Opinion
G054568
06-25-2018
LILLIAN GAVIN et al., Plaintiffs, Cross-defendants and Appellants, v. FRANKLIN TRUE, Defendant, Cross-complainant and Respondent.
Carothers DiSante & Freudenberger, Todd Wulffson, Robin E. Largent and David Szwarcsztejn for Plaintiffs, Cross-defendants and Appellants. Limnexus, Bryan King Sheldon and David D. Yang for Defendant 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 30-2016-00857184) OPINION Appeal from an order of the Superior Court of Orange County, James E. Loveder, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed. Carothers DiSante & Freudenberger, Todd Wulffson, Robin E. Largent and David Szwarcsztejn for Plaintiffs, Cross-defendants and Appellants. Limnexus, Bryan King Sheldon and David D. Yang for Defendant and Respondent.
INTRODUCTION
Lillian Gavin, Richard Sanchez, and Opus Bank appeal from an order granting respondent Franklin True's anti-SLAPP motion. Appellants sued True for defamation and other causes of action after True accused Gavin of fraudulent loan practices. True responded with an anti-SLAPP motion, contending his accusations were protected activity, and the trial court agreed.
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.)
We reverse. True did not carry his burden of showing protected activity under either of the anti-SLAPP categories he identified in his motion - official proceeding or public issue. The complaint in this action centers on a workplace dispute that does not have the necessary connection to a constitutional right of free speech or of petition.
FACTS
Gavin, Sanchez, and True were vice-presidents of Opus Bank, a commercial bank based in Southern California. They all worked in Opus Bank's Irvine office. Gavin was True's direct supervisor; Sanchez was Gavin's superior.
In early 2016, Gavin gave True an unfavorable performance review for the year 2015, concluding that he was "not meeting expectations." If his performance did not improve, he would be fired. True then complained to the Opus Bank human resources department (HR) by email dated March 15, 2016, that Gavin was engaged in fraudulent internal loan review practices. He stated Gavin was discounting or disregarding True's loan exception findings. True also complained he was being coerced into concealing bad loans and contributing to the cover-up himself. In addition, Gavin "isolated" him from other loan departments, prohibiting him from contacting them directly with his questions and comments. He asserted that Sanchez had revealed during the prior year's holiday party, "perhaps out of inebriation," that the bank might be sold, thereby accounting for the desire to cover up bad loans. True referred to the Federal Deposit Insurance Corporation's (FDIC's) regulatory guidelines, stating that the bank's loan review personnel were not qualified or independent. He concluded, "While I would like to remain in place, employed by Opus Bank, I am not willing to participate in dishonest or fraudulent activity, or coercion by my boss to do so [sic], in order to gain a favorable sale of the Bank. [¶] Please let me know when you have made my work conditions safe for return."
Opus Bank's team member handbook stated, "Team members are encouraged to raise work-related concerns with their immediate supervisor or other management representative as soon as possible after the events that cause concern. Team members are further encouraged to pursue discussions of their work-related concerns until the matter is fully resolved, including contacting Human Resources, if appropriate. [¶] Team members who conclude that work-related concerns should be brought to the attention of the Company by written complaint and formal investigation should file written complaints with the Chief Human Resources Officer. The written complaint shall be received, logged, and investigated by Human Resources. . . . [¶] . . . [¶] If you believe any of the following have occurred, report it to Human Resources, the Sr. Executive Vice President, General Counsel, or any member of Management: [¶] Federal criminal law involving securities fraud, mail fraud, company fraud, wire fraud; [¶] SEC rules or regulations; [¶] Federal law relating [to] fraud against shareholders; [¶] Instances of Corporate Fraud; or [¶] Unethical Business Conduct."
"Loan exceptions" appear to be aspects of a loan or borrower that would indicate risk.
One loan analyst, he claimed, was hired because he was Sanchez's son.
Opus Bank immediately began investigating True's charges, through an outside law firm. The final investigation report, issued at the end of May, concluded not only that True's charges were unfounded but also that he had fabricated them and made them in bad faith. The investigator found that Gavin had never instructed True to falsify loan reviews, that the real cause of the problem was True's refusal to perform his job properly, despite repeated instruction from Gavin, and that True's condescending attitude and nitpicking had alienated employees in other departments to the extent that these people did not want to have any contact with him. "True made these charges [of fraudulent and unethical practices] with full knowledge that they were false when made."
The trial court sustained True's objection to the report on hearsay grounds as to the truth of the matter stated and overruled it for non-hearsay purposes. Whether the statements made in the report were true is not relevant to this appeal, and we express no opinion on this subject.
Opus Bank fired True in June 2016.
Opus Bank, Gavin, and Sanchez filed a complaint against True, alleging defamation and six other causes of action, arising from his report of their conduct. They filed a first amended complaint, the operative pleading, alleging defamation and a slightly different mix of causes of action.
