawsuit, Kmart retained its own counsel and did not involve National Union in the litigation. On December 21, 1998, a jury found Kmart liable for Kolodziey and Luczak’s injuries. Shortly thereafter, the trial court entered a judgment against Kmart in the amount of $26,425,585, which fell within National Union’s coverage limits. Kmart thereafter secured an appeal bond through Liberty Mutual Insurance Company for approximately $39 million. Kmart paid Liberty Mutual in excess of $400,000 a year to obtain and maintain the bond.
After the conclusion of the Kolodziey trial, Kmart and National Union agreed to retain counsel to jointly represent the parties in the post-judgment proceedings. The parties retained Horvitz and Levy to prepare post-trial motions and the appellate briefs. At the suggestion of National Union, the parties also hired Appellant Lewis Brisbois Bisgaard & Smith LLP (LBBS) to monitor the appeal, aid in settlement discussions and litigate two indemnity actions against Calstar that were related to the Kolodziey action. Kmart alleges that LBBS continued to represent it in the indemnity actions until June of 2003.
Approximately three years after the Kolodziey trial was completed, the Court of Appeal affirmed the judgment. By that time, the post-judgment interest and costs had inflated the value of the judgment to almost $35 million, which exceeded National Union’s policy limits by approximately $9 million. These additional costs were not covered by Kmart’s excess insurance policy with Federal Insurance Company because the principal amount awarded in the Kolodziey judgment fell within National Union’s coverage limits.
Shortly before the Kolodziey appeal became final, Kmart filed for bankruptcy protection. In March of 2002, the bankruptcy court entered an order allowing the Kolodziey plaintiffs to collect their judgment against any available insurance coverage or appeal bond. The bankruptcy court order stated that, in attempting to collect the judgment, the Kolodziey plaintiffs could not encumber or impair any assets in Kmart’s bankruptcy estate.
Approximately three weeks after the bankruptcy court entered its order, LBBS filed a complaint on behalf of National Union against Liberty Mutual and the Kolodziey plaintiffs (the Liberty Mutual Action). The complaint sought a declaration requiring that the Kolodziey judgment be paid from Liberty Mutual’s appeal bond and not from the umbrella policy that National Union had issued to Kmart. Alternatively, National Union sought a declaration that its umbrella policy required it to pay a maximum of $25 million, which would effectively absolve National Union of any financial responsibility for the interest and costs that accrued during the pendency of the Kolodziey appeal. Because Kmart was in bankruptcy, National Union did not name it as a defendant in the action. Kmart, however, chose to intervene in the suit and LBBS withdrew from the case shortly thereafter.
On November 1, 2003, the court entered a judgment in the Liberty Mutual Action declaring that “under the insurance policy contract, National Union has no contractual duty to pay in excess of its $25,000,000 limit.” The judgment further ruled that “even if Kmart had not chosen to appeal, they could not have prevented National Union from appealing and exposing Kmart to post-judgment interest in excess of the policy limits.”
B. Summary of Appellants’ Complaint and the Proceedings Below
On January 16, 2008, Kmart filed the current lawsuit against LBBS, which includes claims for professional negligence, breach of fiduciary duty and breach of contract. Kmart’s complaint alleges that LBBS engaged in an array of professional misconduct arising from its representation of Kmart and subsequent representation of National Union. Specifically, Kmart alleges that LBBS: (1) failed to inform Kmart that National Union’s umbrella policy would not cover any costs in excess of $25 million that accrued during the pendency of the Kolodziey appeal; (2) disclosed attorney-client privileged communications to National Union, and; (3) breached various professional duties by advising National Union how it could avoid paying the entirety of the Kolodziey judgment and then filing and litigating the Liberty Mutual Action.
The complaint also names two LBBS partners, Gordon J. Calhoun and Douglas R. Irvine, both of whom represented Kmart. We refer to the appellants/defendants collectively as “LBBS.”
In response to Kmart’s Complaint, LBBS filed a demurrer and a motion to strike the Complaint under Code of Civil Procedure section 425.16 (Section 425.16). On April 23, 2008, the trial court heard LBBS’s demurrer. In a subsequently filed written order, the trial court sustained the demurrer with leave to amend, holding that LBBS could not be held liable for failing to advise Kmart about the limitations in its insurance policies because, under a prior holding of the California Supreme Court, Kmart was “charged with having read and understood the policy.” The court dismissed the remainder of Kmart’s claims on the basis that the complaint failed to “plead that Plaintiff sustained any damages as a result of Defendants’ conduct.” Kmart subsequently filed a first amended complaint that included, among other things, allegations regarding its purported damages.
