Opinion
G054125
04-30-2018
BNY MELLON BANK, Cross-complainant, Cross-defendant and Appellant, v. FIRST FOUNDATION BANK, Cross-defendant, Cross-complainant and Respondent.
DLA Piper, Todd C. Toral, Benjamin W. Turner and Isabelle Ord, for Cross-complainant, Cross-defendant and Appellant. Shumener, Odson & Oh, Betty M. Shumener and Edward O. Morales, for Cross-defendant, Cross-complainant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00838262) OPINION Appeal from an order of the Superior Court of Orange County, Thierry Patrick Colaw, Judge. Affirmed. DLA Piper, Todd C. Toral, Benjamin W. Turner and Isabelle Ord, for Cross-complainant, Cross-defendant and Appellant. Shumener, Odson & Oh, Betty M. Shumener and Edward O. Morales, for Cross-defendant, Cross-complainant and Respondent.
INTRODUCTION
Bank of New York Mellon (Mellon) appeals from an order denying its anti-SLAPP motion to strike the first amended cross-complaint of First Foundation Bank (First Foundation). First Foundation sued Mellon after Mellon failed to transfer bonds it was holding as security for a line of credit for San Miguel Equities, LLC (San Miguel.) First Foundation allegedly wired Mellon $5.5 million to pay off the line of credit. Mellon took the $5.5 million, but did not transfer the bonds. It subsequently interpleaded them.
SLAPP" is an acronym for "strategic lawsuit against public participation," and refers to a lawsuit that both arises out of defendants' constitutionally protected expressive or petitioning activity and lacks a probability of success on the merits. (Code Civ. Proc., § 425.16; S.B. Beach Properties v. Berti (2006) 39 Cal.4th 374, 377.)
The trial court denied Mellon's anti-SLAPP motion on the grounds that, first, Mellon had not shown that First Foundation's claims arose from protected petitioning activity and, second, even if the activity was protected, First Foundation had established likelihood of succeeding on the merits. In denying Mellon's request for discharge under the interpleader statute, the court had already ruled that Mellon was not a mere disinterested stakeholder.
We affirm the order. As the trial court observed, causes of action do not arise from protected activity simply because they are pleaded after protected activity. Because Mellon did not establish that First Foundation's cross-complaint arose from protected activity, we need not address the second part of the anti-SLAPP analysis.
FACTS
In 2014, Michael LaMelza obtained a substantial judgment against J. Robert Gilroy. LaMelza's efforts to collect this judgment underlie the case presently before us on appeal.
The story behind this judgment is given in two unpublished opinions of this court, LaMelza v. Lindsay (Nov. 27, 2012, G045402) [nonpub. opn.] and LaMelza v. Lindsay (Jan. 13, 2017, G051506, G051514) [nonpub. opn.].
In its first amended cross-complaint, First Foundation alleged that Mellon established a $7 million credit line for San Miguel in September 2013. San Miguel secured the credit line with a portfolio of 28 municipal bonds, worth $7.3 million.
In July 2015, LaMelza allegedly attempted to levy on the portfolio, claiming that Gilroy had fraudulently transferred the bonds to San Miguel to avoid the LaMelza judgment. Mellon rejected the levy, returning a memorandum of garnishee stating that San Miguel was not a judgment debtor and Mellon held no assets belonging to any judgment debtor. LaMelza took no further steps to levy on the portfolio.
On February 24, 2016, First Foundation lent San Miguel $5.5 million. The loan was supposed to be secured by the portfolio. First Foundation contacted Mellon shortly before making the loan to arrange for the portfolio's transfer to First Foundation in exchange for $5.5 million to pay off the San Miguel line of credit. Mellon agreed to transfer the portfolio, and on March 2, 2016, First Foundation wired $5.5 million to Mellon. Mellon did not, however, transfer the portfolio.
