Opinion
A148573
09-25-2017
SADEGH S. PANAHI as Trustee etc., Plaintiff and Respondent, v. OAKLAND HOUSING INVESTORS, L.P., Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG15789691)
I. INTRODUCTION
Sadegh S. Panahi (Panahi) filed the underlying action on behalf of himself and the Sadegh S. Panahi Trust (the Panahi Trust), alleging causes of action for breach of contract and judicial foreclosure against Oakland Housing Investors, L.P. (OHI). This appeal is from an order denying OHI's special motion to strike two claims from Panahi's pleading pursuant to section 425.16 of the Code of Civil Procedure, California's anti-SLAPP statute (section 425.16). Our standard of review is de novo. (Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1035.)
Section 425.16 "provides a procedure for weeding out, at an early stage, meritless claims arising from protected [speech and petitioning] activity." (Baral v. Schnitt (2016) 1 Cal.5th 376, 384, italics omitted (Baral).) Resolving a section 425.16 motion involves two steps. "At the first step, the moving defendant bears the burden of identifying all allegations of protected activity, and the claims for relief supported by them. When relief is sought based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at this stage. If the court determines that relief is sought based on allegations arising from activity protected by the statute, the second step is reached. There, the burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated. The court, without resolving evidentiary conflicts, must determine whether the plaintiff's showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment. If not, the claim is stricken. Allegations of protected activity supporting the stricken claim are eliminated from the complaint, unless they also support a distinct claim on which the plaintiff has shown a probability of prevailing." (Baral, at p. 396.)
Section 425.16, subdivision (b)(1), states: "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."
In this case, we conclude that the trial court erred in part because one of the claims that OHI moved to strike arose from protected activity and Panahi failed to establish a probability of prevailing on that claim. However, we also find that the trial court did not err by denying the special motion to strike the second claim that OHI challenged because that claim did not arise out of activity protected by the anti-SLAPP law.
II. FACTUAL AND PROCEDURAL HISTORY
A. Background
In 2008, the Panahi Trust held an undivided 20.10 percent interest in real property located on 5th Street in Oakland (the property). The remaining interest in the property was held by an entity referred to as 1396 5th Street, LLC (the LLC). In February 2008, the Panahi Trust, LLC and OHI executed an agreement for OHI to purchase the property for $3.750 million. In November 2008, OHI executed a $1 million promissory note in favor of the Panahi Trust and LLC, which represented the unpaid balance of the purchase price of the property (the Promissory Note). The Promissory Note was secured by a deed of trust on the property.
Under the payment terms of the Promissory Note, OHI agreed to begin making annual payments to the Panahi Trust and LLC after it completed building a "multifamily affordable housing development" on the property. The formula for calculating those payments was based on a percentage of "Gross Revenue" that the parties anticipated OHI would receive as a result of its "ownership, operation and leasing" of the housing development.
The Promissory Note contained a subordination clause pursuant to which the Panahi Trust and LLC agreed "to subordinate the obligation represented in this Note and secured by the Deed of Trust to any and all future financing obtained by [OHI] in relation to the development, construction, and operation of a low-income apartment complex upon the Property and to execute any and all documents reasonably requested by [OHI] and any and all future lenders and investors to effectuate such subordination."
In November 2008, OHI also executed a separate agreement with Panahi in his individual capacity (the Consulting Agreement). Panahi agreed to provide consulting services to assist OHI in its efforts to secure a tax credit or equity investor for the project or some other entity to purchase the property from OHI. OHI agreed to pay Panahi a consulting fee of $125,000 within two business days of securing an investor or purchaser.
On May 21, 2012, OHI filed a complaint in Burlington County, New Jersey, against Panahi, the Panahi Trust and others (the New Jersey action). OHI alleged, among other things, that (1) the Panahi Trust breached the Promissory Note by refusing to subordinate its interests under that note to a loan that OHI secured from Citibank in 2011; and (2) Panahi breached the Consulting Agreement. On August 30, 2012, the New Jersey action was dismissed without prejudice.
Meanwhile, on June 20, 2012, Panahi filed a complaint for declaratory relief in Alameda County against OHI, Citibank and others (the declaratory relief action). Panahi alleged that OHI obtained financing for the housing development project in 2011, which (1) triggered an obligation to pay down 50 percent of the outstanding principal debt of the Promissory Note; and (2) created a dispute about the priority of the Panahi Trust's lien against the property. OHI filed a cross-complaint, alleging essentially the same claims alleged in the New Jersey action. On August 2, 2013, the declaratory relief action was dismissed without prejudice.
