Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court for the County of Los Angeles No. BC 349925. Terry A. Green, Judge.
Richardson & Patel and Luan K. Phan for Defendants and Appellants.
Keith A. Fink and Associates, Keith A. Fink and S. Keven Steinberg for Plaintiffs and Respondents.
COOPER, P. J.
SUMMARY
The former chief executive officer of a company sued the company and others, alleging breach of his employment agreement and other wrongs based on the company’s refusal to remove the restrictive legend from shares of stock issued to the CEO, thus preventing their sale. The company filed a special motion to strike the complaint under the anti-SLAPP (strategic lawsuit against public participation) statute. The company argued that its private communications refusing to remove the restrictive legend were based on earlier telephone conversations with the Securities and Exchange Commission (SEC), in which the company was told the stock could not be sold pursuant to the registration exemption upon which the CEO relied.
We hold that the trial court properly denied the company’s special motion to strike the complaint. The CEO’s complaint did not arise from the company’s communications with the SEC, but rather was based on the company’s refusal to remove the restrictive legend, conduct which was not protected activity within the meaning of the anti-SLAPP statute.
FACTUAL AND PROCEDURAL BACKGROUND
Marvin Fink was the Chief Executive Officer and Chairman of the Board of Signalife, Inc. from October 12, 2002 until March 21, 2005, when he was removed from his position on the Board by vote of the company’s majority shareholder and forced from his position as CEO. Signalife is a life science products company in the business of researching and developing medical technology. In 2002, Signalife had just emerged from bankruptcy and sought Fink’s services to spearhead its operations. In June 2005, a few months after Fink’s termination, Signalife began trading on the American Stock Exchange.
Under Fink’s employment agreement with Signalife, his base salary was $1.00 annually, but the agreement provided for Fink’s participation in a management bonus plan and granted him 700,000 shares of restricted common stock, as well as other employee benefits and perquisites. The stock (which split and amounted to 2,100,000 shares when Fink’s employment ended) vested at a rate of 8.33% per quarter, and all of it fully vested on his termination.
The stock is actually owned by the Fink Family Trust, and Fink is the plaintiff in this suit in his capacity as trustee of the Fink Family Trust as well as in his individual capacity.
After his termination, Fink wanted to sell his restricted stock to the public under the registration exemption provisions of the SEC’s Rule 144. (17 C.F.R. § 230.144 (2007).) While it is unnecessary to recite the details of Rule 144, its general conditions include a holding period of at least one year; compliance by the issuer (Signalife) with periodic reporting requirements of the securities laws; volume restrictions; the handling of sales as routine trading transactions; and filing notice with the SEC. A person who is not an affiliate (one in a control relationship) of the issuer and has held the securities for two years can sell them without regard to the Rule 144 conditions. (Also, according to the SEC’s web site, the SEC does not allow a “blank check” company – a development stage company that has no specific business plan or purpose – to use some of the SEC’s registration exemptions when its securities are sold.) In any event, restricted securities cannot be sold to the public until the restrictive legend has been removed by a transfer agent, who will not remove the legend without the consent of the issuer – usually in the form of an opinion letter from the issuer’s counsel.
In May 2005, Fink filed a Rule 144 notice of his intention to sell some of his Signalife securities, and submitted a Rule 144 form to his stockbroker, Bear Stearns and Co., stating his compliance with all the necessary requirements of Rule 144. Bear Stearns asked Signalife for an opinion letter stating that the restrictive legend could be lifted; Fink requested outside counsel for Signalife, Richardson & Patel, to prepare such an opinion; and Richardson & Patel did so. Signalife ignored the opinion letter, and the transfer agent, Atlas Stock Transfer Corp., refused to remove the restrictive legend absent an opinion letter satisfactory to Signalife. Thereafter, Fink and representatives of Signalife met to discuss other methods of selling Fink’s shares, such as to private buyers. Fink was told the reason for Signalife’s refusal to allow Fink to trade his shares publicly was that the market would negatively perceive a sale of so much stock by Signalife’s former CEO, and the public value would decline. Signalife took no further action, however, and Fink then sought to have the restrictive legend lifted from all his stock. Signalife refused to permit the restriction to be lifted. Meanwhile, Signalife facilitated the sale of stock by its majority shareholder by registering four million of its shares.