Five days later, LaMelza filed a complaint against Gilroy and (mainly) Gilroy-related people and entities, asserting that Gilroy had fraudulently transferred assets in order to avoid paying LaMelza's judgment. San Miguel and Mellon were among the defendants in this case. LaMelza alleged that Gilroy's four children owned San Miguel, and the "loans" from Mellon to San Miguel secured by the bond portfolio were part of an elaborate scheme to move money out of Gilroy's hands and salt it away from LaMelza's judgment. Mellon was included with all defendants in three causes of action based on fraudulent transfer and specifically named in two causes of action relating to marshalling of assets under the Civil Code. Mellon was served with the summons and complaint on March 15, 2016.
LaMelza's complaint contains two fifth causes of action and no sixth cause of action. There is a prayer for a sixth cause of action, asking for a decree against Mellon regarding the assets of San Miguel.
Mellon filed its complaint in interpleader on April 4, 2016. It interpleaded the portfolio, alleging that both LaMelza and San Miguel were claiming rights to it. Mellon further alleged that San Miguel was demanding transfer of the portfolio to First Foundation. At the same time, Mellon filed an application for interpleader direction, asking, among other things, to be discharged from liability.
First Foundation filed and served a cross-complaint against LaMelza, Mellon, and San Miguel on April 19, 2016. The record does not include a responsive pleading to the cross-complaint from Mellon. First Foundation filed the first amended cross-complaint, the operative pleading for this appeal, on June 8, 2016. The first amended cross-complaint included causes of action for breach of contract, fraud, conversion, unlawful business practices, and declaratory relief, all relating to Mellon's refusal to turn over the portfolio after First Foundation paid Mellon $5.5 million. The causes of action of the first amended cross-complaint do not include any reference to interpleader.
The court subsequently sustained Mellon's demurrers to four causes of action in the first amended complaint. The court overruled Mellon's demurrers to the breach of contract and fraud causes of action. The record does not reflect what happened to the last two causes of action - equitable subrogation and declaratory relief. The court ordered First Foundation to file a second amended complaint consisting of only the (one) contract and (two) fraud causes of action.
The gist of the cross-complaint was that Mellon had agreed to turn over the portfolio to First Foundation (or fraudulently represented that it would turn the portfolio over) and accepted the wire transfer of $5.5 million, but did not turn over the portfolio and kept the $5.5 million. The complaint also alleged that at the time of the breach of contract or fraud, there was no other claim on the portfolio, Mellon having rejected LaMelza's levy of the previous year. Both the contract and fraud causes of action identified First Foundation's damages as being based on the $5.5 million wire transfer.
As an alternative remedy in the two fraud causes of action, First Foundation requested a constructive trust over the bonds or the money.
On June 10, 2016, the trial court held a hearing on Mellon's request for discharge under the interpleader statutes. The court ordered Mellon to hold the portfolio in an interpleader account and continue to manage it until the dispute over ownership was resolved. The court denied Mellon's request for a discharge and refused to dismiss First Foundation's cross-complaint, reasoning that Mellon might not be simply a disinterested stakeholder. The court stated, "The [First Foundation] cross-complaint pleads separate wrongs aside from any stakeholding by [Mellon]. Those claims in the [First Foundation] cross-complaint dated 4/19/16 arose, as pleaded, independent from the interpleader action. Those claims against [Mellon] are not based on stakeholding alone like, for example, when an auto insurance company seeks to interplead the full amount of its liability policy among several claimants injured by the insured. Here [First Foundation] sues [Mellon], who claims to be a mere stakeholder, for wrongs independent from the rights to the subject property."
On August 8, 2016, Mellon moved to dismiss First Foundation's cross-complaint under Code of Civil Procedure section 426.16, the anti-SLAPP statute. It asserted that First Foundation was suing it for filing a complaint in interpleader (protected activity) and First Foundation had no likelihood of prevailing on its causes of action.
The trial court denied Mellon's motion after a hearing on September 23. The court noted the motion was, to some extent, an improper request to reconsider its earlier ruling refusing to dismiss the First Foundation cross-complaint. Furthermore, the conduct underlying the cross-complaint occurred before Mellon filed its complaint in interpleader, so the claims in the cross-complaint did not arise from protected activity. In addition, as the court had previously held, the wrongs alleged by First Foundation were separate and independent from the interpleader.
The court also found that First Foundation met its burden of proof on the second prong of the anti-SLAPP analysis - likelihood of prevailing. As the court noted, the burden on this prong is not high. A prima facie case will do.
