Opinion
G053708
06-26-2018
DONALD LOWRY et al., Plaintiffs and Appellants, v. IAIN SAUL, Defendant and Respondent.
James G. LeBloch for Plaintiffs and Appellants. Nelson Mullins Riley & Scarborough, and Lauren A. Deeb; Buchalter and Robert M. Dato for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00821823) OPINION Appeal from an order of the Superior Court of Orange County, Andrew P. Banks, Judge. Affirmed. Request for judicial notice denied. James G. LeBloch for Plaintiffs and Appellants. Nelson Mullins Riley & Scarborough, and Lauren A. Deeb; Buchalter and Robert M. Dato for Defendant and Respondent.
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Plaintiffs Donald Lowry and Erica Lowry appeal from an order granting a special motion to strike under Code of Civil Procedure section 425.16 (section 425.16; anti-SLAPP motion) their cause of action for fraud against defendant and respondent Iain Saul. Plaintiffs contend the court erred because the cause of action did not arise from protected activity. We conclude the court correctly granted the anti-SLAPP motion and affirm.
We deny defendant's request for judicial notice of the arbitration award in his favor entered after the notice of appeal was filed. Defendant sought to rely on it to show plaintiffs could not prevail on the merits of the action. However, plaintiffs never argued they could prevail on the merits and the award is irrelevant to this appeal.
FACTS AND PROCEDURAL HISTORY
In 2004, plaintiffs sold 100 percent of the stock in True Colors, Inc. (TCC) to LBC Global, becoming its wholly owned subsidiary. LBC Global subsequently changed its name to True Colors International, Inc. (TCI). Defendant was a shareholder and director of TCI.
In 2008 plaintiffs sued TCI, TCC, defendant, and other individuals in federal court alleging breach of contract, securities fraud, and interference with business (Federal Action). In 2009 the parties settled the action with the settlement terms put on the record (Settlement). A copy of the transcript of that Settlement was attached to and made a part of the judgment dismissing the case with prejudice (Judgment). The Judgment recited certain terms of the Settlement and made certain orders.
Pursuant to the Settlement, TCC agreed to pay plaintiffs $1.1 million payable monthly over about seven years. Payment was "secured by a lien against all assets of TCC." TCC agreed to "represent a [sic] warrant that all IP [intellectual property] is invested in TCC and will remain so vested."
The Judgment stated, "All other provisions of the Settlement, not specifically referenced herein, shall be governed by the provisions in the Transcript and all parties shall comply with such terms."
In April 2013 TCI and TCC notified plaintiffs they were in breach of the Settlement and Judgment and as a result TCC would no longer make the settlement payments. TCI then filed an arbitration action against plaintiffs for breach of the Settlement and Judgment. Plaintiffs answered and filed a counterclaim for breach of the Settlement for failure to make the Settlement payments.
Plaintiffs claimed that during discovery in the arbitration action they learned defendant, TCC, and TCI breached the Settlement because at the time they entered into the Settlement they knew TCI, not TCC, owned the intellectual property. They then filed the instant action against defendant for fraud and deceit and violation of the Uniform Fraudulent Transfer Act. As to the fraud cause of action plaintiffs alleged defendant intentionally failed to disclose that TCC had transferred its intellectual property to TCI.
In 2007 TCC sold all of its assets, including the intellectual property, to TCI. At that time plaintiffs were members of the TCC board of directors and attended board meetings. Donald Lowry was also a member of the TCI board. Plaintiffs had discussed and knew of the sale of the intellectual property in 2007.
Defendant also filed a demurrer to both causes of action. The court ruled the demurrer to the fraud cause of action moot based on the granting of the anti-SLAPP motion and sustained the demurrer to the fraudulent conveyance cause of action with leave to amend. --------
Defendant filed the anti-SLAPP motion as to the fraud cause of action, arguing his alleged conduct was protected because it arose out of the settlement of the Federal Action and plaintiffs could not prevail on the claim.
The court granted the motion because the claims in the fraud cause of action were based on statements made during settlement discussions in litigation. Thus, they were protected statements under Code of Civil Procedure section 425.16, subdivision (e)(2). The court also found plaintiffs did not submit sufficient evidence to substantiate a probability of success on the fraud cause of action.
DISCUSSION
1. Anti-SLAPP Principles and Standard of Review
Code of Civil Procedure section 425.16, subdivision (b)(1) provides a party may bring a special motion to strike any "cause of action against [that party] arising from any act [the party commits] in furtherance of the . . . right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue . . . ." An "'act in furtherance of a person's right of . . . free speech under the United States or California Constitution in connection with a public issue' includes: . . . any written or oral statement or writing made before a . . . judicial proceeding" or "any written or oral statement or writing made in connection with an issue under consideration or review by a . . . judicial body . . . ." (Code Civ. Proc., § 425.16, subd. (e)(1), (2).)
There is a two-step analysis used to resolve an anti-SLAPP motion. "First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. [Citation.] If the defendant makes the required showing, the burden shifts to the plaintiff[s] to demonstrate the merit of the claim by establishing a probability of success." (Baral v. Schnitt (2016) 1 Cal.5th 376, 384.) We review an order granting or denying an anti-SLAPP motion de novo. (Flatley v. Mauro (2006) 39 Cal.4th 299, 325-326.) 2. Act in Furtherance of Free Speech
"'A cause of action "arising from" defendant's litigation activity may appropriately be the subject of a section 425.16 motion to strike.' [Citations.]" (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056; Rusheen.) "[C]ourts have adopted 'a fairly expansive view of what constitutes litigation-related activities within the scope of section 425.16.' [Citation.]" (Kolar v. Donahue, Mcintosh & Hammerton (2006) 145 Cal.App.4th 1532, 1537.) It is well settled that statements made or concealment of facts in settlement negotiations are protected activity. (E.g., Navellier v. Sletten (2002) 29 Cal.4th 82, 90 (Navellier); Optional Capital, Inc. v. Akin Gump Strauss, Hauer & Feld LLP (2017) 18 Cal.App.5th 95, 114.)
