Opinion
A167210
06-20-2024
BLUE CREEK CAPITAL, LLC, Cross-complainant and Respondent, v. RAKHI SINGH et al., Cross-defendants and Appellants.
NOT TO BE PUBLISHED
(Alameda County Super. Ct. No. HG21109171)
Jackson, P. J.
In this dispute between a limited liability company and its members, Rakhi Singh and Nitesh Singh appeal from an order denying their special motion to strike two of Blue Creek Capital, LLC's (Blue Creek) causes of action under the anti-SLAPP statute (Code Civ. Proc., § 425.16). The trial court denied the Singhs' motion, finding that they failed to demonstrate that the challenged causes of action for breach of fiduciary duty and declaratory relief arose from protected activity under the anti-SLAPP statute. We affirm.
All statutory citations are to the Code of Civil Procedure unless otherwise stated.
FACTUAL AND PROCEDURAL BACKGROUND
I. Complaint and Cross-complaint
On August 10, 2021, the Singhs initiated this action against Blue Creek by filing a complaint for a decree ordering the windup of Blue Creek. The Singhs' second amended complaint, the operative complaint, names Blue Creek and Vijay Israni. It alleges breach of contract, seeks an order to wind up Blue Creek, and seeks a declaration that the Singhs are members of Blue Creek and that Blue Creek should be dissolved and wound up pursuant to its operating agreement. The Singhs further allege that Israni is a manager of Blue Creek and that he breached his fiduciary duties to them by failing to provide them with certain financial information.
On October 10, 2022, Blue Creek filed a cross-complaint alleging claims for breach of fiduciary duty and declaratory relief. The background factual allegations state that the Singhs were members of Blue Creek and that they each owned a 15-percent interest. Blue Creek's operating agreement stated that every company decision was to be made based on a majority vote of the ownership and that only Constance Wu and Vijay Israni had check-signing authority. Blue Creek's primary asset is a 9.3-acre parcel located in Los Altos, California (Property). When Blue Creek acquired the Property, an educational facility, Creative Learning Center (CLC), leased a portion of the Property. After the acquisition, Blue Creek continued to lease the Property to CLC.
Blue Creek's second cause of action alleged that Rakhi Singh breached her fiduciary duty to Blue Creek and its members by failing to disclose material facts to Blue Creek and filing a lawsuit against CLC without authorization or consent of the other members, which violated the operating agreement. The relevant general allegations incorporated into the second cause of action state that Rakhi Singh acted as the primary contact with CLC regarding its lease. Ms. Singh did not disclose to the other members that CLC failed to make rent payments. Without authorization from Blue Creek, Ms. Singh refused to negotiate with CLC and demanded that it pay late fees in addition to all the rent owed. In August 2019, CLC gave notice it was terminating the lease due to Ms. Singh's lack of cooperation. CLC assured Ms. Singh it would pay the rent owed. On November 26, 2019, Ms. Singh, without authorization and in violation of the operating agreement, used Blue Creek's funds to retain counsel and file a lawsuit against CLC on behalf of the company. The other members of Blue Creek were not informed of the lawsuit and would not have agreed to file the lawsuit because CLC was a sympathetic party. Ms. Singh's aggressive actions toward CLC jeopardized Blue Creek's ability to develop or sell the Property, caused Blue Creek reputational harm, caused Blue Creek to incur attorneys' fees, and interfered with Blue Creek's primary revenue stream.
The Singhs moved to strike only the second and third causes of action in Blue Creek's cross-complaint.
The third cause of action is for declaratory relief. It alleges an actual controversy between Blue Creek and the Singhs regarding the Singhs' status and obligations to Blue Creek following the Singhs' notice of withdrawal from the company. Specifically, Blue Creek alleges that on April 1, 2021, the Singhs gave notice of their withdrawal from the company and that on April 7, 2021, Blue Creek accepted their withdrawal. The Singhs allegedly claim their April 1, 2021, withdrawal from Blue Creek was ineffective and did not result in their disassociation from the company. Blue Creek contends the withdrawal was effective and that the Singhs have disassociated from the company. Blue Creek further contends that if the Singhs' withdrawal was not effective, then they violated their fiduciary duties when they contacted a potential buyer of the Property without Blue Creek's authorization and informed the buyer of their dispute with Blue Creek. Blue Creek seeks a declaration that the Singhs' withdrawal was effective and resulted in their disassociation from the company and that if their withdrawal was ineffective, then they violated their fiduciary duties when they contacted the potential buyer of the Property.