B. The Present Action
On October 15, 2015, Panahi filed the present action on behalf of himself and the Panahi Trust. In his operative first amended complaint (FAC), Panahi alleged additional facts about the events outlined above.
Regarding the 2008 sale of the property to OHI, Panahi alleged the following pertinent facts: The sale was "contingent" on OHI's promise to develop the property as a "senior mixed-use" housing project. However, OHI failed to develop the project as promised, ultimately abandoning it altogether. Furthermore, when the Panahi Trust agreed to subordinate the Promissory Note, it relied on promises by OHI that it would secure an appropriate construction loan and that no money would be paid to anyone upon closing of the sale. However, OHI broke both promises. Beyond that, the deed of trust securing the Promissory Note incorporated a fictitious deed of trust (FDOT), which required, among other things, that OHI (1) maintain the Oakland property in good condition; (2) obtain fire insurance that included the Panahi Trust as a named "loss-payee"; and (3) pay all sums due upon issuance of a notice of default by the Panahi Trust. OHI did not obtain fire insurance until 2011, and when it did it failed to name the Panahi Trust as a loss-payee. On June 14, 2012, a fire damaged the Oakland property. The insurance proceeds were used for purposes other than paying off the Promissory Note.
Regarding the New Jersey action that OHI filed in 2012, Panahi made three pertinent allegations. First, he alleged that the act of filing the New Jersey action violated the terms of the Promissory Note. Second, he alleged that the New Jersey court did not have jurisdiction to hear the case. Finally, regarding the merits of OHI's claims, Panahi alleged that he was not required to sign a new subordination agreement that was neither fair nor reasonable to the Panahi Trust, or to subordinate the Promissory Note to OHI's 2011 loans.
Panahi alleged the following pertinent facts about the declaratory relief action that he filed in Alameda County in June 2012: Panahi dismissed this action without prejudice pursuant to an agreement that (1) OHI would sell the property and pay all amounts due under the Promissory Note, deed of trust and Consulting Agreement; and (2) the parties would defer further legal action for a reasonable period while OHI sold the property. However, instead of attempting to sell the property, OHI allowed it to fall into disrepair.
Panahi incorporated these factual allegations into three distinct cause of action; the first cause of action alleged that OHI breached its contractual obligations to the Panahi Trust arising from the Promissory Note and deed of trust, the second cause of action was for breach of the Consulting Agreement OHI executed with Panahi as an individual, and the third cause of action was for judicial foreclosure.
The FAC's first cause of action is the subject of this appeal. Panahi alleged that OHI committed multiple breaches of the Promissory Note and deed of trust, including: "failing to develop" the low income housing project; filing a "frivolous" lawsuit in New Jersey; failing to name the Panahi Trust as an additional insured of the property; diverting fire insurance proceeds for purposes other than paying the Promissory Note; and failing to sell the property and pay off the outstanding obligations to Panahi and the Trust in exchange for Panahi's dismissal of the declaratory relief action.
C. The Special Motion to Strike
In March 2016, OHI filed a special motion to strike under section 425.16, subdivision (b)(1), challenging two of the claims incorporated into the FAC's first cause of action: (1) the claim that OHI breached the Promissory Note by filing the New Jersey action; and (2) the claim that OHI breached an agreement to sell the property in exchange for a dismissal of the declaratory relief action. OHI alleged that these claims arose out of activity protected by the anti-SLAPP law and that Panahi could not carry his burden of establishing a likelihood he would prevail on either claim.
On May 25, 2016, the superior court filed an order denying OHI's special motion to strike. The court found that OHI carried its burden of establishing that the anti-SLAPP statute applied because Panahi's first cause of action alleged that OHI was liable for filing the New Jersey action, which was protected activity. However, the court denied the motion under the second prong of the SLAPP test, finding that Panahi had demonstrated a probability of prevailing on his first cause of action for breach of contract by proving that OHI failed to name the Panahi Trust as a loss-payee in the property insurance policy as required by the FDOT.
In its order, the court separately addressed Panahi's claim that OHI breached its promise to sell the property in exchange for the dismissal of the declaratory relief action. The court observed that allegations regarding this claim alluded to a contract other than the Promissory Note, but the parties had failed to consider whether this claim should have been pleaded as a separate cause of action subject to a separate analysis under the anti-SLAPP law. Assuming these allegations should have been pleaded as a separate cause of action, the court denied OHI's motion to strike this claim because the alleged unlawful conduct—failing to perform a settlement agreement and/or failing to sell property—was not protected activity under section 425.16. Thus, the court found, OHI did not meet its initial burden under the first prong of the SLAPP test.
