Opinion
B253620
02-23-2017
ROBERT C. BARAL, Plaintiff and Respondent, v. DAVID SCHNITT, Defendant and Appellant.
Kerr & Wagstaffe, James M. Wagstaffe, Kevin B. Clune; Ervin Cohen and Jessup, Michael C. Lieb and Leemore L. Kushner for Defendant and Appellant. Sauer & Wagner, Gerald L. Sauer and Amir A. Torkamani for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC475350) APPEAL from an order of the Superior Court of Los Angeles County, Maureen Duffy-Lewis, Judge. Reversed. Kerr & Wagstaffe, James M. Wagstaffe, Kevin B. Clune; Ervin Cohen and Jessup, Michael C. Lieb and Leemore L. Kushner for Defendant and Appellant. Sauer & Wagner, Gerald L. Sauer and Amir A. Torkamani for Plaintiff and Respondent.
Robert Baral filed a second amended complaint (SAC) against David Schnitt, alleging that Schnitt violated his fiduciary duty and committed constructive fraud and negligent misrepresentation, in connection with Baral and Schnitt's company, IQ Backoffice LLC (IQ). The SAC requested injunctive and declaratory relief as well as general and punitive damages. Schnitt filed a special motion under Code of Civil Procedure section 425.16, subdivision (b)(1) (the anti-SLAPP statute) to strike within the SAC's causes of action all references to an investigation and audit report by the accounting firm Moss Adams. Specifically, Schnitt alleged that the investigation and audit report were protected activity in preparation for litigation. The trial court denied the motion to strike, concluding that an anti-SLAPP motion applied to entire causes of action or the entire complaint, not to allegations within mixed causes of action. Schnitt filed a timely appeal, and this court granted his petition for writ of supersedeas staying all trial court proceedings pending resolution of the appeal. (Baral v. Schnitt (2016) 1 Cal.5th 376, 383-384.)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
We affirmed in Baral v. Schnitt (2015) 233 Cal.App.4th 1423, holding that the allegations regarding the Moss-Adams audit described activity protected under the anti-SLAPP statute, as Schnitt commissioned the report in order to decide whether to take legal action. We acknowledged that the courts of appeal differed regarding whether the anti-SLAPP statute authorized excising allegations in mixed causes of action, where the plaintiff has demonstrated a prima facie cause of prevailing on the other, unprotected parts of the mixed causes of action. We joined " 'those cases holding that, if the nonmoving party [Baral] demonstrates a prima facie case of prevailing on any part of a mixed cause of action, the anti-SLAPP motion fails,' " and that an anti-SLAPP motion, to be successful, must be brought against a mixed cause of action in its entirety. (Baral v. Schnitt, supra, 1 Cal.5th at p. 388.)
The California Supreme Court granted review (May 13, 2015, S225090). The court recognized that we had held that the allegations regarding the audit by Moss Adams arose from protected activity, so that Schnitt's anti-SLAPP motion had made the required showing for the first step of the analysis of an anti-SLAPP motion ("establish[ing] that the challenged claim arises from activity protected by section 425.16"). (Baral v. Schnitt, supra, 1 Cal.5th at p. 384.) The Court held that a special motion to strike under the anti-SLAPP statute may result in the striking of particular allegations of protected activity that are asserted as grounds for relief, rather than only entire and indivisible causes of action. (Id. at pp. 394-395.) The court remanded the case to us for further proceedings.
The parties submitted supplemental briefing regarding whether the allegations regarding the Moss Adams audit are protected by the litigation privilege, with the consequence that Baral has not shown a probability of prevailing on those allegations. Baral argues that Schnitt does not have standing to assert the litigation privilege, and that if Schnitt should prevail on this remand, he is not entitled to attorney fees under section 425.16, subdivision (c)(1).
BACKGROUND
Baral and Schnitt owned and managed IQ, a limited liability company. Baral sued Schnitt in December 2011, alleging that Schnitt committed fraud and repeatedly breached his fiduciary duty in taking control of IQ and secretly negotiating the sale of the company, and also committed slander and libel. The complaint also alleged that Schnitt unilaterally hired an accounting firm (Moss Adams) to investigate IQ after Schnitt discovered misappropriation of funds before the sale. Schnitt controlled the investigation, gave Moss Adams false information, and directed Moss Adams not to interview Baral, resulting in the audit report's conclusions that Baral had engaged in unauthorized transactions. Schnitt filed an anti-SLAPP motion, and the trial court struck the libel and slander causes of action as stemming from conduct protected by the litigation privilege. The trial court also sustained Schnitt's demurrer without leave to amend five of the causes of action.