The defamation cause of action of the first amended complaint alleged that the following statements in the email to HR were defamatory: (1) Gavin and Sanchez required True to commit fraudulent internal loan review practices; (2) Gavin subjected True to abusive behavior and improper retaliation; and (3) Sanchez, while drunk, told True that if the bank were sold he and his fellow employees could say they worked there because it was a good bank. The remaining causes of action, for fraud, emotional distress, and breaches of duty, were nearly all based on the e-mail True had sent to HR regarding the allegedly fraudulent loan practices.
Sanchez alleged this statement was defamatory because it implied he revealed confidential information about the bank's sale to employees who were not authorized to have it.
The fraud and breach of duty causes of action were alleged by the bank.
True responded with an anti-SLAPP motion. He invoked two aspects of the anti-SLAPP statute: Code of Civil Procedure section 425.16, subdivision (e)(1), a statement made before an official proceeding authorized by law; and section 425.16, subdivision (e)(4), conduct in furtherance of the constitutional right of free speech in connection with a public issue or issue of public interest. True argued that because Opus Bank was a publicly traded company, whether it was operating outside banking norms was an issue of public interest. Furthermore, his email to HR was a writing before an official proceeding authorized by law, as a proposed complaint to bank regulators seeking an investigation.
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
The parties stipulated to the appointment of a judge pro tem to hear the motion. The court granted the motion, holding that True had carried his burden to show protected activity because the federal Bank Secrecy Act required banks to report suspicious activity to the authorities. The email was therefore protected activity under the "official proceeding" portion of the anti-SLAPP statute. The court further held the plaintiffs could not show a probability of prevailing because the email was protected by the absolute privilege of Civil Code section 47.
The court did not address the "public issue" argument.
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." (§ 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. (§ 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.)
"Resolution of an anti-SLAPP motion involves two steps. First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. [Citation.] If the defendant makes the required showing, the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success." (Baral v. Schnitt (2016) 1 Cal.5th 376, 384 (Baral).)
"[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 v. Sletten (2002) 29 Cal.4th 82, 89; see Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1068 [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].)
On appeal, True bases his protected activity argument on three kinds of protected statements or conduct: those made in an official proceeding (§ 425.16, subd. (e)(1)); those made in connection with a review by a judicial body (§ 425.16, subd. (e)(2); and conduct connected with a public issue. (§ 425.16, subd. (e)(4).) At the outset, we can immediately dispose of two of the three bases of the defamation cause of action in the first amended complaint as being based on protected activity. Claims by True that Gavin subjected him to "abusive behavior and improper retaliation" at work and that Sanchez improperly told employees they could say Opus Bank was a good bank have nothing to do with an official proceeding or an issue of public interest. They deal with purely private matters. (See Weinberg v. Feisel (2003) 110 Cal.App.4th 1122, 1135 (Weinberg); Olaes v. Nationwide Mutual Ins. Co. (2006) 135 Cal.App.4th 1501, 1509 [company sexual harassment procedure not official proceeding] (Olaes); cf. Cuenca v. Safeway San Francisco Employees Fed. Credit Union (1986) 180 Cal.App.3d 985, [investigation into plaintiff's activities by credit union board not "official proceeding" under Civ. Code, § 47].) The defamation action regarding these two categories of statements did not "arise from" protected activity. (See Baral, supra, 1 Cal.5th at pp. 394, 396 [unprotected activity disregarded for first prong of anti-SLAPP analysis].)
This leaves the allegedly defamatory statement that Gavin and Sanchez required True to commit fraudulent internal loan review practices. In his email to HR, True asserted that he was not allowed to record exceptions for the loans he was reviewing. This was, according to True, because Gavin did not want the bank to "look bad" to outside bank examiners. For purposes of our anti-SLAPP analysis, the question becomes whether True's email to Opus Bank's HR regarding allegedly fraudulent internal loan review practices was made before an "official proceeding authorized by law," or represented conduct in furtherance of the constitutional right of free speech "in connection with a public issue or an issue of public interest." I. Official Proceeding (§ 425.16 , subd. (e)(1))
Actually, True's email did not attribute any fraudulent activity to Sanchez. True's (implied) criticism of Sanchez was that he got his son a job at the bank for which he was unqualified. This charge does not appear as one of the allegations of defamation in the first amended complaint.
On appeal, True argued a third subdivision of section 425.16 protects the email as a statement made in connection with an issue under review by a judicial body (§ 425.16, subd. (e)(2)), because it was made in anticipation of litigation, i.e., his wrongful termination suit. He did not make this argument in the trial court, and he has not explained why he did not do so. The argument is therefore waived. (See Hunter v. CBS Broadcasting Inc. (2013) 221 Cal.App.4th 1510, 1527; Bently Reserve LP v. Papaliolios (2013) 218 Cal.App.4th 418, 436; see Bikkina v. Mahadevan (2015) 241 Cal.App.4th 70, 92-93.) In any event, a protected statement made in anticipation of litigation must be made in connection with litigation that is imminent and anticipated in good faith. (See Eisenberg v. Alameda Newspapers, Inc. (1999) 74 Cal.App.4th 1359, 1381; Dickinson v. Cosby (2017) 17 Cal.App.5th 655, 682.) When True wrote the email (in March 2016), he was still employed by Opus Bank. The email did not allude to litigation or settlement; the outcome True sought was for the bank to make his "work conditions safe for return." He was not fired until after the investigation had concluded that he had made up the fraud charges, and he did not sue for wrongful termination until six months after writing the email.