After the amended complaint was filed, the trial court heard LBBS’s motion to strike. As the result of a prior agreement between the parties and the court, the hearing only addressed whether LBBS had demonstrated that Kmart’s claims arose from protected activity within the meaning of Section 425.16. During the hearing, LBBS asserted that the principal act giving rise to Kmart’s claims was LBBS’s filing of the Liberty Mutual Action. Alternatively, LBBS argued that its uncontroverted evidence demonstrated that it had not committed malpractice or breached any professional duties owed to Kmart and, therefore, the only possible viable allegation of wrongdoing involved claims related to LBBS’s litigation of the Liberty Mutual Action.
On June 5, the trial court issued a written order denying the motion to strike, ruling that “the crux of the complaint is for breach of the duty of loyalty and breach of attorney-client confidences. Plaintiff is alleging that the filing of the declaratory relief complaint itself is only incidental to the breach of those attorney-client duties owed to Plaintiff.” The court further concluded that “Defendants’ arguments with respect to the merits of the arguments are misplaced. Plaintiff’s complaint alleges that Defendants breached their duties of loyalty and attorney-client confidences by taking on the representation of National Union. Whether this is ultimately proven to be true is not relevant to the analysis of the first prong of the special motion to strike.” LBBS timely appealed the court’s June 5 ruling.
Before KBBS filed its appeal, the trial court sustained a demurrer without leave to amend to Kmart’s First Amended Complaint. The court ruled that Kmart was judicially estopped from asserting its claims against LBBS because it failed to list the claims as an asset in the bankruptcy proceedings. In its appellate brief, Kmart alleges that it has since amended its bankruptcy schedule to list the LBBS action as an asset and intends to file a motion for reconsideration of the trial court’s demurrer order after this appeal is completed. These actions have no impact on the issues presented in this appeal.
DISCUSSION
A. Governing Legal Principles and Standard of Review
Code of Civil Procedure section 425.16 is intended “to provide for the early dismissal of unmeritorious claims filed to interfere with the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.” (Club Members for an Honest Election v. Sierra Club (2008) 45 Cal.4th 309, 315.) The section authorizes the filing of a special motion to strike claims “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.... unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. (Code Civ. Proc., § 425.16, subd. (b)(1).)
The California Supreme Court has interpreted Section 425.16 to require “‘a two-step process when determining whether a defendant’s.... motion [to strike] should be granted. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one “arising from” protected activity. [Citation.] If the court finds such a showing has been made, it then must consider whether the plaintiff has demonstrated a probability of prevailing on the claim.’ [Citation.]” (In re Episcopal Church Cases (2009) 45 Cal.4th 467, 477 (In re Episcopal Church Cases).)
“An appellate court reviews an order granting an anti-SLAPP motion under a de novo standard. In other words, we employ the same two-pronged procedure as the trial court in determining whether the anti-SLAPP motion was properly granted.” (Mendoza v ADP Screening and Selection Services (2010) 182 Cal.App.4th 1644, 1651-1652.) In this case, the trial court only heard argument on the first prong of the statutory test. Therefore, our review is limited to deciding whether Kmart’s claims arose from a protected activity.
B. The Trial Court Properly Denied LBBS’ Section 425.16 Motion to Strike
1. The trial court properly considered Kmart’s original complaint
The parties dispute which pleading is operative in determining LBBS’s motion to strike. Although LBBS moved to strike Kmart’s original complaint, Kmart filed an amended complaint before the motion was heard. When the motion was argued, however, the trial court considered Kmart’s original complaint. Despite that, Kmart’s appellate brief relies almost entirely on the allegations in its first amended complaint. In a footnote, Kmart asserts its amended pleading “supersedes the original complaint.” LBBS disagrees, contending that “Kmart must defend its claims based on the allegations in the complaint against which the anti-SLAPP motion was filed.”
At the hearing on LBBS’s motion to strike, Kmart did not object when the court stated that it was only considering the allegations in the original complaint.
At the time the trial court decided the Section 425.16 motion, the procedural posture of the case was somewhat unusual. LBBS filed a demurrer to Kmart’s complaint on February 28, 2008 and subsequently filed a motion to strike the complaint pursuant to Section 425.16. On April 23, 2008, the trial court sustained the demurrer with leave to amend and ordered Kmart to file an amended complaint within 20 days. In compliance with this order, Kmart filed a first amended complaint on May 13, 2008. The amended pleading alleged additional facts regarding Kmart’s purported damages and its standing to bring the suit. In addition, Kmart revised various allegations describing the specific conduct that gave rise to its malpractice claim. These changes were intended to address the court’s ruling that LBBS could not be held liable solely on the basis of its failure to inform Kmart about the content of its insurance policies. The remainder of the factual allegations and legal claims in Kmart’s amended complaint remained largely unchanged from its original complaint. Ten days after the amended complaint was filed, the court heard argument on LBBS’s Section 425.16 motion to strike the original complaint.