D. The General Motion to Strike
On May 25, 2016, the same day the special motion to strike was denied, the trial court filed an order granting in part and denying in part OHI's general motion to strike several allegations from the FAC. (Code Civ. Proc., § 435.) Two provisions of that order are pertinent here.
First, the court granted without leave to amend, a motion to strike allegations in the first cause of action that OHI breached the Promissory Note and deed of trust by filing the New Jersey action. The court reasoned that (1) Panahi failed to identify any contract provision that prevented OHI from filing that lawsuit; and (2) the act of filing a lawsuit is protected by the litigation privilege (Civ. Code, § 47, subd. (b)).
Second, the court struck allegations from the first cause of action that OHI breached an agreement to sell the property in exchange for a dismissal of the declaratory relief action, although it granted leave to amend this claim pursuant to the following directive: "The Trust is given leave to amend to allege a SEPARATE cause of action for breach of contract based on the alleged breach of an agreement to sell the property. The Trust must allege all of the elements of a cause of action for breach of contract including the Trust's performance or excuse for non-performance, Defendant's breach, and damages. [Citation.] The Trust must also allege whether the contract was written, oral, or implied by conduct. [Citation.]" (Original capitalization.)
E. Panahi's Motion to Dismiss this Appeal
On May 31, 2016, OHI filed a notice of appeal from the order denying its special motion to strike. On October 28, Panahi filed a motion to dismiss the appeal as moot, arguing that he had filed a second amended complaint that deleted all references to activity challenged in the anti-SLAPP motion and, therefore, even if the special motion to strike had merit, this court could no longer provide OHI with any relief.
On December 5, 2016, this court denied the motion to dismiss this appeal, stating: "Respondent's filing of a second amended complaint in the trial court after appellant sought review in this court cannot deprive appellant of the right to appellate review of the trial court's denial of the anti-SLAPP motion. (See Roberts v. Los Angeles County Bar Assn. (2003) 105 Cal.App.4th 604, 613; Hecimovich v. Encinal School Parent Teacher Organization (2012) 203 Cal.App.4th 450, 461.)"
In his respondent's brief, Panahi requests that we reconsider our ruling that this appeal is not moot. We deny that request.
III. DISCUSSION
A. The New Jersey Action
Panahi's claim that OHI breached the Promissory Note by filing the New Jersey action arises from activity protected by the anti-SLAPP statute. As noted, section 425.16, subdivision (b)(1) expressly applies to a cause of action arising from an act "in furtherance of the person's right of petition or free speech." Filing a lawsuit is just such an act. (See Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056 [" 'A cause of action "arising from" defendant's litigation activity may appropriately be the subject of a section 425.16 motion to strike. . . .' [Citation.]"]; Navellier v. Sletten (2002) 29 Cal.4th 82, 90 ["The constitutional right of petition encompasses ' " 'the basic act of filing litigation.' " ' [Citation.]") Accordingly, the burden shifted to Panahi to demonstrate a likelihood of succeeding on the merits of this claim. We conclude that Panahi failed to carry that burden for two independent but related reasons.
First, as a factual matter, the act of filing a lawsuit in New Jersey did not violate any term of the Promissory Note or deed of trust, copies of which are included in this record.
Panahi contends that filing the New Jersey action violated a California choice of law provision in the Promissory Note. In the trial court, Panahi mischaracterized this provision as a venue selection agreement. On appeal, he simply asserts that filing the New Jersey action was "contrary to a contractual provision stating that the Note and Deed of Trust must be interpreted under California law." We disagree. On its face, the choice of law provision does not constitute a promise not to file a complaint in New Jersey. Furthermore, the inclusion of a California choice of law provision in the Promissory Note is evidence the parties contemplated that a lawsuit could be filed outside California.
Panahi contends that even if the challenged conduct was not expressly prohibited by the Promissory Note, he can show that filing the New Jersey action constituted a breach of the implied covenant of good faith and fair dealing, based on evidence that the New Jersey court did not have personal jurisdiction over Panahi or the Trust. First, Panahi cannot properly assert this claim for the first time on appeal. (In re Marriage of Nassimi (2016) 3 Cal.App.5th 667, 695 [" ' "theories not raised in the trial court cannot be asserted for the first time on appeal" ' "]; Bocanegra v. Jakubowski (2015) 241 Cal.App.4th 848, 857 [" ' "a party is not permitted to change its position on appeal and raise new issues not presented in the trial court" ' "].) Second, the implied covenant "exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made. [Citation.]" (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349, original italics.) "It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement." (Id. at pp. 349-350.) Here, as discussed, the Promissory Note contains no provision imposing a duty on OHI to refrain from filing a lawsuit in New Jersey.
