Opinion
G057785
05-06-2020
SOUTH COAST PROPERTY SERVICES, INC., Cross-complainant and Respondent, v. CAELUS CORPORATION et al. Cross-defendants and Appellants.
Soden & Steinberger and Jason W. Coberly for Cross-complainant and Respondent South Coast Property Services, Inc. Navarro McKown, Aaron M. McKown and Eileen Spadoni for Cross-defendants and Appellants, Caelus Corporation and Andre Afshar.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2018-00977742) OPINION Appeal from an order of the Superior Court of Orange County, Nathan R. Scott, Judge. Affirmed. Soden & Steinberger and Jason W. Coberly for Cross-complainant and Respondent South Coast Property Services, Inc. Navarro McKown, Aaron M. McKown and Eileen Spadoni for Cross-defendants and Appellants, Caelus Corporation and Andre Afshar.
* * *
Plaintiff Caelus Corporation entered into a purchase agreement to buy the business assets of defendant South Coast Property Service, Inc. (South Coast), but later filed a lawsuit seeking rescission of the agreement. In response, South Coast filed a cross-complaint against plaintiff and its controlling shareholder (collectively, Caelus), which contained an allegation that Caelus's lawsuit constituted a repudiation of the agreement.
Caelus filed a special motion to strike the allegation under the anti-SLAPP (strategic lawsuit against public participation) statute. (See Code Civ. Proc., § 425.16.) The trial court denied the motion, finding Caelus had not met its burden to show South Coast based its allegation on protected activity. We reach the same conclusion and therefore affirm the trial court's order denying Caelus's motion.
All further undesignated citations are to the Code of Civil Procedure unless otherwise specified.
I
FACTS AND PROCEDURAL HISTORY
In 2017, South Coast sold the assets of its damage restoration franchise to Caelus for about $1 million. In March 2018, Caelus filed a complaint against South Coast and then later a first amended complaint (the lawsuit) seeking rescission of the purchase agreement on theories of fraud and mistake. Caelus alleged South Coast withheld material facts about critical aspects of its business, including "the loss of key clients who accounted for nearly ninety percent (90%) of its business." South Coast's accounts. The complaint also alleged that after the deal closed, "Caelus discovered that the revenues generated by South Coast's assets were only a fraction of the amount represented." Caelus also filed causes of action for breach of contract, intentional interference of prospective economic advantage, slander of title, and unfair business practice.
Along with its answer, South Coast filed a cross-complaint containing a single cause of action for breach of contract. Paragraph 10 of the cross-complaint alleged Caelus Corporation "filed this lawsuit seeking to rescind the [purchase agreement], thereby repudiating and breaching it" (the repudiation allegation).
In response, Caelus filed an anti-SLAPP motion, asserting the repudiation allegation should be stricken because it arose from the protected activity of filing its lawsuit and substantively lacked minimal merit. South Coast opposed the motion, asserting the claim arose "from [Caelus's] decision to rescind the agreement and not [Caelus's] complaint itself, which merely gave notice of their decision to rescind."
The trial court denied Caelus's motion. The court explained its decision was a "close one," noting the dual nature of the lawsuit: while its filing was a protected activity, it was "also . . . evidence of an [unprotected] underlying decision . . . [to] not perform[] under [the purchase agreement]." Relying on the recent decisions in Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057 (Park) and Ulkarim v. Westfield LLC (2014) 227 Cal.App.4th 1266, the court explained South Coast based its repudiation allegation on Caelus's underlying decision to repudiate the agreement and found Caelus's lawsuit merely communicated its underlying decision.