Baral filed a notice of appeal and first amended complaint. After Schnitt filed another anti-SLAPP motion, Baral retained new counsel and abandoned his appeal; Schnitt withdrew his motion.
In January 2013, Baral filed the SAC at issue here. As the California Supreme Court described it, the SAC "pleads four causes of action: breach of fiduciary duty, constructive fraud, negligent misrepresentation, and a claim for declaratory relief. In support of those counts, Baral alleges as follows: Schnitt violated his fiduciary duties by usurping Baral's ownership and management interests so that Schnitt could benefit from the sale of IQ to LiveIt Investments, Ltd. (LiveIt). Schnitt sold a 72.6 percent interest in IQ based on his representation that he was its sole member and manager, and negotiated an employment position and ownership interest for himself without Baral's knowledge or consent. Schnitt also excluded Baral from the Moss Adams investigation in an effort to coerce his [Baral's] cooperation in the sale of the business. After the sale of IQ closed, Baral unsuccessfully renewed his efforts to provide information to the Moss Adams auditors. The second amended complaint sought an injunction to reopen the audit with Baral's participation, and to bar Schnitt from interfering with any corrections Moss Adams might make to its report." (Baral v. Schnitt, supra, 1 Cal.5th at p. 383.) The SAC also requested declaratory relief in the form of a judicial declaration that Baral was permitted to submit additional information to Moss Adams, and Schnitt was not permitted to exercise his rights as co-manager to prevent the submission of that additional information to Moss Adams.
Schnitt filed another anti-SLAPP motion entitled "Special Motion To Strike Certain Allegations In The Second Amended Complaint," seeking to strike all references to the Moss Adams investigation and audit report as protected activity under the anti-SLAPP statute, and also as activity protected by the litigation privilege in Civil Code section 47, subdivision (b). Having already concluded that the Moss Adams allegations described protected conduct, we now must address the second part of the anti-SLAPP inquiry: the purely legal question whether Baral has met his burden to show that he has a probability of prevailing against Schnitt on the Moss Adams allegations. If the litigation privilege absolutely shields Schnitt from liability on the Moss Adams allegations, Baral has not met his burden.
The Supreme Court opinion noted that it was appropriate for us to consider on remand any arguments Baral may raise regarding whether the Moss Adams claims were protected activity (the first step in the anti-SLAPP analysis), to the extent we did not reach those issues. (Baral v. Schnitt, supra, 1 Cal.5th at p. 396, fn. 10.) On remand, Baral does not challenge our prior holding that the Moss-Adams claims are protected under the anti-SLAPP statute as undertaken in preparation for litigation. Baral does, however, argue that the SAC's allegations of Schnitt's noncommunicative conduct after publication of the fraud audit do not fall within the litigation privilege, an argument we consider and reject below.
DISCUSSION
I. Schnitt can assert the litigation privilege.
Baral renews an argument he first made at oral argument in the prior appeal. He contends that Schnitt does not have "standing" to assert the litigation privilege, because "to the extent Schnitt engaged in conduct protected by the litigation privilege, he did so acting as a representative of IQ, and therefore IQ is the holder of the litigation privilege, not Schnitt." Stated another way, Baral's argument is that in the SAC he sued Schnitt personally rather than in his capacity as owner and manager of IQ, and therefore Schnitt cannot assert the litigation privilege as to any conduct, whether communicative or otherwise, that Schnitt undertook on behalf of IQ in connection with the Moss Adams audit. We reject this argument.
"The litigation privilege is codified in Civil Code section 47 (section 47): '[a] privileged publication or broadcast is one made [¶] . . . [¶] [i]n any . . . judicial proceeding . . . .' (§ 47, subd. (b).)" (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057.) The privilege confers absolute immunity to all torts except malicious prosecution, and applies to any communication (whether or not a publication, and whether inside or outside the courtroom) " 'required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation.' " (Ibid.) " 'The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.' " (Ibid., italics added.) "[I]f the gravamen of the action is communicative, the litigation privilege extends to noncommunicative acts that are necessarily related to the communicative conduct," including acts necessary to enforce a judgment. (Id. at p. 1065.)
"Any doubt as to whether the privilege applies is resolved in favor of applying it." (Adams v. Superior Court (1992) 2 Cal.App.4th 521, 529.)
