Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC405014 Amy D. Hogue, Judge. Affirmed.
Rus, Miliband & Smith, Ronald Rus, Joel S. Miliband, and M. Peter Crinella for Defendants and Appellants.
Hillel Chodos and Jonathan P. Chodos for Plaintiffs and Respondents.
MALLANO, P. J.
This is an action by plaintiffs Allen Davis (Davis) and two of the companies he founded against his adult children and their spouses for breach of fiduciary duty arising out of defendants’ alleged wrongful transfer of the assets and stock of certain companies to themselves. The trial court denied defendants’ special motion to strike (Code Civ. Proc., § 425.16) on the ground that the action was not based on acts in furtherance of defendants’ rights of petition or free speech, notwithstanding allegations in the complaint that defendants made false allegations about Davis in a prior conservatorship proceeding involving Davis’s wife, now deceased. We affirm the order because the trial court correctly determined that the gravamen or principal thrust of the action was not activity protected by Code of Civil Procedure section 425.16.
Unspecified statutory references are to the Code of Civil Procedure. Section 425.16 is commonly referred to as the anti-SLAPP (strategic lawsuit against public participation) statute. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 268, fn. 1.)
BACKGROUND
“The anti-SLAPP statute was enacted in 1992 for the purpose of providing an efficient procedural mechanism to obtain an early and inexpensive dismissal of nonmeritorious claims ‘arising from any act’ of the defendant ‘in furtherance of the person’s right of petition or free speech under the United States or California Constitution in connection with a public issue....’ [Citation.]” (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 186 (Martinez).) “The anti-SLAPP law involves a two-step process for determining whether a claim is subject to being stricken. In the first step, the moving defendant is required to make a prima facie showing the plaintiff’s action is subject to section 425.16, by showing the defendant’s challenged acts were taken in furtherance of constitutional rights of petition or free speech in connection with a public issue, as defined by the statute.” (Wang v. Wal-Mart Real Estate Business Trust (2007) 153 Cal.App.4th 790, 800.) Once the defendant meets that burden, the burden shifts to the plaintiff to demonstrate the probability that he will prevail on the claim. (Freeman v. Schack (2007) 154 Cal.App.4th 719, 726 (Freeman).)
“The preliminary inquiry in an action like that before us is to determine exactly what act of the defendant is being challenged by the plaintiff. In doing so we review primarily the complaint, but also papers filed in opposition to the motion to the extent that they might give meaning to the words in the complaint. [Citations.]” (Dible v. Haight Ashbury Free Clinics, Inc. (2009) 170 Cal.App.4th 843, 849.) Our review of this issue is de novo. (Id. at p. 847.) Moreover, “merits based arguments have no place in our threshold analysis of whether plaintiff’s causes of action arise from protected activity.” (Freeman, supra, 154 Cal.App.4th at p. 733.)
Thus, to determine whether defendants made a threshold showing that plaintiffs’ claims arise from protected activity, we look to the allegations of the complaint, including clarifying information supplied by plaintiffs’ declarations filed in opposition to the motion. They relate the following:
Davis founded several successful companies involved in making equipment used in aerospace and other industries, including plaintiff Hydra-Electric Company (Hydra), focused on aerospace technology, and defendants Custom Control Sensors, Inc. (Custom) and Custom Control Sensors International (Custom International). Davis also founded plaintiff Davis Industries (DI), a Nevada corporation. DI owns Hydra, Custom, and Custom International. Beginning in the 1950’s, Davis grew the companies into substantial operations with tens of millions of dollars in annual revenue, hundreds of employees, and extensive real estate holdings. Davis, now in his mid-80’s, continues to work at the Custom and Hydra offices and is an officer or director or both of DI, Hydra, Custom, and Custom International.
Davis’s daughter, Joann Acuff (Joann), a certified public accountant, was an officer and a director of Hydra for many years until her resignation in December 2008. Joann remains as an officer and a director of Custom and Custom International. Joann’s husband, Henry Acuff (Henry), was president and a director of Hydra for many years until his resignation in December 2008, but he remains an officer and a director of Custom and Custom International. Joann and Henry placed most of their assets into a trust, the Acuff Trust, which they control. Joann also controls all of the financial affairs of her brother, Edward Davis (Edward), and Edward’s wife, Melinda Davis (Melinda), through their trusts, the Edward Trusts.