In Navellier, supra, 29 Cal.4th 82, the plaintiffs sued the defendant for fraud, among other things, alleging the defendant had falsely represented his intent to be bound by a release in a prior action. The court held section 425.16 applied to these allegations because the negotiations and entry into a release involved a "statement or writing made in connection with an issue under consideration or review by a . . . judicial body." (Code Civ. Proc., § 425.16, subd. (e)(2); Navellier, at p. 90.)
In Suarez v. Trigg Laboratories, Inc. (2016) 3 Cal.App.5th 118 (Suarez), after an underlying case was settled, the plaintiff sued to rescind the settlement alleging the defendant concealed certain information to induce the plaintiff to settle. Relying partly on Navellier, the court affirmed the grant of an anti-SLAPP motion stating, "Misrepresentation or failure to disclose can be protected petitioning activity for purposes of section 425.16." (Suarez, at p. 124.) It ruled the cause of action arose from protected litigation activity and from the defendant's "protected right of free speech—the right not to speak." (Id. at p. 125.)
Similarly in Navarro v. IHOP Properties, Inc. (2005) 134 Cal.App.4th 834 (Navarro), the plaintiff alleged the defendant made false promises to obtain a stipulation of judgment in a prior action, never intending to perform those promises. The court held these "allegedly fraudulent statements within the context of negotiating the stipulated judgment" were protected activity. (Id. at p. 842.)
Such is the case here. Plaintiffs alleged defendant "intentionally failed to disclose important facts in the execution of the Settlement," i.e., that the TCC intellectual property had been transferred to TCI and knew the representation in the Settlement that all intellectual property was owned by TCI was false. They further alleged defendant knew the representation "was important to the Settlement" and did not intend to perform. In addition, plaintiffs pleaded defendant intended they rely on the representation and the "concealment and false representations, warranties and promises [were] a substantial factor in causing [their] harm." Thus, the fraud cause of action is plainly based on statements made during litigation.
Plaintiffs reject this analysis and instead rely on what they claim is the only case with similar facts, Applied Business Software, Inc. v. Pacific Mortgage Exchange, Inc. (2008) 164 Cal.App.4th 1108 (Applied). There, the parties entered into a settlement of a federal action, wherein the defendant agreed to stop using the plaintiff's software, to certify in writing it had deleted the software from all of its computers, and to return all copies of the software. When the defendant allegedly failed to do so, the plaintiff filed suit for breach of the settlement agreement. The Court of Appeal affirmed denial of an anti-SLAPP motion because the alleged wrongful conduct was not protected activity. Rather, it was a breach of contract claim "based solely on [the] defendant's alleged failure to comply with specific provisions in the settlement agreement." (Id. at p. 1117.)
Plaintiffs claim the facts here are parallel, arguing the fraud cause of action is based on defendant's violation of the Settlement. They maintain defendant committed fraud when he agreed to the Settlement and provided the Judgment to the court for approval. According to plaintiffs, the fraudulent act was the fact the intellectual property was not held by TCC at the time the Judgment was entered. They further assert it was the breach of the Settlement at the time defendant agreed to it that supports the fraud claim.
But the complaint belies plaintiffs' position. As shown above, the gist of the cause of action is defendant's alleged misrepresentations in connection with the Settlement to induce plaintiffs to settle the Federal Action.
As in Navellier, supra, 29 Cal.4th 82, this was protected activity because the statements and omissions were made during the course of the Federal Action. These likewise parallel those in Suarez, supra, 3 Cal.App.5th 118, 124 and Navarro, supra, 134 Cal.App.4th 834, in which the court held misrepresentations and omissions made to induce settlement were protected activity. Defendant's alleged misconduct was not a separate, independent breach of the Settlement after conclusion of the Federal Action, as occurred in Applied, supra, 164 Cal.App.4th 1108.
Plaintiffs' attempt to avoid section 425.16 by arguing "we are not dealing with settlement negotiations but rather with a settlement agreement after completion of negotiations" merely splits hairs and fails. In Navellier the court held execution of a release fell "squarely within the plain language of the anti-SLAPP statute." (Navellier, supra, 29 Cal.4th at p. 90.)
Defendant satisfied the first prong of the anti-SLAPP motion analysis, shifting the burden to plaintiffs to show a probability of prevailing. 3. Probability of Prevailing
Plaintiffs failed to meet their burden to show they would likely prevail in the action. Before plaintiffs filed their opening brief they filed a motion to bifurcate the appeal, asking that we first decide whether defendant had established the fraud cause of action was based on protected activity. Asserting they believed defendant would be unable to do so, plaintiffs argued we could reverse the order granting the motion without deciding their probability of prevailing. They did not argue that issue in their opening brief, instead purportedly "reserve[ing] the right to amend" the brief if their motion was denied.
We denied the motion. Thereafter, plaintiffs neither sought to amend the opening brief nor discussed the issue in the reply brief. In addition, they conceded the probability of success prong at oral argument. They thereby forfeited this claim. (Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 686.)
DISPOSITION
The order is affirmed. Defendant is entitled to costs on appeal.
THOMPSON, J. WE CONCUR: O'LEARY, P. J. ARONSON, J.