Mellon has appealed from the order denying its anti-SLAPP motion.
After briefing was complete, the California Supreme Court decided Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2018) 4 Cal.5th 637, which dealt with time limits for filing anti-SLAPP motions. We asked the parties to submit supplemental briefs on the application, if any, of this new case to the one before us. Having reviewed the supplemental briefs, we have determined that we need not address the timeliness issue in this case.
DISCUSSION
The California Legislature enacted the anti-SLAPP statute to counteract "a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances." (Code Civ. Proc., § 425.16, subd. (a).) A court may order a cause of action "arising from any act" "in furtherance" of the "right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue" to be stricken by means of this special motion. (Code Civ. Proc., § 425.16, subd. (b)(1).) We review the order granting or denying an anti-SLAPP motion de novo. (Flatley v. Mauro (2006) 39 Cal.4th 299, 325.)
We use a two-part test to evaluate an anti-SLAPP motion. First, we determine whether the complaint or cause of action is "one arising from protected activity." (Navellier v. Sletten (2002) 29 Cal.4th 82, 88 (Navellier).) As the Supreme Court has emphasized, "[T]he critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity." (Id. at p. 89.) If the defendant satisfies the first part of the test, the burden shifts to the plaintiff to demonstrate a probability of prevailing. (Id. at p. 88.) Although the plaintiff does not have to prove its case at this juncture, it must present a prima facie case that could sustain a judgment if its evidence is believed. (Id. at pp. 88-89.)
Mellon asserts that it is being sued for filing a complaint in interpleader, that is, for refusing to pick sides between San Miguel and LaMelza in the dispute over entitlement to the portfolio. The court disagreed, holding that the cross-complaint alleged wrongs independent of the interpleader.
"[T]he mere fact an action was filed after protected activity took place does not mean it arose from that activity. The anti-SLAPP statute cannot be read to mean that 'any claim asserted in an action which arguably was filed in retaliation for the exercise of speech or petition rights falls under section 425.16, whether or not the claim is based on conduct in exercise of those rights.' [Citations.] [¶] . . . California courts rightly have rejected the notion ' that a lawsuit is adequately shown to be one "arising from" an act in furtherance of the rights of petition or free speech as long as suit was brought after the defendant engaged in such an act, whether or not the purported basis for the suit is that act itself.' [Citation.]" (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 76-77 (Cashman); see Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115 ["arising from" means "based on"].)
"Moreover, that a cause of action arguably may have been 'triggered' by protected activity does not entail that it is one arising from such. [Citation.] In the anti-SLAPP context, the critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity." (Navellier, supra, 29 Cal.4th at p. 89; see Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1068 (Park) [cause of action "arose from" motive for denial of tenure, not from statements made during tenure proceeding]; Cashman, supra, 29 Cal.4th at p. 78 [defendant's act must itself have been an act in furtherance of right of petition]; San Ramon Valley Fire Protection Dist. v. Contra Costa County Employees' Retirement Assn. (2004) 125 Cal.App.4th 343, 353-354 [cause of action "arose from" board's requiring district to make additional contributions to retirement system, not from public debate about requirement]
The relief First Foundation seeks through its first cause of action, labeled "breach of contract," is rescission of the agreement to swap money for bonds. First Foundation wants to recover the money it wired to Mellon on the grounds of mistake and/or failure of consideration. (See Civ. Code, §§ 1689, subd. (b), 1692.) It wants the $5.5 million back.
Civil Code section 1692 refers to a party seeking relief based on rescission as "bringing an action to recover any money or thing owing to him by any other party to the contract as a consequence of such rescission[.]"
"When a party has been injured by a breach of contract and either lacks the ability or desire to keep the contract alive, the injured party can choose between two alternative remedies: (1) The party can treat the contract as rescinded and recover damages resulting from the rescission; or (2) the party can treat the contract as repudiated by the other party and recover damages to which he or she would have been entitled had the other party not breached the contract or prevented performance. . . . [¶] . . . Indeed, the very purpose of rescission is to restore the parties to the position that they would have been in had they not entered the contract." (1 Witkin, Summary of California Law (11th ed. 2017) § 966, p. 1016.) First Foundation seeks to be restored to the position it would have been in had it not wired $5.5 million to Mellon.