II. The Singhs' Anti-SLAPP Motion
The Singhs filed a special motion to strike pursuant to section 425.16 on the grounds that the second and third causes of action in Blue Creek's cross-complaint arise from the Singhs' acts in furtherance of their constitutional rights of petition. They argued that the second and third causes of action fall within the protections of section 425.16 because they were based on communications relating to judicial proceedings. (§ 425.16, subd. (e)(2).) They further argued that Blue Creek could not demonstrate a probability of success on the merits, in part because the business judgment rule and the litigation privilege applied to Blue Creek's claims.
Blue Creek argued in opposition that its breach of fiduciary duty cause of action does not arise from Rakhi Singh's protected petitioning activity. Specifically, Blue Creek stated that the alleged breaches of fiduciary duty arose from Rakhi Singh's unauthorized and aggressive tactics against CLC, which violated the terms of the operating agreement. It argued that the unauthorized filing of the lawsuit against CLC was evidence of Singh's breach of fiduciary duties. Blue Creek also argued that because the CLC lawsuit was filed on behalf of Blue Creek, it did not involve Rakhi Singh's own constitutional right of petition. Finally, Blue Creek argued that in the event that the trial court reached the second prong in the anti-SLAPP analysis, the declaration of Vijay Israni evidenced Singh's multiple failures to disclose information to Blue Creek's other members and established at least minimal merit to its breach of fiduciary duty cause of action.
Regarding the declaratory relief cause of action, Blue Creek argued that the gravamen of the claim related to the controversy over whether the Singhs' notice of withdrawal was effective. It further argued that the declaratory relief cause of action's references to the Singhs' interference with the sale of the Property did not include any allegations of protected litigation activity. Finally, Blue Creek submitted declarations it claimed established that its declaratory relief claim has at least minimal merit.
The trial court denied the Singhs' motion. Regarding the second cause of action, for breach of fiduciary duty, the trial court found that the Singhs did not carry their burden of showing that the claim arose from protected activity. The order states: "Section 425.16 does not apply ....While the constitutional right to petition includes the act of filing litigation [citation], the litigation against CLC was not a furtherance of Ms. Singh's right of petition, but rather was filed on behalf of the Company, allegedly against its interests and in bad faith without proper authorization. [Citations.] The complaint in the CLC litigation alleges that Plaintiff is a limited liability company and the owner of the Property leased by CLC. [Citation.] The filing of the complaint is evidence of Ms. Singh's alleged breach of fiduciary duty and is thus incidental to that cause of action (Aguilar v. Goldstein (2012) 207 Cal.App.4th 1152, 1160-62; Baharian-Mehr v. Smith (2010) 189 Cal.App.4th 265, 272-73.) [¶] Neither party gives an entirely fair account of the allegations in the Second Cause of Action of the Cross-Complaint, which mentions mainly the litigation, but a fair reading of the entire document places the litigation as part of an overall course of conduct alleged to be the breach of fiduciary duty." (First italics added.)
Regarding Blue Creek's claim for declaratory relief, the trial court found that it "is not primarily based on [the Singhs'] communications to [the potential buyer] about the litigation. Instead, it is based on the dispute as to whether the [Singhs'] Notice of Withdrawal . . . effectively disassociated [them] from the Company. [Blue Creek] only discuss[ed] the [Singhs'] communications to the buyer if the withdrawal is not effective, a claim that [Blue Creek] dispute[s]." The order concludes that the Singhs' motion "does not address the main thrust of the declaratory relief claims, nor how [section] 425.16 applies to these claims regarding the effect of the notice of withdrawal. Accordingly, [the Singhs'] motion to strike the Third Cause of Action is DENIED. Again, because [the Singhs] have not carried their initial burden, the burden has not shifted to the Company."
