Opinion
G053609
11-28-2017
JOSEPH G. CUSTER, Plaintiff and Respondent, v. STEVEN PIXLEY et al., Defendants and Appellants.
Greenberg Gross, Michael I. Katz and Michael E. Lopez for Defendants and Appellants. Gordon & Rees and Charles S. Custer; and Don Willenburg for Plaintiff 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2015-00789512) OPINION Appeal from an order of the Superior Court of Orange County, James E. Loveder, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed. Greenberg Gross, Michael I. Katz and Michael E. Lopez for Defendants and Appellants. Gordon & Rees and Charles S. Custer; and Don Willenburg for Plaintiff and Respondent.
* * *
Defendants Steven Pixley, Kurt Riegelman, David Herman, and Jonathan Kim appeal from the trial court's order denying their motion to strike plaintiff Joseph G. Custer's complaint under the anti-SLAPP statute, Code of Civil Procedure, section 425.16 (all statutory references are to this code unless noted). Defendants comprise the board of directors of a private company, Autocrib, in which Custer owns substantial stock. Custer sued the defendants for conversion, misrepresentation, and other causes of action in which he alleged they wrongfully cancelled his shares in the company by a directors' vote, issuing him new shares that he claims improperly reduced his Autocrib ownership percentage. Defendants argue their votes constitute communicative conduct and therefore fall within the anti-SLAPP statute's protection. But as we explain, Custer's claims do not "arise from" constitutionally protected free speech or the right to petition for the redress of grievances, but rather from defendants' actions as directors of a private corporate board, and therefore the anti-SLAPP statute is not implicated. We therefore affirm the trial court's order denying defendants' motion.
I
FACTUAL AND PROCEDURAL BACKGROUND
An earlier dispute involving a different company, Machine Tool Supply (MTS), resulted in a settlement agreement in October 2012 that Custer, Pixley, and MTS signed. Part of the agreement called for Custer to sell a portion of his Autocrib shares back to Autocrib, so Autocrib also signed the agreement. But after the settlement, a dispute arose over the proper determination of Custer's "'remaining share percentage'" in Autocrib, so the parties turned to private arbitration under the terms of their settlement agreement, and a private arbitrator heard and resolved their claims. As the trial court in this proceeding later described it, the arbitrator concluded Custer's ownership interest in Autocrib was "'no less than 11.44 [percent].'"
This formulation apparently engendered more confusion. The details ultimately are not important on appeal, but it appears Autocrib believed Custer's ownership share in the company was to remain a constant 11.44 percent even after Autocrib reduced the overall number of shares issued in the company, while Custer believed that, with the reduction, his ownership percentage would increase to about 14.3 percent. Also unclear in determining the correct percentage is the proper role of Autocrib's repurchase of some of Custer's shares. And more confusingly, it appears the parties' respective grasp of Autocrib's ownership picture may have shifted back and forth over time. For example, the parties' appellate briefing suggests Custer sometimes stated he held an 11.44 percent stake in the company, while Autocrib in December 2012 issued to Custer a share certificate for 11,440 shares, which, in light of the reduced number of overall issued shares, was consistent with Custer's understanding he owned more than 11.44 percent of the company, and contrary to Autocrib's understanding he owned only that percentage.
To complicate matters further, Autocrib in the spring of 2013 conducted a "capital call" in which it issued additional shares, reserving 11.44 percent of those shares for Custer, but the question arose whether he was entitled instead to a higher percentage to maintain his ownership percentage interest.
The parties returned to arbitration to resolve their disputes, and the arbitrator issued an arbitration award in May 2014. On June 17, 2014, Autocrib filed a petition in the superior court to confirm the arbitration award. Eight days later, on June 25, 2017, defendants held a board meeting at which they voted to cancel Custer's existing Autocrib share certificates and to issue him new certificates reflecting an 11.44 percent ownership share in the company.
A later minute order entered by the trial court described Custer's response to this turn of events. "[Custer]'s attorney sought clarification from Justice Sonenshine — contending that her award did not justify the actions taken by Autocrib in canceling [Custer]'s shares. [Defendant's attorney], who previously represented Autocrib in the arbitration before Justice Sonenshine, and now represents the moving defendants, responded to the request for clarification as follows: [¶] 'As much as we enjoy serially re-litigating these issues before Your Honor, there is finality in this matter as it relates to these provisions. Mr. Custer's recourse, if he has any complaint, is to file an action in the court system.'"