As Davis’s daughter and son-in-law respectively, Joann and Henry had a special relationship with Davis, who reposed complete trust and confidence in them. For many years, Joann has used her position of trust and confidence with Davis to assist him, Hydra, Custom, and Custom International with various legal and financial matters. Beginning in the mid-1970’s, Joann routinely instructed Davis to sign documents with the assurance that the documents were for his benefit, and he signed the documents without substantial scrutiny. Among the documents he signed were instruments transferring common shares of stock of DI, Hydra, Custom and Custom International to Joann, Henry, Edward, and Melinda. Davis’s children and their spouses together now own all of the common shares of stock of DI, leaving Davis with all of the preferred shares, representing 91 percent of the voting power of the company. Although the common shares represent approximately 9 percent of the voting power of DI, Joann claimed that in the event of a dissolution or winding up of DI, over 90 percent of the assets of DI would go to Davis’s children and their spouses and not to Davis, by virtue of documents prepared at Joann’s direction and presented to Davis for signature.
As a result of other transactions, Joann and Henry own two-thirds of the voting and equity shares of Custom and Custom International; Davis owns only one-third of the shares of Custom and Custom International.
In each case, Davis was assured that the documents he was being asked to sign were for his benefit and in his best interests. But the true significance of these transactions and documents was not explained to Davis until recently, when he learned of it from others.
About three years before January 2009, Davis expressed his intention to bequeath some of his remaining assets to charitable institutions as he had already provided for his children and their spouses. After Davis expressed those intentions, Joann and Henry became increasingly rude and disrespectful to him, exercising their majority control of the companies to overrule Davis’s business decisions, remove Davis from various controlling positions with the companies, hire employees of whom Davis disapproved, and generally exclude him from control of the companies. Because of interference by Joann and Henry with his business affairs, Davis hired independent advisors to audit his companies’ documents and assets. As a result of the audit, Davis discovered that his children and their spouses were engaged in a complex scheme designed to take advantage of his trust and confidence in them by depriving Davis and his late wife of the ownership and control of their assets.
According to Davis, the scheme involved Davis’s transfer of valuable property to Joann, Henry, Edward and Melinda (collectively referred to as defendants) without any consideration or sham consideration. Defendants caused millions of dollars to be distributed from DI, Hydra, Custom, and Custom International to themselves or their respective trusts. Defendants also engaged in transactions with the companies that were not properly approved by the boards of directors and engaged in self-dealing, all to the detriment of the companies and their shareholders, including Davis.
Part of defendants’ scheme involved a conservatorship petition filed by Joann in the superior court in September 2008, seeking to have herself appointed as conservator of the person and estate of Davis’s wife of over 60 years, Lenabelle. Joann alleged that Davis was not taking proper care Lenabelle, who had suffered a stroke in 2002. Joann also alleged that Lenabelle lacked the capacity to dispose of her estate and that Davis presented documents for Lenabelle’s signature which substantially changed the terms of a comprehensive estate plan established over 30 years ago. According to Davis, the allegations were false because he was providing his wife with full medical care, nursing care around the clock, and nearly all of his personal attention, and Joann’s true purpose in bringing the conservatorship proceeding was to gain control of the assets and affairs of Davis and Lenabelle. But on December 21, 2008, the conservatorship proceeding abated with Lenabelle’s death. In the course of the conservatorship proceeding, Davis learned that his children and their spouses had planned the proceeding for over a year. Davis also learned that in February 2008, Edward and Melinda, under the guise of bringing Lenabelle to their home for a family visit, took Lenabelle for an examination by an expert psychiatrist hired by their litigation counsel to assess her alleged incompetence and lack of capacity.
The instant complaint was filed in January 2009. In the first cause of action labeled breach of fiduciary duty and imposition of a constructive trust brought by DI and Hydra, plaintiffs alleged that defendants caused Hydra to distribute $2 million to DI, which then distributed half of that amount to Joann and Henry and the other half to Edward for the benefit of Edward and Melinda. DI, purportedly as dividends, distributed only “a token amount of $67,000” to Davis. The distributions were not in the best interests of Hydra or its shareholders and were in violation of the fiduciary duties owed by defendants to Davis, DI, and Hydra.
Plaintiffs brought an earlier action in the Los Angeles Superior Court in June 2008 (Davis v. Acuff (BC393387)), but defendants were successful in changing the venue to Orange County. In January 2009, plaintiffs dismissed the action in Orange County and filed the instant action in the Los Angeles Superior Court. According to defendants, the instant action added Edward and Melinda Davis as defendants, as well as the allegations pertaining to the conservatorship proceeding.