LBBS contends that its motion must be measured against Kmart’s original complaint, citing case law holding that a party may not “amend a pleading to avoid a SLAPP motion.” (Sylmar Air Conditioning v. Pueblo Contracting Services, Inc. (2004) 122 Cal.App.4th 1049, 1055 (Sylmar Air).) This principle was first articulated in Simmons v. Allstate Ins. Co., (2001) 92 Cal.App.4th 1068 (Simmons). There, plaintiff requested permission to file an amended complaint shortly after the court issued a tentative order granting a motion to strike pursuant to Section 425.16. The trial court denied plaintiff’s request and the appellate court affirmed, explaining that “[a]llowing a SLAPP plaintiff leave to amend the complaint once the court finds the prima facie showing has been met would completely undermine the statue by providing the pleader a ready escape from section 425.16’s quick dismissal remedy.” (Id. at p. 1073) Sylmar Air, supra, 122 Cal.App.4th 1049, applied Simmons in a case where the plaintiff filed an amended complaint three days before a hearing on defendant’s Section 425.16 motion to strike and demurrer. Plaintiff argued that the 425.16 motion was mooted by the filing of the amended complaint. The court disagreed, finding that the plaintiff was attempting to “us[e] an amendment to defeat the legislative purpose of section 425.16.” (Id. at p. 1055; see also PrediWave Corp. v. Simpson Thacher & Bartlett LLP (2009) 179 Cal.App.4th 1204, 1209 (PrediWave) [affirming trial court’s decision to ignore “subsequently filed... first amended complaint” when assessing Section 425.16 motion].
Unlike the plaintiff in Simmons and Sylmar Air, Kmart did not file its amended complaint to avoid LBBS’s Section 425.16 motion. Rather, Kmart filed an amended complaint to address defects in its original pleadings that the trial court identified when it sustained LBBS’s demurrer. Moreover, the amended complaint did not remove any of the factual assertions that gave rise to LBBS’s motion to strike, which argues that Kmart’s claims are based on the firm’s decision to file and litigate the Liberty Mutual Action. Therefore, the record demonstrates that Kmart’s amended complaint was not intended to avoid the SLAPP motion. As a result, Simmons and other cases applying its reasoning are inapposite. (See, e.g., Nguyen-Lam v. Cao (2009) 171 Cal.App.4th 858, 870 [Simmons inapplicable where plaintiff’s request to amend pleadings was not an “attempt to void defendant’s showing on the first prong of the anti-SLAPP inquiry”].)
That does not mean that Kmart is correct in arguing that its first amended complaint superseded its original complaint for the purposes of the motion to strike. Kmart cites the well-established procedural rule that, generally, “[a]n amended complaint ‘supersedes the original and furnishes the sole basis for the cause of action. [Citations.] The original complaint is dropped out of the case and ceases to have any effect as a pleading, or as a basis for a judgment. [Citation.]’” (Anmaco, Inc. v. Bohlken (1993) 13 Cal.App.4th 891, 901.) For the reasons discussed below, we conclude that applying that rule here would undermine the statutory remedies and intent of Section 425.16.
We are unaware of any decision that has analyzed a Section 425.16 motion where the plaintiff filed an amended complaint after a demurrer was sustained but before the motion to strike was actually heard. Several decisions have held, however, that a defendant who files a motion to strike pursuant to Section 425.16 is entitled to a ruling on the motion even if the complaint is dismissed before the motion is heard. These decisions are predicated on the fact that Section 425.16, subdivision (c) entitles a “defendant who prevails in an anti-SLAPP motion... to attorney’s fees.” (White v. Lieberman (2002) 103 Cal.App.4th 210, 220 (White).) For example, in White v. Lieberman, the trial court ruled that the defendant’s Section 425.16 motion was moot because the court had previously “sustained [defendant’s] demurrer without leave to amend.” (Id. at p. 220.) The appellate court disagreed, holding that the trial court should have decided the motion to strike to determine whether defendant was entitled to the costs and fees described in Section 425.16, subdivision (c). Similarly, in Liu v. Moore, (1999) 69 Cal.App.4th 745 (Liu), “the trial court concluded that, because respondents had dismissed their cross-complaint prior to the hearing on appellant’s section 425.16 motion to strike, and the motion was taken off calendar as moot, appellant could not be said to be the prevailing party on her motion to strike, and thus was not entitled to attorney fees under the SLAPP statute.” (Pfeiffer Venice Properties v. Bernard (2002) 101 Cal.App.4th 211, 217 (Pfeiffer Venice Properties).) The appellate court reversed, holding that “a defendant who is voluntarily dismissed, with or without prejudice, after filing a section 425.16 motion to strike, is nevertheless entitled to have the merits of such motion heard as a predicate to a determination of the defendant’s motion for attorney’s fees and costs under subdivision (c) of that section.” (Liu, supra, 69 Cal.App.4th at p. 751.) In Pfeiffer Venice Properties, supra, 101 Cal.App.4th at p. 218, the court applied Liu’s reasoning where the trial court declined to decide defendant’s Section 425.16 motion after dismissing the case on jurisdictional grounds. (But see Law Offices of Andrew L. Ellis v. Yang (2009) 178 Cal.App.4th 869 (Yang) [trial court did not have jurisdiction to decide Section 425.16 motion after plaintiff voluntarily dismissed case, but retained jurisdiction to decide any future motion for attorney’s fees and costs predicated on Section 425.16, subdivision (c).)