As recounted by the trial court, "[Custer] responded by filing this action against Autocrib's directors for (1) conversion; (2) breach of fiduciary duty; (3) concert of action for conversion; (4) intentional misrepresentation; (5) negligent misrepresentation; (6) violation of Penal Code § 496 [receiving stolen property]; and (7) declaratory relief. The 1st, 3rd, and 6th causes of action allege defendants converted and stole plaintiff's shares of Auto[c]rib when it canceled his shares. The 4th and 5th causes of action allege defendant Pixley made misrepresentations about the status of Autocrib in connection with a 'capital call' which caused plaintiff to decline to participate in the 'capital call.' The 2nd cause of action for breach of fiduciary duty is based upon both the cancellation of shares and the misrepresentations regarding the capital call. The 7th cause of action for declaratory relief alleges defendants have wrongly denied plaintiff access to corporate records to which he is entitled under the by-laws."
Meanwhile, the arbitrator issued an amended arbitration award in August 2014. The initial award and amended award included a provision stating that "Custer's percentage share of ownership of Auto[c]rib stock can never be less than 11.44 [percent] of the 100,000 authorized shares. It can however, depending on the number of issued shares, be greater." (Footnote omitted.) The parties continued to debate what this meant for Custer's effective ownership percentage in Autocrib, including for control of the company and to determine Custer's reserved shares in the capital call under the original settlement agreement's "anti-dilution" provision protecting Custer's ownership percentage.
Defendants filed a petition to compel arbitration of Custer's claims in his pending lawsuit, which the trial court denied. Defendants appealed, but then dismissed their appeal, apparently after the arbitrator may have concluded in a related proceeding that she had no jurisdiction of the dispute.
Defendants filed a demurrer to the complaint and a motion to strike the lawsuit under the anti-SLAPP statute. Defendants based the motion on their claim that they conducted the board vote in connection with the arbitrator's ruling, a proceeding they asserted triggered anti-SLAPP protection. The trial court overruled the demurrer and denied the motion.
The court explained its ruling rejecting defendants' anti-SLAPP motion in a detailed minute order: "The conduct at issue does not constitute protected activity under CCP 425.16(e). The 4th and 5th causes of action for misrepresentation are based on representations regarding the value of the stock which were made before the underlying arbitration was even instituted. They were not statements or writings 'made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law . . . .' (CCP 425.16(e)(2)." The court similarly explained as to the other causes of action: "The 1st and 3rd causes of action for conversion, the 2nd cause of action for breach of fiduciary duty, and the 6th cause of action for violation of Penal Code § 496 also do not arise from protected activity. Defendants['] act of rescinding plaintiff's stock was not a statement or writing made in connection with a judicial proceeding. Defendants did not use any judicial process to take this action. The arbitration award did not order defendants to take this action. And, the actions at-issue went beyond statements as defendants took away stock."
In particular, citing Century 21 Chamberlain & Associates v. Haberman (2009) 173 Cal.App.4th 1, 8-9 (Century 21), the trial court explained, "'Arbitration is a contractual proceeding that provides a private alternative to the judicial forum. . . . Arbitration is not a judicial proceeding triggering anti-SLAPP protection. Nor is arbitration an "official proceeding authorized by law," subject to anti-SLAPP protection.'"
II
DISCUSSION
An order denying an anti-SLAPP special motion to strike is an appealable order that we review de novo. (Chambers v. Miller (2006) 140 Cal.App.4th 821, 824.)
Defendants contend the anti-SLAPP statute required the trial court to strike Custer's lawsuit because "a judicial proceeding in the Orange County Superior [was] pending at the time of [their] vote." They describe their board vote as quintessentially communicative conduct that was related to litigation activity, specifically the pending motion to confirm the arbitrator's award. As we explain, however, the moving party defendant in an anti-SLAPP proceeding must show the protected petitioning activity is the gravamen or principal thrust of the plaintiff's claims. (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 77-78 (City of Cotati).) It is not enough that the plaintiff's causes of action were filed after petitioning activity occurred or that the claims relate to petitioning activity; the petitioning activity must give rise to and be the basis for the asserted liability. (Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, 1537 (Kolar); Freeman v. Schack (2007) 154 Cal.App.4th 719, 729 (Freeman).) Defendants do not meet that burden here.
The anti-SLAPP statute authorizes a special motion to strike any cause of action arising from the exercise of petition or free speech rights: "A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." (§ 425.16, subd. (b)(1).)