Although the trial court found that the burden did not shift to Blue Creek to demonstrate a probability of prevailing on the merits under the second prong of the anti-SLAPP analysis, it nonetheless considered the Singhs' contentions that the business judgment rule and the litigation privilege barred Blue Creek's claims. We resolve this appeal based upon an analysis of the first prong only. We understand the Singhs' position to be that the business judgment rule and the litigation privilege are defenses to Blue Creek's claims which prevent Blue Creek from demonstrating a probability of prevailing on the merits. We do not reach the second prong of the anti-SLAPP analysis, and therefore we need not discuss the Singhs' arguments regarding the business judgment rule or the litigation privilege, or the trial court's rejection of them.
DISCUSSION
I. Anti-SLAPP Statutory Framework
Section 425.16 provides: "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).) The statute is "designed to protect defendants from meritless lawsuits that might chill the exercise of their rights to speak and petition on matters of public concern." (Wilson v. Cable News Network, Inc. (2019) 7 Cal.5th 871, 883-884 (Wilson).)
"A court evaluates an anti-SLAPP motion in two steps. 'Initially, the moving defendant 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 defendant carries its burden, the plaintiff must then demonstrate its claims have at least "minimal merit."' [Citation.]" (Wilson, supra, 7 Cal.5th at p. 884.) Both prongs of the anti-SLAPP statute must be satisfied for a claim to be stricken under the statute. (Aguilar v. Goldstein (2012) 207 Cal.App.4th 1152, 1159 (Aguilar).) If a court finds the defendant has not satisfied the first prong, it must deny the motion and does not need to consider the second step. (Ibid.) We review the denial of a special motion to strike de novo. (Ibid.)
"The defendant'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 defendant supply those elements and consequently form the basis for liability.' [Citation.] Courts then must evaluate whether the defendant has shown any of these actions fall within one or more of the four categories of' "act[s]"' protected by the anti-SLAPP statute. (§ 425.16, subd. (e); [citation].)" (Wilson, supra, 7 Cal.5th at p. 884, italics omitted.)
II. The Singhs fail to demonstrate that Blue Creek's second and third causes of action arise from acts in furtherance of the Singhs' right of petition.
A. Second Cause of Action: Breach of Fiduciary Duty
Section 425.16, subdivision (e) defines" 'act[s] in furtherance of a person's right of petition or free speech . . . 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."
The Singhs argue that section 425.16, subdivision (e)(2) applies to Blue Creek's causes of action for breach of fiduciary duty and declaratory relief. As to the breach of fiduciary duty cause of action, the Singhs contend that it is based on the allegedly wrongful and unauthorized filing of the lawsuit against CLC and is therefore based on a" 'written communication'" and communicative conduct. They cite case law holding that communicative acts by attorneys on behalf of their clients in pending litigation are protected petitioning activity under the anti-SLAPP statute (GeneThera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901, 908; Cabral v. Martins (2009) 177 Cal.App.4th 471, 480), then conclude that Blue Creek's breach of fiduciary duty claim complains of Rakhi Singh's" 'communicative acts' inherent to the attorney-client relationship that underlies the CLC Lawsuit filing and maintaining of that litigation, thus triggering the Anti-SLAPP statute."
We find that the Singhs have failed to make a threshold showing that the breach of fiduciary duty cause of action arises from protected activity. The Singhs do not specify what" 'written communication'" or "communicative conduct" Ms. Singh engaged in that constitutes protected activity. Rather, they generally claim the filing of the CLC lawsuit "directly implicates Rakhi's right to petition" and that she must have engaged in communicative conduct implicating her right to petition because she is alleged to have engaged counsel and engaged in" 'aggressive'" litigation tactics. We are not persuaded.
To the extent the Singhs assert that the CLC lawsuit itself, rather than unidentified" 'communicative acts'" related to the CLC lawsuit, is the protected activity on which Blue Creek's breach of fiduciary duty cause of action is based, we disagree. As explained in Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057 (Park), "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." (Id. at p. 1060.) "A claim arises from protected activity when that activity underlies or forms the basis for the claim. [Citations.] Critically, '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.' [Citations.] '[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.' [Citations.] Instead, 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.' [Citation.] 'The only means specified in section 425.16 by which a moving defendant can satisfy the ["arising from"] requirement is to demonstrate that the defendant's conduct by which plaintiff claims to have been injured [is protected activity] ....' [Citation.] In short, in ruling on an anti-SLAPP motion, courts should consider the elements of the challenged claim and what actions by the defendant supply those elements and consequently form the basis for liability." (Park, supra, 2 Cal.5th at pp. 1062-1063, 8th bracketed insertion added.) "Assertions that are 'merely incidental' or 'collateral' are not subject to section 425.16. [Citations.] Allegations of protected activity that merely provide context, without supporting a claim for recovery, cannot be stricken under the anti-SLAPP statute." (Baral v. Schnitt (2016) 1 Cal.5th 376, 394.)