Yang held that, once a case is voluntarily dismissed, the trial court lacks jurisdiction to reach the merits of a Section 425.16 motion unless the defendant subsequently files a separate motion for attorney’s fees pursuant to Section 425.16, subdivision (c). This holding is consistent with Liu and Pfeiffer Venice Properties, both of which involved a motion for fees predicated on subdivision (c) filed after the trial court dismissed the underlying action. Yang relies on case law holding that “[u]pon the proper filing of a request to voluntarily dismiss a matter, the trial court loses jurisdiction to act in the case ‘except for the limited purpose of awarding costs and statutory attorney fees.’ [Citations.]” (Yang, supra, 178 Cal.App.4th at p. 876.) In this case, the trial court’s ruling sustaining LBBS’s demurrer with leave to amend did not terminate the case or divest the court of jurisdiction over the parties. (See Wackeen v. Malis (2002) 97 Cal.App.4th 429, 437 [“[w]hen a court has jurisdiction over the parties and subject matter of a suit, its jurisdiction continues until a final judgment is entered. [Citation.] When there is a voluntary dismissal of an entire action, the court's jurisdiction over the parties and the subject matter terminates”].) Therefore, the trial court did not face any jurisdictional bar prohibiting it from ruling on LBBS’s motion.
The rationale underlying White, Liu and Venice Properties applies with equal force here. To the extent LBBS is able to show that the claims in Kmart’s original complaint arise from protected activity and that Kmart could not demonstrate a probability of success on those claims, Section 425.16, subdivision (c) entitles it to costs and fees irrespective of the allegations in the first amended complaint. Stated differently, if the trial court had ignored the original complaint, it may have deprived LBBS “of the monetary relief which the Legislature intended to give [it].” (Liu, supra, 69 Cal.App.4th at p. 748.) We find no error in the trial court’s decision to consider Kmart’s original complaint.
Moreover, even if the first amended complaint was the operative pleading in this matter, it would have no affect on our analysis of LBBS’s motion to strike. In the trial court, LBBS argued that Kmart’s claims arose from protected activity because the original complaint included “allegations based on Defendant’s representation of National Union in the [Liberty Mutual] Action.” LBBS’s motion identified each paragraph of Kmart’s complaint that, in its view, referenced protected activity, which included “¶¶ 32-36, subparts (5) and (6) of ¶ 45 and subpart (d) of ¶ 49.” Kmart’s first amended complaint, however, contains the same allegations regarding LBBS’s representation of National Union in the Liberty Mutual Action that appeared in the original complaint. Indeed, the specific paragraphs of the original complaint that LBBS cites and discusses in its motion appear in substantially the same form in the amended complaint. Because both complaints contain the same allegations that underlie LBBS’s motion to strike, our analysis of the first prong of the statutory test would be the same regardless of which complaint was deemed to be the operative pleading.
(2.) Kmart’s claims do not “arise from” a protected activity
The trial court ruled that LBBS failed to satisfy the first prong of the statutory test described in Section 425.16, which requires the “defendant [to]... demonstrate[e] that the challenged cause of action arises from protected activity.” (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 669 (Peregrine Funding).) “[T]he ‘arising from’ requirement is not always easily met.” (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66.) “A cause of action does not ‘arise from’ protected activity simply because it is filed after protected activity took place. [Citation.] Nor does the fact ‘[t]hat a cause of action arguably may have been triggered by protected activity’ necessarily entail that it arises from such activity. [Citation.] The trial court must instead focus on the substance of the plaintiff’s lawsuit in analyzing the first prong of a special motion to strike.” (Peregrine Funding, supra, 133 Cal.App.4th at p. 669-670.) In performing the analysis, “[i]t is ‘the principal thrust or gravamen of the plaintiff’s cause of action that determines whether the anti-SLAPP statute applies [citation], and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on nonprotected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute.’ [Citation.]” (Freeman v. Schack (2007) 154 Cal.App.4th 719, 727 (Freeman); see also Peregrine Funding, supra, 133 Cal.App.4th at p. 670 [“if the allegations of protected activity are only incidental to a cause of action based essentially on nonprotected activity, the mere mention of the protected activity does not subject the cause of action to an anti-SLAPP motion.’ [Citation.]”].) “In deciding whether the ‘arising from’ requirement is met, a court considers ‘the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.’ [Citation.]” (Ibid.)