In March 2006, Fink sued Signalife, Atlas Stock Transfer, Arc Finance Group, LLC (Signalife’s majority shareholder) and several individuals, alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, fraud and deceit, negligence, and other claims. The complaint sought general, special and punitive damages, and a mandatory injunction directing Signalife to accept an opinion letter satisfactory to the court stating that the restrictive legend could be lifted from Fink’s shares, and directing Atlas Stock Transfer to reissue shares to Fink without the restrictive legend. The essence of Fink’s claim, as he described it in his complaint, was this:
“Defendants induced Mr. Fink to labor on their behalf for two and a half years by promising to compensate him with restricted Signalife stock, which he would be permitted to sell as soon as he qualified to lift the restriction, but have refused to lift the restriction so that Ms. Hampton-Stein [sole owner of Arc Finance], the majority shareholder, may offer her shares to the market without competition. As a result of Defendants’ actions, Signalife has essentially frozen Mr. Fink’s shares while they have allowed Signalife’s majority shareholder to avail itself of the public market without competition from Mr. Fink.”
Signalife and the other defendants (collectively, Signalife) filed special motions to strike the complaint under Code of Civil Procedure section 425.16, the anti-SLAPP statute. They argued Fink’s causes of action were based on Signalife’s protected First Amendment activity. Specifically, Signalife asserted Fink’s complaint was based on Signalife’s communications with the transfer agent, Fink’s broker and others, refusing to permit the removal of the restrictive legend and sale of the stock. These communications by Signalife were a “continuation” of a “dialogue” by Signalife with the SEC, in which “[o]n multiple occasions” counsel for Signalife called the SEC asking for guidance on the legality of the use of Rule 144 in “transactions such as Fink was attempting . . . .” Signalife asserted the SEC informed it that Rule 144 could not be used for shares issued by Signalife when it was a “blank-check” company. Therefore, Signalife contended, its conduct and communications “to prevent the transfers Fink sought were directed to preventing an illegal act, and in furtherance of Signalife’s petitioning of the SEC concerning the legality of these transactions.” And, Fink could not show a probability of prevailing on the merits of his claims because, among other reasons, a Rule 144 exemption was not available to him as a matter of law.
All statutory citations are to the Code of Civil Procedure unless otherwise stated.
The trial court denied Signalife’s anti-SLAPP motion. It observed that Fink did not sue Signalife for its communication to the SEC, but for acts it took as a result of that communication, and those acts were not in furtherance of its First Amendment rights within the terms of the statute. Since Signalife did not meet its threshold burden of showing Fink’s complaint arose from protected activity, it was unnecessary to consider whether Fink had established a probability of prevailing on his claims. The court declined to award attorney fees and costs to Fink.
Signalife filed a timely appeal from the trial court’s denial of its special motion to strike.
Fink filed a motion to dismiss Signalife’s appeal as frivolous, which this court denied on February 16, 2007. On November 14, 2007, Fink filed a request for judicial notice of its earlier motion to dismiss and its accompanying exhibits. On February 20, 2008, Signalife filed a request for judicial notice of various court of appeal and trial court records in this case. Both motions are denied, as the documents for which judicial notice is requested are either in the appellate record or unnecessary to our consideration of this appeal.
DISCUSSION
We agree with the trial court that Fink’s causes of action did not arise from protected activity within the meaning of the anti-SLAPP statute. We briefly review the principles governing anti-SLAPP motions, before turning to the particulars of this case.
The anti-SLAPP statute is a procedural remedy to dispose of lawsuits that are brought to chill the valid exercise of First Amendment rights of petition and free speech. (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1055-1056 (Rusheen).) In evaluating an anti-SLAPP motion, the trial court first decides whether the defendant has made a threshold showing that the challenged cause of action arises from protected activity. (Id. at p. 1056.) If the court finds the defendant has made the threshold showing, then the court determines whether the plaintiff has demonstrated a probability of prevailing on the claim. (Ibid.)