A second independent impediment to proving the merits of the New Jersey claim is a legal one: Pertinent case law establishes that the act of filing a lawsuit is protected by the litigation privilege. (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1249 (Action Apartment); see also Bergstein v. Stroock & Stroock & Lavan LLP (2015) 236 Cal.App.4th 793, 814 [" 'A plaintiff cannot establish a probability of prevailing if the litigation privilege precludes the defendant's liability on the claim.' [Citation.]"].)
The litigation privilege, which is codified in Civil Code section 47, subdivision (b), "provides that, with certain exceptions, a publication made in any judicial proceeding is privileged. Because of the vital purposes served by this privilege, it is ' "absolute" ' in nature and applies to all causes of action except malicious prosecution. [Citations.] The purposes of Civil Code section 47[, subdivision (b)] are ' "to afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation." [Citation.]' [Citation.] To further these important goals, the privilege is applied broadly. [Citation.]" (La Jolla Group II v. Bruce (2012) 211 Cal.App.4th 461, 472.)
Panahi contends that the litigation privilege is not a valid defense to a cause of action for breach of contract. This is an overstatement. "[T]he litigation privilege does not necessarily bar liability for breach of contract claims. Application of the privilege requires consideration of whether doing so would further the policies underlying the privilege." (Vivian v. Labrucherie (2013) 214 Cal.App.4th 267, 276; see also Wentland v. Wass (2005) 126 Cal.App.4th 1484, 1492 ["whether the litigation privilege applies to an action for breach of contract turns on whether its application furthers the policies underlying the privilege"].)
Here, we conclude that the privilege does apply for a combination of reasons. First, there is "no communication that is more clearly protected by the litigation privilege than the filing of a legal action." (Action Apartment, supra, 41 Cal.4th at p. 1249.) Second, as discussed, the factual record shows that OHI did not expressly agree to refrain from filing a lawsuit outside California or otherwise waive its right to engage in the type of petitioning activity that the anti-SLAPP statute is designed to protect. (Compare Navellier v. Sletten, supra, 29 Cal.4th at p. 94 ["a defendant who in fact has validly contracted not to speak or petition has in effect 'waived' the right to the anti-SLAPP statute's protection in the event he or she later breaches that contract"].)
As our background summary reflects, when the trial court granted OHI's general motion to strike this claim without leave to amend, it found that the two circumstances discussed above precluded Panahi from proving that OHI was liable for filing the New Jersey action. Nevertheless, it denied the anti-SLAPP motion to strike this claim because it found that Panahi had established a likelihood that he would prevail on his first cause of action for breach of contract another way, i.e., by establishing that OHI breached a contractual obligation to name the Panahi Trust in the insurance policy for the property. This reasoning was flawed. (Baral, supra, 1 Cal.5th 376.) As our Supreme Court recently explained in Baral, "it is not the general rule that a plaintiff may defeat an anti-SLAPP motion by establishing a probability of prevailing on any part of a pleaded cause of action. Rather, the plaintiff must make the requisite showing as to each challenged claim that is based on allegations of protected activity. . . . [W]hen the defendant seeks to strike particular claims supported by allegations of protected activity that appear alongside other claims within a single cause of action, the motion cannot be defeated by showing a likelihood of success on the claims arising from unprotected activity." (Id. at p. 392.)
Under Baral, supra, 1 Cal.5th at page 392, Panahi had the burden of demonstrating a likelihood of succeeding on his specific claim that OHI breached a contractual obligation to the Panahi Trust by filing the New Jersey action. Panahi did not carry that burden for the reasons outlined above. Therefore, the trial court erred by denying the special motion to strike this claim.
B. The Declaratory Relief Action
Panahi's claim that OHI breached a contractual obligation to sell the property was not based on the Promissory Note and deed of trust. Rather, the gravamen of this claim was that OHI breached a separate contract, i.e. an agreement that Panahi would dismiss the declaratory relief action in exchange for OHI's promise to sell the Property and pay off the Promissory Note.
The question under the first prong of the SLAPP test is whether OHI met its threshold burden of demonstrating that the acts that allegedly constituted a breach of this agreement "were taken 'in furtherance of the [defendant]'s right of petition or free speech under the United States or California Constitution in connection with a public issue,' as defined in the statute. (§ 425.16, subd. (b)(1).)" (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67; see also Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1063 (Park).) We agree with the trial court that OHI failed to carry this initial burden. FAC allegations that OHI breached an agreement to settle the declaratory relief action by failing to sell property and pay off a debt cannot reasonably be characterized as acts in furtherance of OHI's right of petition or free speech in connection with a public issue.