"'[S]ection 425.16 requires that a court engage in a two-step process when determining whether a defendant's anti-SLAPP motion 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.]" (Episcopal Church Cases (2009) 45 Cal.4th 467, 477.) If the moving party fails to meet its initial burden, the court does not proceed to the second prong. (Clark v. Mazgani (2009) 170 Cal.App.4th 1281, 1286 (Clark); see Freeman, supra, 154 Cal.App.4th at p. 733 ["'merits based arguments have no place in our threshold analysis of whether plaintiffs' causes of action arise from protected activity. Where [the defendant] cannot meet his threshold showing, the fact he 'might be able to otherwise prevail on the merits under the "probability" step is irrelevant'"].)
Defendants do not suggest their asserted speech act in casting a vote at a private company's board meeting occurred "in connection with a public issue" within the meaning of the anti-SLAPP statute. (§ 425.16, subd. (b)(1).) Instead, they argue the statute required the trial court to dismiss Custer's lawsuit because it consisted solely of "cause[s] of action . . . arising from an[] act . . . in furtherance of the . . . right of petition" (ibid.), namely, Autocrib's act of filing a petition in the superior court to confirm the arbitration award. "'[S]tatements, writings and pleadings in connection with civil litigation are covered by the anti-SLAPP statute, and that statute does not require any showing that the litigated matter concerns a matter of public interest.'" (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1261.)
The "'arising from' requirement is not always easily met." (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66.) The requirement can only be satisfied by showing "the defendant's conduct by which plaintiff claims to have been injured falls within one of the four categories described in [section 425.16,] subdivision (e)." (Equilon Enterprises, at p. 66.) That subdivision defines the phrase "'act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue'" to include "(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest." (§ 425.16, subd. (e).)
"'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.) "[C]ourts have adopted 'a fairly expansive view of what constitutes litigation-related activities within the scope of section 425.16.' [Citation.]" (Kolar, supra, 145 Cal.App.4th at p. 1537.) "The anti-SLAPP protection for petitioning activities applies not only to the filing of lawsuits, but extends to conduct that relates to such litigation, including statements made in connection with or in preparation of litigation." (Ibid.) It does not follow, however, that all claims associated with or related to those activities are subject to the anti-SLAPP statute. (Ibid.; Freeman, supra, 154 Cal.App.4th at p. 729.)
"It 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, supra, Cal.App.4th at p. 727.) "We assess the principal thrust by identifying '[t]he allegedly wrongful and injury-producing conduct . . . that provides the foundation for the claim.' [Citation.]" (Hylton v. Frank E. Rogozienski, Inc. (2009) 177 Cal.App.4th 1264, 1272 (Hylton).)
For example, in Clark, the Court of Appeal explained a tenant's fraudulent eviction claim did not "'arise from'" the landlord's protected petitioning activity even though the landlord's successful unlawful detainer action triggered the tenant's lawsuit: "[The landlord] was not sued for exercising constitutional rights. She was sued to compel compliance with the provisions of the [local rent control ordinance]. [The tenant's] suit was unquestionably 'triggered by' [the landlord's] statements and the documents she filed in connection with the unlawful detainer. But the suit is not based on those statements or filings. It is based on [the tenant's] claim that [the landlord] fraudulently invoked the family occupancy exemption of the [local rent control ordinance] to effect [the tenant's] eviction, and failed to fulfill her obligations under that ordinance to install her daughter in the apartment or to pay [the tenant's] relocation expenses. [The landlord's] eviction notices and the unlawful detainer action are merely cited as evidence and background to illustrate [the landlord's] subsequent violation of the [local rent control ordinance] and Civil Code section 1947.10, subdivision (a)." (Clark, supra, 170 Cal.App.4th at pp. 1289-1290; see also Marlin v. Aimco Venezia, LLC (2007) 154 Cal.App.4th 154, 160-161.)
Similarly, in State Farm General Ins. Co. v. Majorino (2002) 99 Cal.App.4th 974 (State Farm), the Court of Appeal explained an insurer's declaratory relief action did not "'arise from'" the underlying personal injury action even though it sought a declaration regarding the insurer's duty to defend its insured in the personal injury action: "[The injured party's] personal injury suit against the [insureds] did trigger the chain of events that caused [the insurer] to seek a judicial declaration of its coverage obligations. And the nature of the claims in the underlying personal injury case frames the scope of coverage under the [the insurer's] policy. But the action for declaratory relief arose from the tender of defense and the terms of an insurance policy . . . , not from the litigation process itself." (Id. at p. 977.)