LBBS argues that the principal act giving rise to Kmart’s claims is LBBS’s filing and litigation of the Liberty Mutual declaratory relief action, which were protected activities. (See, e.g., Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115 [the “right to petition... includes the basic act of filing litigation” and “communications preparatory to or in anticipation of the bringing of an action”].) A review of Kmart’s complaint, however demonstrates that its action is “based essentially on nonprotected activity.” (Peregrine Funding, supra, 133 Cal.App.4th at p. 670.)
The factual background section of Kmart’s complaint, which is incorporated into each of Kmart’s claims, asserts that LBBS breached three different “contractual and professional obligations.” First, Kmart alleges that, while serving as counsel in the Kolodziey Action, LBBS failed to advise Kmart that National Union’s insurance policies would not cover post-judgment costs that accrued during the pendency of the appeal and that Kmart could only avoid such costs by declining to appeal the judgment. Second, Kmart alleges that LBBS disclosed “attorney-client privileged communications between Kmart and [LBBS]” to National Union, which helped the insurer avoid having to pay the Kolodziey post-judgment interests and costs. Third, Kmart alleges that, as a result of its representation of Kmart in the Kolodziey Action and the related Calstar indemnity matters, LBBS had a duty to avoid taking any actions that would prejudice or adversely impact Kmart’s rights. LBBS allegedly violated that duty when it agreed to advise National Union in its efforts to avoid paying the Kolodziey judgment and then filed the Liberty Mutual Action. Kmart further contends that all of these wrongful acts resulted from an overarching “secret understanding” that LBBS “would be responsible for protecting National Union’s rights and interests – even if those interests conflicted with the interests of [LBBS’s] primary client, Kmart.” Kmart’s individual claims for malpractice, breach of fiduciary duty and breach of contract essentially allege some variation of the same conduct.
Considered as a whole, Kmart’s complaint challenges two distinct categories of acts. The first category challenges the competency of the representation that LBBS provided to Kmart during the Kolodziey appeal. The second category involves the breach of various fiduciary and professional obligations that occurred when LBBS provided counsel to National Union after having represented Kmart on substantially related matters. A review of the relevant case law demonstrates that neither category of claim is subject to Section 425.16.
(a) Claims “arising from” LBBS’s representation during the Kolodziey action
LBBS appears to concede that Kmart’s allegations that the firm failed to provide adequate counsel in regards to the Kolodziey action are not subject to Section 425.16. Although malpractice claims challenging the competency of legal counsel typically reference protected litigation activities, such claims are rarely subject to Section 425.16. For example, in Jespersen v. Zubiate-Beauchamp (2003) 114 Cal.App.4th 624 (Jespersen), the plaintiff asserted a malpractice action against the defendants for failing to serve timely discovery responses. The complaint included allegations regarding acts the defendants took in furtherance of litigating the underlying suit. Despite these allegations, the court concluded that the claims were not subject to section 425.16 because “the alleged attorney malpractice did not consist of any act in furtherance of anyone’s right of petition or free speech, but appellants’ negligent failure to do so on behalf of their clients.” (Id. at p. 631.) A subsequent case discussing Jespersen went further, holding that
During the hearing on LBBS’s motion to strike, the following exchange took place:
In a malpractice suit, the client is not suing because the attorney petitioned on his or her behalf, but because the attorney did not competently represent the client’s interests while doing so. Instead of chilling the petitioning activity, the threat of malpractice encourages the attorney to petition competently and zealously. This is vastly different from a third party suing an attorney for petitioning activity, which clearly could have a chilling effect.
(Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, 1540 [first prong not met “[b]ecause [plaintiff’s] claims arise from [defendant’s] alleged legal malpractice and not from petitioning activity protected under the anti-SLAPP statute”].) Here, we need not reach the issue whether malpractice claims challenging the competency of legal services are categorically immune from Section 425.16, as the allegations that LBBS failed to advise Kmart about the limitations of National Union’s insurance coverage and the potential impact of appealing the Kolodziey judgment do not implicate protected activity.