First Foundation's contract cause of action in the first amended cross-complaint does not arise from Mellon's protected activity. It is based on Mellon's allegedly agreeing to transfer the portfolio and taking First Foundation's wire transfer, without making any return. What Mellon subsequently did with the portfolio - whether it kept the bonds, interpleaded them, put them in the trunk of Elon Musk's Tesla and shot them into space, or set them on fire - does not change the essential nature of First Foundation's cause of action. As the court noted in Park, supra, the plaintiff in that case could have stated a cause of action without alleging anything regarding comments made during the tenure proceeding. (Park, supra, 2 Cal.5th at p. 1068.) In this case as well, First Foundation's rescission claim is a complete claim without reference to what Mellon later did with the bonds. Primarily First Foundation does not want the bonds or their value; it wants the return of the $5.5 million.
Likewise, the fraud causes of action arose independently of the complaint in interpleader. According to First Foundation, Mellon actively misrepresented that it would transfer the bonds after First Foundation transferred the money or, alternatively, concealed the information about LaMelza's effort to levy on the portfolio, contrary to normal banking practice. The alleged fraud was complete when First Foundation, relying on Mellon's representations or on its compliance with normal banking practice, wired the money to Mellon. (See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990-991 [elements of fraud claim].) This happened long before any interpleader was filed. The fraud causes of action did not arise from the interpleader, but rather from Mellon's conduct in inducing First Foundation to proceed with the payoff of the San Miguel loan.
Mellon argues that First Foundation's causes of action arose from Mellon's response to LaMelza's July 2015 notice of levy and therefore from protected activity. This is also incorrect. First Foundation does not seek to hold Mellon liable for its response to the notice of levy. Neither the contract cause of action nor the fraud causes of action arose from Mellon's rejection of the levy. The circumstances surrounding the levy are relevant only to the extent that they form part of the evidence of the fraud claims: Mellon wrongfully concealed LaMelza's effort to levy on the portfolio from First Foundation. Even if rejecting the levy is protected activity, concealing it is not.
Mellon also argued that First Foundation's original cross-complaint frequently mentioned filing the interpleader, demonstrating that the causes of action arose from protected activity. Mellon further argued that First Foundation is bound by these allegations in the original cross-complaint, which disappeared from the first amended cross-complaint.
The fact that references to the interpleader could be stripped from the original cross-complaint without eviscerating the causes of action demonstrates the opposite - these references were "incidental" or "collateral" to the causes of action and merely provided a context. They were not the core conduct upon which First Foundation's cross-complaint relied. (See Baral v. Schnitt (2016) 1 Cal.5th 376, 394; Park, supra, 2 Cal.5th at p. 1064 [distinction between activities that form basis of claim and "those that merely lead to liability-creating activity or provide evidentiary support for the claim"]; Gaynor v. Bulen (2018) 19 Cal.App.5th 864, 880 [petitioning activity evidence of alleged breach of duty].)
The banking expert whose declaration supported First Foundation's opposition to the anti-SLAPP motion remarked that Mellon's conduct boiled down to a "tactic, where one bank unloads a problem asset on another unsuspecting bank." This is not protected activity.
Because we have determined that Mellon failed to establish that First Foundation's surviving causes of action arose from protected activity, we do not reach the second prong of the anti-SLAPP analysis, First Foundation's probability of prevailing. (See Cashman, supra, 29 Cal.4th at pp. 80-81.)
Two days before oral argument, Mellon requested judicial notice of an arbitration award against San Miguel and in favor of First Foundation. Mellon asserted that the award demonstrated First Foundation's inability to prevail on the second prong of the anti-SLAPP analysis. As we are not reaching this prong, the material for which judicial notice was requested is irrelevant, and we deny the motion. --------
DISPOSITION
The order denying appellant's anti-SLAPP motion is affirmed. Respondent is to recover its costs on appeal. Appellant's request for judicial notice is denied.
BEDSWORTH, ACTING P. J. WE CONCUR: MOORE, J. THOMPSON, J.