In support of his contention that Schnitt is not a litigant or other participant authorized by law and so cannot assert the litigation privilege, Baral cites Wise v. Thrifty Payless, Inc. (2000) 83 Cal.App.4th 1296 (Wise). In Wise, a woman sued a drugstore under statute and in tort for disclosing to her former husband a printout of her prescription information, which he used against her in their acrimonious dissolution action. (Id. at p. 1299.) The drugstore argued that the litigation privilege protected the husband from liability for damages caused by his use of the prescription information in the dissolution action, and the court agreed. (Id. at pp. 1301-1302.) The drugstore argued that the litigation privilege also protected the drugstore: "[P]ublic policy mandates a rule which would preclude a plaintiff from recovering damages caused by such privileged conduct, even though the defendant-tortfeasor was neither a litigant nor a participant in the court proceeding." (Id. at p. 1302, italics added.)
The court of appeal rejected this argument. The drugstore's disclosure of the printout met none of the four requirements for application of the litigation privilege, including the requirement that the drugstore be a litigant or a participant in the dissolution proceedings. (Wise, supra, 83 Cal.App.4th at p. 1304.) The drugstore was not involved in any judicial or quasi-judicial proceeding when it released the printout. "Nonparticipants and nonlitigants to judicial proceedings are never protected from liability under section 47(b)." (Ibid.)
In direct contrast to Wise, supra, 83 Cal.App.4th 1296, Schnitt is both a participant and a litigant. Schnitt is the sole named defendant in the SAC, which claims (among other allegations) that Schnitt, as a co-managing member of IQ, twice "retained Moss Adams . . . on behalf of IQ," and refused to consent when co-manager Baral asserted his "rights as a co-managing member." The SAC requested that the court order Moss Adams to reopen the investigation and to consider additional information. The dispute regarding the Moss Adams audit was between IQ's co-managers Baral and Schnitt. Baral filed this lawsuit against Schnitt over business disputes based on Schnitt's actions as co-manager of IQ, including Schnitt's hiring of Moss Adams and his refusal to accede to co-manager Baral's demand to withdraw the Moss Adams report and to allow Baral to submit additional information. None of the Moss-Adams allegations has anything to do with actions Schnitt undertook in a purely personal capacity. Schnitt is not a third party uninvolved in the litigation; he is the only litigant and participant in the litigation beside Baral. The litigation privilege covers the Moss-Adams allegations against Schnitt. II. The litigation privilege applies to all the Moss-Adams claims, including those regarding Schnitt's conduct after the completion of the audit.
Baral argues that the litigation privilege does not apply to Schnitt's noncommunicative conduct after the publication of the audit. We disagree.
"[I]f the gravamen of the action is communicative, the litigation privilege extends to noncommunicative acts that are necessarily related to the communicative conduct . . . . Stated another way, unless it is demonstrated that an independent, noncommunicative, wrongful act was the gravamen of the action, the litigation privilege applies." (Rusheen v. Cohen, supra, 37 Cal.4th at p. 1065.)
The gravamen of the claims in the SAC regarding the Moss Adams audit was Schnitt's solicitation of the audit and the completion of the investigative report, which are communicative acts. Schnitt's subsequent actions in refusing to withdraw the audit, reopen the investigation, and consent to Baral's submission of additional information, are necessarily related to the communicative conduct of publishing the audit. The litigation privilege thus extends to Schnitt's conduct after the publication of the Moss Adams audit. III. Schnitt's entitlement to attorney fees is for the trial court to decide in the first instance.
Section 425.16, subdivision (c)(1) provides: "a prevailing defendant on a special motion to strike shall be entitled to recover his or her attorney's fees and costs." Baral argues that if we reverse the trial court order denying Schnitt's anti-SLAPP motion, we should also order that Schnitt is not entitled to recover his attorney fees in connection with his successful motion. Baral describes the impact of granting Schnitt's anti-SLAPP motion as minimal and without practical effect, so that Schnitt is not a prevailing party.
Baral's contention regarding attorney fees under the statute is for the trial court to decide in the first instance. "The determination whether a party prevailed on an anti-SLAPP motion lies within the broad discretion of the trial court." (Mann v. Quality Old Time Service, Inc. (2006) 139 Cal.App.4th 328, 340.)
DISPOSITION
The order is reversed. David Schnitt is awarded his costs on appeal.
NOT TO BE PUBLISHED.
JOHNSON, J. We concur:
CHANEY, Acting P. J.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------