(b) Claims “arising from” LBBS’s representation of National Union
The second category of Kmart’s claims involve the breach of various ethical and professional duties that occurred as the result of LBBS’s subsequent representation of National Union, which include: (1) sharing privileged materials with National Union, (2) elevating National Union’s interests above the interests of Kmart, (3) agreeing to advise National Union on how to avoid paying portions of the Kolodziey judgment, and (4) filing and litigating the Liberty Mutual Action.
There are numerous recent decisions analyzing whether Section 425.16 applies to claims arising out of an attorney’s alleged breach of the duties of loyalty and confidentiality. (See State Bar Rules Prof. Conduct, rules 3-310(C) & (E).) In Benasra v. Mitchell Silbergber & Knupp LLP, (2004) 123 Cal.App.4th 1179 (Benasra), the plaintiffs sued their former attorneys for representing a rival company in an arbitration and sharing plaintiffs’ confidential information during the course of that representation. Defendants brought a motion to strike the complaint, arguing that its representation of the plaintiffs’ rival was a protected activity within the meaning of Section 425.16. The court disagreed, ruling that the plaintiffs’ claims were not “based on ‘filing a petition for arbitration on behalf of one client against another, but rather for failing to maintain loyalty to, and the confidences of, a client.’” (Id. p. 1189.) The breach
Rule 3-310, subdivision (C) states that an attorney shall not, without written consent: “(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or [¶] (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or [¶] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.” Subdivision (E) forbids an attorney to “accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.”
occurs not when the attorney steps into court to represent the new client, but when he or she abandons the old client.... In other words, once the attorney accepts a representation in which confidences disclosed by a former client may benefit the new client due to the relationship between the new matter and the old, he or she has breached a duty of loyalty. The breach of fiduciary duty lawsuit may follow litigation pursued against the former client, but does not arise from it.
(Ibid.; see also United States Fire Insurance Co. v. Sheppard, Mullin, Richter & Hampton (2009) 171 Cal.App.4th 1617, 1628 (U.S. Fire Insurance) [holding that Section 425.16 did not apply to complaint seeking “relief based on a claim of successive representation conflict of interest in violation of rule 3-310(E)”].)
Similarly, in Freeman v. Schack, supra, 154 Cal.App.4th 719, the plaintiffs sued a former attorney for agreeing to represent a class of individuals with interests that conflicted with those of the plaintiffs. After reviewing the plaintiffs’ complaint, the court concluded that there was “no doubt that plaintiffs’ causes of action have as a major focus [defendant’s] actions in representing [the adverse class], filing a new action on [the adverse class’s behalf] and settling [the adverse class’s] action.” (Id. at p. 729.) The court found, however, that the claims did not implicate Section 425.16 because “the principal thrust of the conduct underlying [plaintiff’s] causes of action is not [defendant’s] filing or settlement of litigation...., [it] is his undertaking to represent a party with interests adverse to plaintiffs, in violation of the duty of loyalty he assertedly owed them in connection with [his prior representation].” (Id. at p. 732.)
Most recently, in PrediWave, supra, 179 Cal.App.4th 1204, the plaintiff was sued by an investor who alleged that a member of PrediWave’s board, Tony Qu, had induced the investor to purchase PrediWave through a series of false representations. PrediWave retained Simpson Thacher to defend the company and Qu in the investor suit. After the investor prevailed at trial, PrediWave sued Simpson Thacher, alleging that, in the course of its representation, the firm engaged in a defense strategy that protected Qu while compromising PrediWave’s interests. The complaint detailed numerous, allegedly improper litigation activities including filing a declaratory relief action against the investor, “stonewalling” the investor’s discovery requests and allowing Qu to provide false testimony during a deposition. Simpson Thacher filed a Section 425.16 motion alleging that PrediWave’s claims arose from defendant’s protected litigation activities while representing the plaintiff and its agent. The court rejected the argument, reasoning that “the principal thrust of PrediWave’s causes of action is that defendants simultaneously represented both PrediWave and Qu in matters in which they had an irreconcilable conflict of interest. This conflict of interest allegedly adversely affected defendants’ choice of legal strategy.” (Id. at pp. 1226-1227.) As a result, the claims were not based on a protected activity.