Blue Creek argues that Ms. Singh's filing the CLC lawsuit is not protected activity under section 425.16 because the lawsuit was filed on behalf of Blue Creek and, thus, was not an action in furtherance of Ms. Singh's right to petition. We need not decide this issue because we find that Blue Creek's breach of fiduciary duty cause of action does not arise out of the CLC lawsuit.
The elements of Blue Creek's breach of fiduciary duty cause of action are: (1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach. (IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 646.) Blue Creek's cause of action is based on more than Rakhi Singh's act of causing the CLC lawsuit to be filed on behalf of Blue Creek. The allegations incorporated by reference into the cause of action include that Ms. Singh failed to disclose to the other members of Blue Creek that CLC had failed to make rent payments; Ms. Singh unilaterally refused to negotiate with CLC and demanded that it pay late fees in addition to the back rent, without authorization from Blue Creek; CLC terminated its lease due to Ms. Singh's lack of cooperation and informed Ms. Singh that it would pay the rent owed; Ms. Singh, again without authorization and in violation of the operating agreement, used Blue Creek's funds to retain counsel and file a lawsuit against CLC on behalf of Blue Creek; and the other members of Blue Creek were not informed of the lawsuit and would not have agreed to file it because CLC was a sympathetic party. Blue Creek further alleges that Ms. Singh's aggressive actions toward CLC jeopardized Blue Creek's ability to develop or sell the Property, caused Blue Creek reputational harm, caused Blue Creek to incur attorneys' fees, and interfered with Blue Creek's primary revenue stream. The basis of Blue Creek's cause of action is that Rakhi Singh's interactions with Blue Creek's lessee were without authorization, in violation of the operating agreement, and against Blue Creek's interests. Ms. Singh's unauthorized actions included her negotiations regarding late rent payments and the filing of the lawsuit against CLC on behalf of Blue Creek.
We must determine whether the filing of the CLC lawsuit is the basis for the breach of fiduciary duty cause of action. If the CLC lawsuit provides evidence supporting the cause of action but is not itself the basis for the claim, then the anti-SLAPP statute does not apply. (Park, supra, 2 Cal.5th at p. 1060.) Aguilar, supra, which involves a similar fact pattern, is instructive. There, shareholders of a medical group filed a class action lawsuit against three managers of the medical group alleging various breaches of fiduciary duty relating to the medical group's negotiations with a hospital regarding a professional medical services agreement. (207 Cal.App.4th at pp. 11551157.) The complaint alleged the management defendants acted in their own self-interest and against the interests of the shareholders by rejecting the hospital's proposal, refusing to continue to negotiate with the hospital, and" 'entrench[ing] themselves by filing suit against the Hospital.'" (Id. at pp. 1156-1157.) The management defendants moved to strike the complaint under section 425.16. They argued the complaint arose out of protected activity because it was based upon the filing of, and conduct in anticipation of, the lawsuit against the hospital. (Aguilar, at p. 1157.) The trial court denied the motion, finding that the allegations of the complaint regarding the filing of the lawsuit against the hospital were incidental to the allegations that the management defendants mishandled the negotiations with the hospital for their own financial benefit. (Id. at p. 1158.)
The Court of Appeal affirmed. It found that the complaint alleged the management defendants' liability arose from their failure to provide information to the shareholders that would have revealed a conflict of interest, their misrepresentations and omissions regarding the hospital's offer, and their ending negotiations with the hospital purportedly to advance their own self-interests. (Aguilar, supra, 207 Cal.App.4th at p. 1161.) The court found that the allegations regarding the filing of the lawsuit against the hospital were "only incidental to plaintiffs' claim that defendants breached their fiduciary duty by putting their own interests ahead of the interests of shareholders." (Id. at p. 1162.)