II
DISCUSSION
Caelus contends the trial court erred in not striking South Coast's repudiation allegation because it "'falls squarely within the ambit'" of the anti-SLAPP statute. Specifically, Caelus claims its targeted activity was a protected "written . . . statement or writing made before a . . . judicial proceeding" (§ 425.16, subd. (e)(1)), or alternatively, "[a] written . . . statement or writing made in connection with an issue under consideration or review by a . . . judicial body." (§ 425.16, subd. (e)(2).) Caelus does not contend repudiating a contract in and of itself is a protected activity. Rather, Caelus argues it engaged in protected activity because South Coast alleged Caelus repudiated the contract by filing its lawsuit, according to the precise wording of South Coast's repudiation allegation. A. Standard of Review and anti-SLAPP Principles
"We review de novo the grant or denial of an anti-SLAPP motion." (Park, supra, 2 Cal.5th at p. 1067.) "A court evaluates an anti-SLAPP motion in two steps. 'Initially, the moving [party] bears the burden of establishing that the challenged allegations or claims "aris[e] from" protected activity in which the defendant has engaged. [Citations.] If the [movant] carries its burden, the [opposing party] must then demonstrate its claims have at least "minimal merit."' [Citation.]" (Wilson v. Cable News Network, Inc. (2019) 7 Cal.5th 871, 884 (Wilson).)
"The [movant's] first-step burden is to identify the activity each challenged claim rests on and demonstrate that that activity is protected by the anti-SLAPP statute. A 'claim may be struck only if the speech or petitioning activity itself is the wrong complained of, and not just evidence of liability or a step leading to some different act for which liability is asserted.' [Citation.] To determine whether a claim arises from protected activity, courts must 'consider the elements of the challenged claim and what actions by the [movant] supply those elements and consequently form the basis for liability.' [Citation.] Courts then must evaluate whether the [movant] has shown any of these actions fall within one or more of the four categories of '"act[s]"' protected by the anti-SLAPP statute." (Wilson, supra, 7 Cal.5th at p. 884.)
In other words, in the first step of anti-SLAPP analysis, the moving party must demonstrate the claim at issue "arises from" or, stated alternatively, "is based on" protected activity. (ValueRock TN Properties, LLC v. PK II Larwin Square SC LP (2019) 36 Cal.App.5th 1037, 1046; see City of Cotati v. Cashman (2002) 29 Cal.4th 69, 77 (City of Cotati) ["'arise from' means 'based upon'"].) It is not enough to show that "an action was filed after protected activity took place." (Navellier v. Sletten (2002) 29 Cal.4th 82, 89 (Navellier).) It is also not enough to show "that a cause of action arguably may have been 'triggered' by protected activity." (Ibid.) "[T]he critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity." (Ibid.; accord City of Cotati, supra, 29 Cal.4th at p. 78.)
"'In assessing whether a cause of action [or allegation] arises from protected activity, "'we . . . "examine the principal thrust or gravamen of a plaintiff's cause of action [or allegation]"'"'" (Collier v. Harris (2015) 240 Cal.App.4th 41, 50) "'by identifying "[t]he allegedly wrongful and injury-producing conduct . . . that provides the foundation for the [cause of action or allegation]."'" (Okorie v. Los Angeles Unified School Dist. (2017) 14 Cal.App.5th 574, 587 (Okorie).) "In deciding whether the initial 'arising from' requirement is met [i.e., in performing the first step analysis], a court considers 'the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.'" (Navellier, supra, 29 Cal.4th at p. 89, quoting § 425.16, subd. (b)(2).) B. Application
On the pleadings in this case, Caelus's own lawsuit alleged it sent a notice of rescission to South Coast two months before starting litigation in March 2018. Specifically, the lawsuit alleged that in January 2018, Caelus "served each of the defendants a notice of rescission of the asset purchase agreement . . . pursuant to Civil Code section 1691." (Capitalization omitted.) Although this point was not raised by South Coast, neither in the trial court nor this court, we accept Caelus's prelawsuit notice allegation as a judicial admission on the issue. (See Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 746 ["Judicial admissions may be made in a pleading"]; see also Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1515, fn. 20 [sustaining of demurrer without leave to amend affirmed, in part, based upon judicial admissions established by complaint allegations].) This admission "'forbids the consideration of contrary evidence.'" (Thurman v. Bayshore Transit Management, Inc. (2012) 203 Cal.App.4th 1112, 1155.)