Kmart’s claims relating to LBBS’s representation of National Union cannot be meaningfully distinguished from the causes of action analyzed in Benasra, Freeman and PrediWave. The act giving rise to Kmart’s breach of loyalty and confidentiality claims was not LBBS’s filing of the Liberty Mutual action, but was instead the decision to undertake a representation that allegedly violated those duties. More specifically, Kmart alleges that LBBS violated its duties by (1) “accept[ing] a representation in which confidences disclosed by [Kmart] m[ight have] benefit[ted]” National Union, (Benasra, supra, 123 Cal.App.4th at p. 1189) and (2) “undertaking to represent a party with interests adverse to” Kmart. (Freeman, supra, 154 Cal.App.4th at p. 732.) Moreover, as in PrediWave, Kmart essentially asserts that these acts were committed as the result of an overarching “irreconcilable conflict of interest, ” (PrediWave, supra, 179 Cal.App.4th at pp. 1227) in which LBBS’s “longstanding prior relationship” with National Union caused the firm to engage in a legal strategy designed to benefit National Union at the expense of Kmart.
Although Kmart’s complaint references LBBS’s filing of the Liberty Mutual Action, we conclude that these references are “only incidental to [claims that are]... based essentially on nonprotected activity.” (Freeman, supra, 154 Cal.App.4th at p. 727.) In effect, the allegations regarding LBBS’s role in the Liberty Mutual Action are simply evidence of the principal act giving rise to Kmart’s claims, which was undertaking a representation that breached the duties imposed under the California Rules of Professional Conduct. That is not enough to trigger Section 425.16. (See, e.g., Hylton v. Frank E. Rogozienski, Inc. (2009) 177 Cal.App.4th 1264, 1274-1275 [“‘the fact [plaintiff’s] claims are related to or associated with [defendant’s] litigation activities is not enough”]; Freeman, supra, 154 Cal.App.4th at p. 732 [“the mere mention of the protected activity does not subject the cause of action to an anti-SLAPP motion”].)
(c) LBBS’s arguments do not compel a different outcome
LBBS attempts to differentiate the case law described above by arguing that its “evidence showed that Kmart’s claims depend upon the contention that the Liberty Mutual Action caused harm to Kmart, and that the other ‘related’ contentions about duties of care, loyalty and confidentiality about issues other than the Liberty Mutual Action were meritless.” In other words, LBBS contends that Kmart’s allegations concerning conduct unrelated to the filing of the Liberty Mutual Action are meritless and, therefore, Kmart’s claims necessarily arise from the Liberty Mutual Action.
For example, LBBS asserts that: (1) LBBS cannot be held responsible for failing to advise Kmart about the limitations of National Union’s insurance policy because Kmart was “charged with knowledge of the meaning of its insurance policies;” (2) LBBS did not disclose or violate any confidentialities because “Kmart and National Union were joint clients [s]o there was no confidentiality between them;” and (3) LBBS did not breach any duty of loyalty by undertaking the representation of National Union in the Liberty Mutual action because that case was not adverse to Kmart’s interests.
LBBS’s argument improperly conflates the first and second prongs of the Section 425.16 test. Under the first prong of the test, the court decides only whether the cause of action arises from a protected activity. If (and only if) such a showing has been made, it then considers “‘whether the plaintiff has demonstrated a probability of prevailing on the claim.’ [Citation.]” (In re Episcopal Church Cases, supra, 45 Cal.4th at p. 477.) In other words, the court reviews the “substance” of the claim in the first step of the test, (Peregrine Funding, supra, 133 Cal.App.4th at p. 669), and, if necessary, it reviews the potential merit of plaintiff’s claims in the second step. (Birkner v. Lam (2007) 156 Cal.App.4th 275, 285 [second step requires plaintiff to make “a prima facie showing of the merits of their [causes of action]”].) Whether or not a plaintiff will ultimately prevail on its claims is simply not relevant to the first prong of the analysis. In Freeman, the appellate court explained this exact point when it rejected the very same argument that LBBS presents here:
Seeking to differentiate Jespersen and Benasra, [Defendant] maintains the complaint “makes clear” that he is being sued for secretly “selling out the class, ” which he argues was found not true by the court in [prior] litigation, thus eliminating any possible breach of the duty of loyalty. He argues the documents presented in support of his motion “show that there is no truth to [plaintiffs'] allegations as to them individually....” These merits based arguments have no place in our threshold analysis of whether plaintiffs’ causes of action arise from protected activity. Where [defendant] cannot meet his threshold showing, the fact he might be able to otherwise prevail on the merits under the ‘probability’ step is irrelevant.
(Freeman, supra, 154 Cal.App.4th at pp. 732-733; see also Hylton, supra, 177 Cal.App.4th at p. 1268 fn. 3 [evidence contradicting plaintiff’s claims is “irrelevant to the first step in evaluating an anti-SLAPP motion”]; Robles v. Chalilpoyil (2010) 181 Cal.App.4th 566, 582 (Robles) [where “appellant failed to meet his initial burden in the SLAPP analysis, ” the court need not evaluate whether “appellant was immune from liability for his communicative acts under Civil Code section 47”].)