This case involves the first, “arising from,” prong of the analysis: whether Signalife made the required threshold showing that Fink’s complaint arose from Signalife’s protected activity. The Supreme Court has stated:
“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 falls within one of the four categories described in subdivision (e), defining subdivision (b)’s phrase, ‘act in furtherance of a person’s right of petition or free speech . . . .’” (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66, emphasis added (Equilon Enterprises).)
Subdivision (e) describes the four categories as follows: “As used in this section, ‘act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue’ includes: (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; (4) or 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.”
Further, “the statutory phrase ‘cause of action . . . arising from’ means simply that 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.” (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78 (City of Cotati).)
Signalife contends that the acts “by which [Fink] claims to have been injured” (Equilon Enterprises, supra, 29 Cal.4th at p. 66) consist of Signalife’s “communications to a stock transfer company and others of their refusal to approve the removal of the restrictive legend on certain stock owned by [Fink] – a refusal based on advice received from the [SEC].” These private communications, Signalife claims, are “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” within the meaning of subdivision (e)(4) of the statute. (§ 425.16, subd. (e)(4).) We cannot agree.
In the trial court, Signalife claimed that its conduct fell within all four categories of protected activity described in subdivision (e) of the statute. On appeal, however, Signalife’s opening brief argued only that its conduct constituted protected activity under subdivision (e)(4), as discussed in the text. In its reply brief, Signalife claims that it focused on the fourth category “for simplicity and to streamline the issues,” but that this court “can find that any of the four categories applies.” But none does. Signalife’s communications to its transfer agent and Fink’s broker refusing to remove the restrictive legend from Fink’s stock were not “made before a legislative, executive, or judicial proceeding, or any other official proceeding . . . .” (§ 425.16, subd. (e)(1).) Nor were they “made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding . . . . ” (§ 425.16, subd. (e)(2).) And they were not “made in a place open to the public or a public forum . . . .” (§ 425.16, subd. (e)(3).)
It may be, as Signalife contends, that its refusal to remove the restrictive legend from Fink’s stock was “due, in part, to advice it had received from the SEC” in its telephone calls to SEC staff. But the question is not whether Signalife’s refusal to remove the restrictive legend arose from or was based on its calls to the SEC. The question is whether the conduct Fink complains about – refusal to remove the legend – was itself protected First Amendment activity. The Supreme Court’s directions in Equilon Enterprises and City of Cotati are clear: The act “by which [Fink] claims to have been injured” – Signalife’s refusal to remove the legend – “must itself have been an act in furtherance of the right of petition or free speech.” (Equilon Enterprises, supra, 29 Cal.4th at p. 66; City of Cotati, supra, 29 Cal.4th at p. 78.) It was rather obviously not.
An illustrative case is Gallimore v. State Farm Fire & Casualty Ins. Co. (2002) 102 Cal.App.4th 1388 (Gallimore). In Gallimore, plaintiff’s complaint alleged claims mishandling conduct by the defendant insurer, who argued that plaintiff’s allegations of claims mishandling were based on, and arose from, confidential written reports and related materials the insurer had filed with the Department of Insurance. (Id. at p. 1391.) The court found no basis for a SLAPP motion, observing the insurer confused allegations of wrongdoing with the evidence required to prove them. (Ibid.) As Gallimore observed:
“[H]is [plaintiff’s] complaint alleges that State Farm engaged in certain claims handling misconduct . . . . He seeks . . . to call State Farm to task for that conduct. Plaintiff seeks no recovery from State Farm for State Farm’s activity in communicating information to [the Department of Insurance], nor does he allege that any such communication was wrongful or the cause of any injury to him.” (Gallimore, supra, 102 Cal.App.4th at p. 1399.)