Civil Code section 1691 provides, "Subject to Section 1693, to effect a rescission a party to the contract must, promptly upon discovering the facts which entitle him to rescind if he is free from duress, menace, undue influence or disability and is aware of his right to rescind: [¶] (a) Give notice of rescission to the party as to whom he rescinds; and [¶] (b) Restore to the other party everything of value which he has received from him under the contract or offer to restore the same upon condition that the other party do likewise, unless the latter is unable or positively refuses to do so. [¶] When notice of rescission has not otherwise been given or an offer to restore the benefits received under the contract has not otherwise been made, the service of a pleading in an action or proceeding that seeks relief based on rescission shall be deemed to be such notice or offer or both.
Informed by Caelus's admission, we agree with the trial court's conclusion Caelus failed to carry its initial burden to demonstrate South Coast's repudiation allegation arose from protected activity. To state the obvious, Caelus's notice of rescission, filed before it filed its lawsuit, demonstrates it decided to rescind before filing its lawsuit. Caelus's lawsuit was merely evidence of its earlier decision to repudiate the contract with South Coast. Of course, filing a lawsuit is protected activity, but Caelus's prelawsuit notice of rescission shows South Coast's repudiation claim arises from that decision and not Caelus's lawsuit. (Navellier, supra, 29 Cal.4th at p. 89.) Caelus's unprotected decision to rescind the contract is where the gravamen or principal thrust of South Coast's repudiation allegation lies. (Okorie, supra, 14 Cal.App.5th at p. 587.)
Under Wilson, we "consider [both] the elements" of the contract repudiation theory asserted by South Coast as well as "what actions by [Caelus] supply those elements and consequently form the basis for liability.'" (Wilson, supra, 7 Cal.5th at p. 884.) A contract repudiation "may be express or implied. An express repudiation is a clear, positive, unequivocal refusal to perform [citations]; an implied repudiation results from conduct where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible [citations]." (Taylor v. Johnston (1975) 15 Cal.3d 130, 137 (Taylor).)
An express repudiation occurred in this case when Caelus served its prelawsuit notice on South Coast that it was rescinding their contractual arrangement. As mentioned above, the prelawsuit notice informs our conclusion that South Coast's repudiation allegation is "based on" its underlying decision to file its lawsuit, rather than the filing itself. (Navellier, supra, 29 Cal.4th at p. 89, italics omitted.) Thus, even if Caelus had not filed its lawsuit, South Coast could have asserted a theory of repudiation based on Caelus's prelawsuit notice it was repudiating the purchase agreement. (Taylor, supra, 15 Cal.3d at p.137.)
Caelus contends its prelawsuit rescission notice "does not change the fact that the complained of act—the filing of this [Caelus's] lawsuit—constitutes protected activity." But Caelus must show more than it engaged in protected activity. It also must show South Coast's repudiation claim arose from Caelus's protected activity. (Colyear v. Rolling Hills Community Assn. of Rancho Palos Verdes (2017) 9 Cal.App.5th 119, 130 [anti-SLAPP's first step entails two inquires: (1) whether the alleged acts at issue constitute activity protected by the statute, and (2) whether the claims do in fact "arise from" the alleged activity].) In determining whether Caelus met its burden, we are not limited to considering only the allegations of South Coast's repudiation claim, as Caelus suggests. Rather, the statute requires us to "consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based." (§ 425.16, subd. (b)(2).)