As defendants point out, a petition to confirm an arbitration award "is in the nature of a complaint in a civil action." (Walter v. National Indem. Co. (1970) 3 Cal.App.3d 630, 634.) But the principal thrust or gravamen of Custer's lawsuit did not derive from Autocrib filing its petition in the superior court to confirm the arbitration award. True, Custer's lawsuit followed Autocrib's petition chronologically, postdating it by about 11 months. Nevertheless, "'[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 . . . .' [Citation.]" (Episcopal Church Cases, supra, 45 Cal.4th at p. 477.) Indeed, as illustrated by the Clark and State Farm cases discussed above, "[a] cause of action may be 'triggered by' or associated with a protected act, but it does not necessarily mean the cause of action arises from that act." (Kolar, supra, 145 Cal.App.4th at p. 1537.)
"'"[T]he [anti-SLAPP] statute's definitional focus is . . . [whether] the defendant's activity giving rise to his or her asserted liability . . . constitutes protected speech or petitioning. [Citation.]" . . .' [Citation.]" (Kolar, supra, 145 Cal.App.4th at p. 1538.) "[T]he statutory phrase 'cause of action ... arising from' means simply that 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. [Citation.] In the anti-SLAPP context, the critical point is whether the plaintiff's cause of action itself was based on an act in furtherance of the defendant's right of petition or free speech." (City of Cotati, supra, 29 Cal.4th at p. 78.)
Here, defendants' petition to confirm the arbitration award did not give rise to their asserted liability. Custer did not base any of his causes of action on the petition, nor did filing the petition constitute the "'[a]llegedly wrongful and injury-producing conduct . . . provid[ing] the foundation'" (Hylton, supra, 177 Cal.App.4th at p. 1272) for Custer's claims. Rather, the gravamen of Custer's complaint was defendants' vote to cancel his existing Autocrib shares and to issue new shares reducing his ownership percentage in the company. As the trial court correctly explained, defendants' "act of rescinding plaintiff's stock was not a statement or writing made in connection with a judicial proceeding. Defendants did not use [or rely on] any judicial process to take this action." Similarly, Custer based his misrepresentation claims on statements made regarding the capital call, which as the court correctly observed, had no "connection with a judicial proceeding" and occurred well before "the underlying arbitration was even instituted." Nothing suggests Pixley made his alleged misrepresentations, or that Autocrib or its board members undertook the board vote reducing Custer's shares "in connection with or in preparation of litigation." (Kolar, supra, 145 Cal.App.4th at p. 1537.)
At best, the record suggests the board vote bore some relation to the arbitration proceedings, as an attempt to effectuate Autocrib's understanding of the arbitrator's ruling. But on appeal, defendants do not address the trial court's central holding in its ruling denying their anti-SLAPP petition: "'Arbitration is not a judicial proceeding triggering anti-SLAPP protection. Nor is arbitration an "official proceeding authorized by law," subject to anti-SLAPP protection.'" (Quoting Century 21, supra, 173 Cal.App.4th at pp. 8-9.)
As Custer points out, ample authority supports the court's ruling. "Arbitration claims . . . are not filed in courts and they do not initiate judicial proceedings." (Sheppard v. Lightpost Museum Fund (2006) 146 Cal.App.4th 315, 323.) Instead, "arbitration agreements . . . represent an agreement to avoid the judicial forum altogether." (Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 955.) "Nor is arbitration an 'official proceeding authorized by law,' subject to anti-SLAPP protection." (Century 21, supra, 173 Cal.App.4th at p. 9.) When parties submit their disputes to arbitration, they select a forum "that is alternative to, and independent of, the judicial . . . forum." (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 714.) Nothing in the record or appellant's appeal suggest the underlying arbitration here was court-annexed or otherwise ordered as part of ongoing judicial proceedings.
Defendants ignore a basic tenet on appeal: we must presume the trial court's rulings are correct, unless and until the appellant demonstrates error. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566; see Fladeboe v. American Isuzu Motors, Inc. (2007) 150 Cal.App.4th 42, 58 [fundamental principles of appellate review include: "(1) a judgment is presumed correct; (2) all intendments and presumptions are indulged in favor of correctness; and (3) the appellant bears the burden of providing an adequate record affirmatively proving error"].) Defendants simply state in a footnote on page 40 of their opening brief that they "do not concede that arbitrations are not 'judicial' per se for purposes of the anti-SLAPP statute[], and reserve the right to challenge that position on Reply, if appropriate." As it is the appellant's burden to demonstrate error, arguments presented for the first time in a reply brief are forfeited. (Nolte v. Cedars-Sinai Medical Center (236 Cal.App.4th 1401, 1410.) Defendants present no basis to overturn the trial court's ruling.
III
DISPOSITION
The trial court's order denying defendants' anti-SLAPP motion is affirmed. Custer is entitled to his costs on appeal.
ARONSON, J. WE CONCUR: MOORE, ACTING P. J. THOMPSON, J.