Similarly here, Signalife tries to merge Fink’s allegations of wrongdoing (the refusal to remove the restrictive legend) with evidence pertinent to a possible defense against those allegations (its telephone calls seeking advice from the SEC). This it may not do, as City of Cotati clearly specifies: “[T]he 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.” (City of Cotati, supra, 29 Cal.4th at p. 78.) In short, Signalife’s call to the SEC may well be protected activity, but Fink’s lawsuit did not arise from and was not based on Signalife’s call to the SEC. (Indeed, there is not the slightest indication that Fink even knew of Signalife’s conversations with the SEC until Signalife filed its anti-SLAPP motion.) Fink’s lawsuit was based on Signalife’s conduct in refusing to remove the restrictive legend from his stock. A plaintiff’s cause of action does not arise from protected activity merely because it was filed after protected activity took place, and even a cause of action that is arguably “triggered” by protected activity “does not entail that it is one arising from such.” (Navellier v. Sletten (2002) 29 Cal.4th 82, 89.) As Gallimore concluded, the defendant insurer’s report to the Department of Insurance in that case “may have … ‘triggered’ plaintiff’s action, but that action did not ‘arise from’ such report nor from any communication by State Farm to the [Department of Insurance] in connection therewith.” (Gallimore, supra, 102 Cal.App.4th at p. 1399.) So it is here.
Signalife insists that its refusal to remove the legend, as communicated to Atlas and Fink’s broker, was itself protected activity under subdivision (e)(4) as “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.” (§ 425.16, subd. (e)(4).) But Signalife cannot explain in any reasoned way how its private communications refusing to remove the legend from Fink’s stock were “in furtherance of” its First Amendment rights, much less how any issue of public interest is implicated by its conduct. It claims, variously, that its refusal is comparable to “litigation tactics” analogous to those found to be protected activity in Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 672 (Peregrine Funding); that its conduct was undertaken to “prevent wrongdoing”; and that its conduct concerned an issue of public interest, namely, “compliance with SEC regulations.” Both the cases and common sense compel us to disagree.
We begin with the precedents Signalife cites. None supports its claim. Peregrine Funding involved acts (in addition to statements in judicial proceedings) by the defendant law firm that, while not “communicative per se,” were in furtherance of the firm’s petition rights “in that they were litigation tactics the firm employed to benefit its [client’s] position in an ongoing lawsuit.” (Peregrine Funding, supra, 133 Cal.App.4th at p. 672.) Peregrine Funding is not even faintly comparable to this case. Other cases Signalife cites likewise demonstrate, on their facts, the shortcomings of Signalife’s claim. (See, e.g., ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1009-1010 [posting on an internet web site of a complaint filed with the SEC amounted to a statement in a public forum in connection with an issue of public interest; company’s possible securities law violations qualified as an issue of public interest to the investing public]; Fontani v. Wells Fargo Investments, LLC (2005) 129 Cal.App.4th 719, 725-726, 732-733 [company’s statement in a form filed with the National Association of Securities Dealers concerning reasons for broker’s termination (misrepresentations broker made when selling annuities) was conduct falling under subdivision (e)(4) as a matter of public interest], disapproved on another ground in Kibler v. Northern Inyo County Local Hospital Dist. (2006) 39 Cal.4th 192, 203, fn. 5.)
See also Ingels v. Westwood One Broadcasting Services, Inc. (2005) 129 Cal.App.4th 1050, 1064 [defendants’ activity in providing an open forum by means of a call-in radio talk show fits within the scope of subdivision (e)(4)].
Signalife is correct when it points out that private communications on public issues may come within the protection of subdivision (e)(4). (See, e.g., Integrated Healthcare Holdings, Inc. v. Fitzgibbons (2006) 140 Cal.App.4th 515, 523 [suit based on an e-mail message questioning a company’s financial condition was subject to special motion to strike, as the message concerned an issue of public interest under subdivision (e)(4); question of company’s ability to successfully operate four hospitals, and potential harm to the public should it fail, had been the subject of public hearings and discussion in newspapers and periodicals].) But cases finding a public issue “either [concern] a person or entity in the public eye [citations], conduct that could directly affect a large number of people beyond the direct participants [citations] or a topic of widespread public interest [citation].” (Rivero v. American Federation of State, County & Municipal Employees (2003) 105 Cal.App.4th 913, 924 (Rivero).) Signalife’s communications to its transfer agent and to Fink’s broker of its refusal to approve removal of the restrictive legend meet none of these criteria.