We are guided in our analysis by the Supreme Court's decision in Park, supra, 2 Cal.5th at p. 1062, which analyzed the "arising from" requirement. The Court explained "the focus is on determining what 'the defendant's activity [is] that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning.'" (Id. at p.1063.) In making this determination, "courts should consider the elements of the challenged claim and what actions by the [cross-] defendant supply those elements and consequently form the basis for liability." (Ibid.) Here, it is evident South Coast's repudiation claim does not depend on Caelus's rescission cause of action. Caelus alleged in its complaint it provided notice of its decision to rescind the contract before filing the lawsuit. That notice, in turn, merely reflected the decision to rescind after Caelus discovered the alleged fraud, as described in Caelus's complaint. South Coast's repudiation claim is based on Caelus's underlying decision to rescind and therefore reflects only "why the rift between the parties arose in the first place." (Episcopal Church Cases (2009) 45 Cal.4th 467, 478.)
The Supreme Court's decision in City of Cotati, supra, 29 Cal.4th 69, is instructive. There, a group of landowners filed a federal declaratory relief action seeking a court declaration the City of Cotati's rent control ordinance was unconstitutional. The city responded with a state court action seeking a declaratory judgment its rent control ordinance was constitutional. The landowner defendants filed an anti-SLAPP motion alleging the city's lawsuit arose from their protected activity of filing the federal lawsuit. The Court concluded the anti-SLAPP motion should have been denied, explaining the city's request for declaratory relief arose from the parties' underlying dispute over the ordinance's constitutionality, which existed before and independent of the landowners' federal lawsuit. (Id. at pp. 73, 80.) Similarly, Caelus's decision to rescind the contract with South Coast existed before and independent of filing its lawsuit asking for rescission. Because Caelus decided to rescind, and South Coast opposed Caelus's rescission, the issue of rescission would have existed whether or not Caelus filed its lawsuit. In short, the elements of South Coast's repudiation claim do not depend on proof Caelus filed a lawsuit asking to rescind the contract. (Park, supra, 2 Cal.5th at p. 1068.)
Caelus's reliance on Navellier, supra, 29 Cal.4th 82, is unavailing. The plaintiffs in Navellier filed a lawsuit for breach of contract and fraud, alleging the defendant had signed a release of all claims in a settlement reached in a pending federal lawsuit. Plaintiffs alleged the defendant breached the release agreement and committed fraud by filing counterclaims in the federal lawsuit. The Court concluded the plaintiffs' based their lawsuit solely on the defendant's filing of counterclaims after the defendant agreed earlier to release all his claims against the plaintiffs. (Id. at p. 90 ["but for the federal lawsuit and [the defendant's] alleged actions taken in connection with that litigation, plaintiffs' present claims would have no basis"].)
The Supreme Court in Park explained the distinction it drew between Cotati and Navellier. The plaintiff in Cotati "could demonstrate the existence of a bona fide controversy between the parties supporting a claim for declaratory relief without the prior suit, although certainly the prior suit might supply evidence of the parties' disagreement." (Park, supra, 2 Cal.5th at p. 1064.) In Navellier, however, the plaintiffs' based their claims on the defendant's filing of counterclaims, which constituted the alleged breach of contract. (Navellier, supra, 29 Cal.4th at p. 87.) "Likewise, the defendant's misrepresentation of his intent not to file counterclaims, a statement we explained was protected activity made in connection with a pending judicial matter [citation omitted], supplied an essential element of the fraud claim." (Park, supra, 2 Cal.5th at p. 1064.) The distinction applies here with equal force. The underlying contractual dispute would exist whether or not Caelus had filed its lawsuit. Consequently, South Coast's repudiation claim is not based on Caelus's lawsuit, but on its prelawsuit decision to rescind the contract.
In sum, Caelus failed to meet its initial burden to show that South Coast's repudiation allegation was "based on" Caelus's protected act of filing its lawsuit, rather than its underlying decision to rescind. Because we conclude Caelus did not meet its initial burden, we need not reach its contentions regarding the second step of the anti-SLAPP analysis.
III
DISPOSITION
The order denying Cross-Defendants' anti-SLAPP motion is affirmed. South Coast shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
ARONSON, J. WE CONCUR: O'LEARY, P. J. GOETHALS, J.