A second cause of action, also labeled breach of fiduciary duty, is asserted by Hydra against Henry (Hydra’s president) and Joann (on Hydra’s board of directors) for improperly causing Hydra to pay Henry a quarterly bonus of $75,000, resulting in a bonus of $300,000 per year above his regular salary and benefits. Hydra alleged that Henry’s job performance at Hydra did not warrant the award of such a bonus and violated Henry’s and Joann’s fiduciary duties.
A third cause of action by Hydra against Henry and Joann alleged that they breached their fiduciary duties by engaging in self-dealing. Henry and Joann personally bought manufacturing equipment and then leased it to Hydra on terms favorable to them and unfavorable to Hydra, when Hydra could easily have afforded to purchase the equipment itself. A fifth cause of action was brought by Davis against defendants for improper withdrawal of cash from Custom and Custom International. Davis alleged that over his objections Henry and Joann caused Custom and Custom International to pay a total of approximately $6.9 million in distributions or dividends to its shareholders in April and December 2008. One-third of each distribution was paid to Henry and Joan or their trust; one-third was paid to Edward and Melinda or their trusts; and one-third was paid to Davis. Such distributions rendered Custom and Custom International unable to pay the royalties and license fees owed to Davis and were improper and a violation of defendants’ fiduciary duties.
The fourth cause of action is not at issue here because it was brought against Custom and Custom International, neither of whom brought the special motion to strike.
A sixth cause of action by Davis against defendants for breach of fiduciary duty seeks to rescind all transfers of shares or interests in DI to them and to impose a constructive trust as to such shares on the ground that they obtained their shares through violations of their fiduciary duties.
Defendants filed a special motion to strike the foregoing causes of action on the ground that they are based on acts in furtherance of their rights of petition and free speech and that plaintiffs cannot establish a probability of prevailing on their claims at trial. Defendants asserted that the filing of a conservatorship proceeding and arranging an expert medical examination in connection with that proceeding form the basis of plaintiffs’ claims and are protected actions under section 425.16 and not merely incidental to plaintiffs’ allegations of nonprotected actions. Defendants also argued that Edward was brought into the action to justify filing it in Los Angeles County and Edward’s “only connection is with respect to the conservatorship.”
In opposition, plaintiffs maintained that the claims are based on wrongful conduct of defendants in breaching fiduciary duties and the complaint’s “passing references” to the conservatorship action do not bring the claims within the anti-SLAPP statute. They elaborate that “the principal purpose of plaintiffs’ references to the conservatorship proceeding is to explain why and how they learned certain information about the motivation and activities of the defendants only after the conservatorship petition was filed and served in September of 2008.... [¶]... It was of course relevant for plaintiffs to make these allegations of late discovery in order to explain why their assertions in the present action were different from those in [Davis’s earlier action].”
After argument, the court denied the motion, stating that it “cannot conclude that the gravamen of the case is the filing of the conservatorship [petition],” and it was “just one act in this long series of allegedly conspiratorial actions.” Defendants appealed from the order denying their special motion to strike.
DISCUSSION
Notwithstanding that filing the conservatorship proceeding and undertaking an expert medical examination in contemplation of that proceeding are protected activities, because these actions do not form the gravamen or principal thrust of plaintiffs’ lawsuit, the complaint is not subject to the anti-SLAPP statute.
An act in furtherance of the right to petition includes “any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law” (§ 425.16, subd. (e)(1)), and “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” (id., subd. (e)(4)).
“Our Supreme Court has recognized that the anti-SLAPP statute should be broadly construed [citation], and a plaintiff cannot avoid operation of the anti-SLAPP statute by attempting, through artifices of pleading, to characterize an action as a ‘garden variety breach of contract [or] fraud claim’ when in fact the liability claim is based on protected speech or conduct. [Citation.]” (Martinez, supra, 113 Cal.App.4th at p. 187.) “Conversely, a defendant in an ordinary private dispute cannot take advantage of the anti-SLAPP statute simply because the complaint contains some references to speech or petitioning activity by the defendant. [Citation.] We conclude 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.” (Id. at p. 188.) Accordingly, the gravamen or principal thrust of the claim is “[t]he allegedly wrongful and injury-producing conduct... that provides the foundation for the claim.” (Id. at p. 189.)
Martinez was cited with approval and its “gravamen or principal thrust” test was expressly adopted by our Supreme Court in Episcopal Church Cases (2009) 45 Cal.4th 467, involving an internal church dispute about ownership of property. “The property dispute is based on the fact that both sides claim ownership of the same property. This dispute, and not any protected activity, is ‘the gravamen or principal thrust’ of the action. [Citation.] The additional fact that protected activity [a doctrinal dispute] may lurk in the background — and may explain why the rift between the parties arose in the first place — does not transform a property dispute into a SLAPP suit....” (Id. at pp. 477–478.)