See also Ruiz v. Harbor View Community Assn. (2005) 134 Cal.App.4th 1456, 1468-1470 [letters from homeowners’ association lawyer to homeowner concerned governance of the association and enforcement of architectural guidelines, matters of public interest and concern to members of the association, a definable portion of the public]; Tuchscher Development Enterprises, Inc. v. San Diego Unified Port District (2003) 106 Cal.App.4th 1219, 1233 [definition of public interest has been broadly construed to include “‘private conduct that impacts a broad segment of society and/or that affects a community in a manner similar to that of a governmental entity’”; development of bayfront property with potential environmental impacts was plainly a matter of public interest].
See also Du Charme v. International Brotherhood of Electrical Workers (2003) 110 Cal.App.4th 107, 119 [“in cases where the issue is not of interest to the public at large, but rather to a limited, but definable portion of the public (a private group, organization, or community), the constitutionally protected activity must, at a minimum, occur in the context of an ongoing controversy, dispute or discussion, such that it warrants protection by a statute that embodies the public policy of encouraging participation in matter of public significance”].
In short, Signalife’s conduct in refusing to remove the restrictive legend on Fink’s stock was quintessentially private conduct. It did not involve anyone in the public eye; it did not “directly affect” anyone other than Fink and Signalife; and it did not involve a topic of widespread public interest. (Rivero, supra, 105 Cal.App.4th at p. 924.) If every action taken for the asserted purpose of “[a]ssur[ing] . . . compliance” with government regulations were to be considered a matter of public interest and in furtherance of First Amendment rights, there would be literally no end to the coverage of the anti-SLAPP statute. That would be clearly inconsistent with the Legislature’s purpose, which was to provide a method for disposing of lawsuits that are brought to chill the valid exercise of constitutional rights of petition and free speech. (Rusheen, supra, 37 Cal.4th at pp. 1055-1056.) The bottom line in this case is that Signalife’s only arguably protected activity was its telephonic communication with the SEC. But, as we have seen, Fink’s lawsuit did not arise from that communication, but rather from Signalife’s conduct in refusing to remove the restrictive legend from his stock. Because that conduct was not itself an act in furtherance of the right of petition or free speech in connection with a public issue (see City of Cotati, supra, 29 Cal.4th at p. 78), the trial court properly denied Signalife’s special motion to strike the complaint.
As the court observed in Department of Fair Employment & Housing v. 1105 Alta Loma Road Apartments, LLC (2007) 154 Cal.App.4th 1273, 1286, “‘“When considering a section 425.16 motion, a court must consider the actual objective of the suit and grant the motion if the true goal is to interfere with and burden the defendant’s exercise of his free speech and petition rights.”’” This is obviously not such a case.
One final point: Fink insists he should have been awarded attorney fees under section 425.16, subdivision (c), which requires the trial court to award costs and fees to a prevailing plaintiff, pursuant to section 128.5, if the court finds the special motion to strike was frivolous or solely intended to cause unnecessary delay. He asks this court to award him those fees ($16,450), as well as fees with respect to his previous motion to dismiss this appeal ($3,150) and additional sanctions in the form of fees for having to defend this appeal. The trial court declined to award attorney fees, and this court denied Fink’s motion to dismiss the appeal. While we have concluded there was no merit in Signalife’s contention that the trial court erred in denying its anti-SLAPP motion, we cannot say its anti-SLAPP motion or its appeal was frivolous.
DISPOSITION
The order is affirmed. The respondents are to recover their costs on appeal.
We concur: FLIER, J., EGERTON, J.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.