OHI contends that its alleged promise to sell the property was protected activity under the anti-SLAPP law because it was a statement made during settlement negotiations. As support for this argument, OHI cites tort cases in which courts found that settlement negotiations, including the act of entering into a settlement agreement, were within the scope of section 425.16. (Seltzer v. Barnes (2010) 182 Cal.App.4th 953, 956; GeneThera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901, 908; Navarro v. IHOP Properties, Inc. (2005) 134 Cal.App.4th 834, 843.) However, this authority is inapposite because OHI mischaracterizes the claim that pertained to the declaratory relief action. Panahi did not allege that OHI was liable for making a promise during a settlement negotiation as OHI erroneously contends, but rather for actions that OHI allegedly took after the declaratory relief action was settled and dismissed.
OHI intimates that the fact that its alleged promise was made at a mediation should be sufficient to trigger the protections of the anti-SLAPP statute. However, as our Supreme Court recently explained, it is crucial for courts to "respect the distinction between activities that form the basis for a claim and those that merely lead to the liability-creating activity or provide evidentiary support for the claim." (Park, supra, 2 Cal.5th at p. 1064.) "The anti-SLAPP statute's definitional focus is . . . the defendant's activity that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning." (Navellier v. Sletten, supra, 29 Cal.4th at p. 92; see also Park, supra, 2 Cal.5th at p. 1063.) Here, Panahi's claim did not arise out of protected activity because he sought to hold OHI liable for conduct that not only occurred after the declaratory relief action was settled and dismissed, but that had nothing to do with petitioning or speech. (See, e.g., Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal.App.4th 1388, 1400-1401.)
A similar issue was addressed in Applied Business Software, Inc. v. Pacific Mortgage Exchange, Inc. (2008) 164 Cal.App.4th 1108 (Applied Business Software). There, a software licensor sued its licensee for breach of a settlement agreement pursuant to which the licensor's federal copyright infringement action against the licensee was dismissed. The licensee filed a special motion to strike the complaint, which the trial court denied. On appeal, the licensee argued that a lawsuit that is brought by one signatory of a settlement agreement against the other signatory of that agreement "for the purpose of enforcing the agreement is necessarily based on the defendant's protected activity because entering into a settlement agreement in a judicial proceeding is protected activity." (Id. at p. 1117.) Finding "no merit" in this argument, the court explained: "Here, the gist of plaintiff's complaint is not that defendant did something wrong by acts committed during the course of the underlying federal action, but rather that defendant did something wrong by breaching the settlement agreement after the underlying action had been concluded. Under the explanatory provisions in subdivision (e) of section 425.16, defendant's entering into the settlement agreement during the pendency of the federal case was indeed a protected activity, but defendant's subsequent alleged breach of the settlement agreement after the federal case was concluded is not protected activity because it cannot be said that the alleged breaching activity was undertaken by defendant in furtherance of defendant's right of petition or free speech, as those rights are defined in section 425.16. Thus, the instant suit is based on alleged conduct of defendant that is not protected activity." (Id. at p. 1118, italics omitted.)
The same reasoning applies here. Acts undertaken in order to settle the declaratory relief action may be protected under the anti-SLAPP statute. (§ 425.16, subd. (e).) However, a claim for breach of that settlement agreement does not fall within the protection of the statute unless the conduct by the defendant that allegedly breached the contract was itself protected. (Applied Business Software, supra, 164 Cal.App.4th at pp. 1116-1117.) Here, Panahi sought to hold OHI liable for actions (or inaction) that occurred after the declaratory relief action was concluded that had nothing to do with constitutionally protected speech or petitioning.
In it reply brief, OHI argues that Applied Business Software "has no application here" because in this case the parties did not execute a formal settlement agreement, and, "[a]s a matter of fact, there was no agreement at all." (Italics omitted.) This argument addresses the wrong prong of the SLAPP test. The first prong of this test focuses only on the question whether the challenged conduct is protected activity, not on the question whether that conduct actually occurred. The claim alleged in the FAC was that OHI breached an agreement to settle the declaratory relief action by failing to make any real effort to sell the property. Failing to sell property is not speech or petitioning activity protected by the anti-SLAPP statute. Therefore, this part of OHI's special motion to strike was properly denied.
IV. DISPOSITION
The order denying OHI's special motion to strike is reversed and this case is remanded for further proceedings consistent with this decision.
/s/_________
RUVOLO, P. J. We concur: /s/_________
REARDON, J. /s/_________
STREETER, J.