Here, the alleged wrongful and injury-causing conduct by defendants that provides the foundation for plaintiffs’ claims of breach of fiduciary duty involve the defendants’ transfers of plaintiffs’ property and assets to themselves. The complaint does not allege that the conservatorship proceeding caused plaintiffs any harm and does not seek damages on account of that proceeding. As admitted by plaintiffs, the conservatorship proceedings were mentioned in the complaint to explain Davis’s late discovery of his claims, the involvement of Edward and Melinda, and the extent and scope of the alleged scheme to obtain ownership and control of plaintiffs’ assets.
Defendants misplace reliance on Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658 (Peregrine Funding) and Salma v. Capon (2008) 161 Cal.App.4th 1275 (Salma). In Peregrine Funding, investors in a corporation that had declared bankruptcy and the bankruptcy trustee alleged they sustained investment losses arising out of a Ponzi scheme disguised as a mortgage lending business. The investors and the trustee sued the law firm which had represented the corporation and its officers for aiding and abetting a breach of fiduciary duty. In reversing an order denying the law firm’s special motion to strike, Division Three of the First District Court of Appeal analyzed the allegations of the complaint and concluded that the actions of the law firm which helped its clients recruit investors and avoid the notice of securities regulators for a time constituted “garden variety transactional malpractice, which typically does not trigger the protections of section 425.16.” (Peregrine Funding, supra, 133 Cal.App.4th at p. 670.) But the investors also alleged that the law firm breached its fiduciary duties to the corporation and its investors by stalling the progress of the SEC’s investigation and lawsuit, which enabled the scheme’s perpetrators to solicit and steal more money from investors. (Id. at p. 671.) The court reasoned that “[a]lthough the overarching thrust of plaintiffs’ claims may be that Sheppard’s conduct helped advance the Ponzi scheme — to their detriment — some of the specific conduct complained of involves positions the firm took in court, or in anticipation of litigation with the SEC. We cannot conclude these allegations of classic petitioning activity are merely incidental or collateral to plaintiffs’ claims against Sheppard. The complaint alleges plaintiffs suffered substantial losses due to Sheppard’s conduct in delaying resolution of the SEC investigation and lawsuit and its legal strategies opposing early provisional relief.” (Id. at p. 673.)
Salma involved an ownership dispute between a buyer (Salma) and a seller (Capon) of real property. The Court of Appeal held that a cause of action in Salma’s cross-complaint for intentional interference with prospective economic advantage was based on conduct protected by section 425.16. Four of the five alleged instances of conduct involved writings made in a judicial proceeding or communications seeking official investigations (filing of a lis pendens, filing of a notice of rescission, naming Salma’s lenders as defendants in the complaint, and contacting municipal and police departments); one instance of conduct, Capon’s trespassing on the property by moving back into the home, was unprotected. (Salma, supra, 161 Cal.App.4th at pp. 1285–1286, 1287.) The court explained that the allegations of protected conduct were not merely incidental to the allegations of unprotected conduct; rather, they represented the bulk of the underlying allegations. Further, the nature of the harm caused by the protected conduct was different than the harm caused by the unprotected conduct: Capon’s suit against Salma’s lenders exposed Salma to liability to defend and indemnify the lenders, while Capon’s trespass impaired Salma’s ability to sell or finance the property. “Further, when we consider the potential impairment to Salma’s ability to sell or refinance the property, filing notices of rescission and lis pendens would provide greater notice of an ownership dispute to potential lenders or purchasers than would the unprotected conduct of Capon’s trespass, which only potentially gave rise to a duty of disclosure.” (Id. at p. 1288.)
Both Peregrine Funding and Salma involved protected conduct that allegedly caused injury. Here, there are no allegations that the protected conduct — the filing of the conservatorship proceeding and the expert medical examination of Lenabelle — caused the plaintiffs harm. The harm to plaintiffs is alleged to have been caused by defendants’ business activities. We thus conclude that the gravamen or principal thrust of the instant action is conduct not protected by section 425.16. Accordingly, the burden never shifted to plaintiffs to demonstrate a probability they would prevail on their claims. (Martinez, supra, 113 Cal.App.4th at p. 193.) We thus do not need to consider the latter issue. (California Back Specialists Medical Group v. Rand (2008) 160 Cal.App.4th 1032, 1037.)
DISPOSITION
The order is affirmed. Plaintiffs are entitled to their costs on appeal.
We concur: CHANEY, J., JOHNSON, J.