LBBS correctly points out that, when analyzing the “arising from” requirement, “a court considers ‘the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.’ [Citation.]” (Peregrine Funding, supra, 133 Cal.App.4th at p. 670.) That does not, however, support LBBS’s contention that we are therefore compelled to “critically evaluate[] Kmart’s allegations against the evidence to determine whether it was legally possible to give credence to Kmart’s claims.” Under the first prong of the statutory test, courts review the parties’ pleadings, affidavits and other supporting documentation to determine what conduct is actually being challenged, not whether the conduct is actionable. Jespersen v. Zubiate-Beauchamp, supra, 114 Cal.App.4th 624, is illustrative. The plaintiff’s complaint in Jespersen alleged that the defendants had provided negligent representation “resulting in a court order requiring respondents to provide verified responses to discovery requests without objecting to them.” (Id. at pp. 627-628.) To determine whether these vague allegations involved a protected activity, the court looked to the parties’ declarations and exhibits to determine “what conduct underlies [the cause of action].” (Id. at p. 630.) These documents revealed that the conduct at issue involved the defendant’s failure to serve timely discovery responses and comply with various court orders.
In addition to confusing the two prongs of the Section 425.16 test, LBBS’s argument is internally inconsistent. LBBS appears to argue that Kmart’s only viable claim of wrongdoing pertains to LBBS’s filing of the Liberty Mutual Action. However, Kmart does not allege that LBBS’s role in the Liberty Mutual Action, standing alone, gave rise to any liability. Instead, Kmart contends that LBBS’s decision to litigate that matter was improper because it had a pre-existing duty of loyalty that required it to refrain from participating in matters that were adverse to Kmart, a former client. If, as LBBS argues, there is no duty of loyalty or confidentiality, there is no surviving “claim” based solely on LBBS’s role in the Liberty Mutual Action. While Kmart’s claims may ultimately fail, that does not change the fact that they are based on activity that is not protected under the statute.
Finally, LBBS argues that this case is controlled by Peregrine Funding v. Sheppard Mullin Richter Hampton LLP, supra, 133 Cal.App.4th 658, which is one of the few cases in which a claim for attorney malpractice was deemed to have “arisen from” a protected activity. There, the court concluded that the “charging allegations made by plaintiffs... fell within two broad courses of conduct, ” one of which “involved [defendant’s] representation of clients in an SEC investigation of financial defalcation by the company.” (U.S. Fire Insurance, supra, 171 Cal.App.4th at p. 1628.) The court ruled that the defendant’s “specific conduct during the representation” played a key role in plaintiff’s claims. (Id. at pp. 1628-1629.) Moreover, the complaint predicated defendant’s liability directly on protected activity engaged in during the SEC investigation. In the court’s view, this differentiated the matter from cases in which attorney’s communicative action was merely evidence of liability rather than the basis of the liability. (See Peregrine Funding, supra, 133 Cal.App.4th at p. 673; Graffiti Protective Coatings, Inc. v. City of Pico Rivera (2010) 181 Cal.App.4th 1207, 1222 [Peregrine “distinguish[ed] cases where defendants’ communications were evidence of liability, not basis of liability”].)
Several subsequent decisions have questioned Peregrine’s analysis. (See, e.g., Robles, supra, 181 Cal.App.4th at p. 580, fn. 2; PrediWave, supra, 179 Cal.App.4th at p. 1226; Freeman, supra, 154 Cal.App.4th at p. 733.) In any event, the facts in this case require a different outcome. Unlike Peregrine, Kmart’s claims do not “arise from” statements that LBBS made or positions that it took in the Liberty Mutual action. Rather, as discussed above, Kmart’s allegations regarding the Liberty Mutual Action serve to demonstrate that LBBS actually undertook representation that breached its professional duties to Kmart. Thus, unlike Peregrine, LBBS’s alleged role in the Liberty Mutual Action was merely “evidence of liability” rather than the “basis of the liability.” (Graffiti Protective Coatings, supra, 181 Cal.App.4th at p. 1222 [discussing Peregrine].)
DISPOSITION
The trial court’s order denying LBBS’s motion to strike pursuant to Section 425.16 is affirmed. Respondents are awarded their costs on appeal.
We concur: PERLUSS, P. J., WOODS, J.
LBBS COUNSEL: There’s some parts of the complaint that we don’t believe that the Anti-SLAPP applies to at all. We’ve kind of agreed upon that.
COURT: Right. That’s the malpractice with respect to, I think, not advising them that they could settle the matter and whatever, that whole thing....
LBBS COUNSEL: Correct...