We find that Blue Creek's breach of fiduciary duty cause of action does not arise out of protected activity under section 425.16. Rather, it is based upon Ms. Singh's allegedly unauthorized course of conduct toward Blue Creek's lessee in violation of the operating agreement and her alleged failures to disclose information to the other members. The wrong that Blue Creek complains of is Ms. Singh's allegedly unauthorized actions toward CLC which culminated in the CLC lawsuit. The lawsuit provides evidence of, and context for, Ms. Singh's alleged breach of fiduciary duty and unauthorized conduct, but it is not an essential element of the cause of action. (Park, supra, 2 Cal.5th at pp. 1060, 1062-1063.) As in Aguilar, Blue Creek's allegations regarding the CLC lawsuit are incidental to the claim that Ms. Singh breached her fiduciary duties by failing to disclose information to the other members regarding negotiations with CLC and by taking authorized actions against CLC. (See Aguilar, supra, 207 Cal.App.4th at p. 1158; Gaynor v. Bulen (2018) 19 Cal.App.5th 864, 881-882 [finding trust beneficiaries' breach of loyalty and breach of fiduciary duty claims challenging cobeneficiary's litigation activities were not based on petitioning activity]; Miller v. Zurich American Ins. Co. (2019) 41 Cal.App.5th 247, 258259 [affirming denial of anti-SLAPP motion and finding "allegations of counsel's communications are only evidence that provides the context for the allegation that [insurer] unreasonably and without proper cause interfered with panel counsel's representation . . . in defending . . . counterclaim"].)
B. Third Cause of Action: Declaratory Relief
The Singhs contend that the declaratory relief cause of action should be stricken because it references the Singhs'" 'contact'" with a potential buyer of the Property. The Singhs submitted a declaration from their attorney in this action stating that he sent correspondence to the potential buyer. The attached correspondence includes an email from the Singhs' attorney to the potential buyer seeking to confirm whether the potential buyer was under contract with Blue Creek to purchase the Property. The email references the dispute between the Singhs and Blue Creek and attaches a copy of the Singhs' complaint filed against Blue Creek and Vijay Israni.
As the trial court found, although the Singhs seek to strike the entire cause of action for declaratory relief, they did not address the primary allegations of the declaratory relief cause of action which involve the parties' dispute over the effectiveness of the Singhs' notice of withdrawal. Nor did they explain how section 425.16 applies to those allegations.
We agree with the trial court that the main thrust of the declaratory relief cause of action is whether the Singhs' notice of withdrawal was effective and, if so, how that impacts the Singhs' status in Blue Creek and their obligations to Blue Creek. Blue Creek seeks a declaration that the Singhs' withdrawal was effective. It further contends that "if the Singhs' withdrawal was not effective, [which] the Company disputes, then when the Singhs contacted the Buyer the Singhs violated their fiduciary duties to the Company by undermining confidence in the Company and the transaction ...." Notably, the Singhs' motion sought to strike the entire declaratory relief cause of action but did not include any argument explaining how section 425.16 applies to Blue Creek's claim seeking a declaration that the Singhs' notice of withdrawal was effective. The Singhs make the same argument on appeal, seeking to strike the entire declaratory relief cause of action without addressing how the portion of the cause of action regarding the dispute over the effectiveness of the notice of withdrawal arises out of protected activity.
We find that the Singhs' motion was properly denied on the grounds that they failed to carry their initial burden to demonstrate that the declaratory relief cause of action, which they sought to strike in its entirety, was based on protected activity. (Young v. Midland Funding LLC (2023) 91 Cal.App.5th 63, 99-100 [declining to strike "discrete claims" within causes of action when moving party's motion sought to strike the entire complaint].)
We find that the Singhs have failed to make a threshold showing that the causes of action they seek to strike arise from protected activity. Therefore, the burden does not shift to Blue Creek to demonstrate that its claims have at least minimal merit and we need not reach the second prong of the anti-SLAPP analysis. (Aguilar, supra, 207 Cal.App.4th at p. 1159.)
DISPOSITION
The trial court's order is affirmed. Blue Creek shall recover its costs on appeal.
WE CONCUR: Burns, J., Chou, J.