A '"communication to an official administrative agency . . . designed to prompt action by that agency"' is '"as much a part of the 'official proceeding' as a communication made after the proceedings had commenced."' [Citations.]" (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1009 [complaint to Securities and Exchange Commission (SEC) protected "official proceeding" communication]; see Comstock v. Aber (2012) 212 Cal.App.4th 931, 941-942 [filing police report protected activity] (Comstock); Fontani v. Wells Fargo Investments, LLC (2005) 129 Cal.App.4th 719, 728-730, disapproved on other grounds Kibler v. Northern Inyo County Local Hospital Dist. (2006) 39 Cal.4th 192 [complaint to National Association of Securities Dealers (NASD) protected "official proceeding" activity; NASD has authority to regulate broker conduct].)
But True did not communicate with an official administrative agency; he communicated with the bank's HR department. Was communicating with HR the same as or equivalent to communicating with an official agency? We think not.
The trial court analogized the email to HR with the report of sexual assault to a nurse in Comstock, supra. Comstock cross-complained against Aber for defamation for telling a nurse that Comstock had sexually assaulted her. The nurse then reported Aber's statements to the police, as she was required to do under Penal Code section 11160, subdivision (a). The court held that "the Legislature intended that information about potential criminal conduct be provided to law enforcement, for it to determine what action, if any, to take. Put otherwise, it would appear that the Legislature intended that reporting of information to a mandatory reporter result in a governmental investigation - an 'official proceeding' - even when the victim does not directly report to the law enforcement agency." (Comstock, supra, 212 Cal.App.4th at p. 943.)
Penal Code section 11160, subdivision (a), provides, in pertinent part: "Any health practitioner . . . who, in his or her professional capacity or within the scope of his or her employment, provides medical services for a physical condition to a patient whom he or she knows or reasonably suspects is a person described as follows, shall immediately make a report in accordance with subdivision (b): [¶] . . . [¶] (2) Any person suffering from any wound or other physical injury inflicted upon the person where the injury is the result of assaultive or abusive conduct." Subdivision (b) requires the health practitioner to make this report to local law enforcement.
We need not decide whether reporting an assault to a nurse is equivalent to making a police report for "official proceeding" purposes. Even if it was, True would still have to show Opus Bank was a mandated reporter such that it was required to pass True's charges on to some government agency. No such showing can be made.
A bank subject to FDIC regulation must file a suspicious activity report (SAR) "[w]henever the bank detects any known or suspected federal criminal violation, or pattern of criminal violations, committed or attempted against the bank . . . where the bank believes it was either an actual or potential victim of a criminal violation" involving one of the bank's insiders. (12 C.F.R. 353.3(a)(1) (2016).) The necessity for filing a SAR is thus dependent on the bank's belief it has been the victim of a crime.
The trial court was under the impression that the operative statute, the Annunzio-Wylie Anti-Money Laundering Act of 1992, was amended after the 2008 recession to expand the oversight of the Treasury Department to cover the kind of irresponsible lending activity that caused the recession. In fact, the language quoted - "The [Secretary of the Treasury] may require any financial institution ., . . to report any suspicious transaction relevant to a possible violation of law or regulation" (31 U.S.C. § 5318, subd. (g)(1)) - preceded the 2008 recession by at least 16 years. In addition, the Code of Federal Regulations required banks to file SAR's long before the recession. The types of transactions that must be reported did not change after 2008.
According to the Bank Secrecy Act/Anti-Money Laundering Examination Manual of the Federal Financial Institutions Examination Council, the bank itself is initially responsible for investigating allegations of criminal violations by its employees. After thorough research and analysis of the activity in question has been completed, "findings are typically forwarded to a final decision maker." (Fed. Financial Insts. Examination Council, Bank Secrecy Act/Anti-Money Laundering Examination Manual (2014) Suspicious Activity Reporting — Overview, p. 68 <https://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2014_v2.pdf> [as of June 5, 2018] (Examination Manual).) The decision maker then has the authority to make "the final SAR filing decision," which the bank should document whether or not a SAR is filed. (Ibid.) "[N]o single form of documentation is required when a bank decides not to file." (Ibid.)
The Federal Financial Institutions Examination Council is a body established by Congress consisting of the comptroller of the currency, the chair of the FDIC, a member of the board of governors of the Federal Reserve System, the director of the Consumer Financial Protection Bureau, the chair of the National Credit Union Administration Board, and the chair of the State Liaison Committee. (12 U.S.C. § 3303.) Among its other duties, the council is tasked with establishing principles, standards, and report forms for examining financial institutions; making recommendations regarding supervisory matters and tools; developing a uniform reporting system, and training examiners. (12 U.S.C. § 3305.)
We have taken judicial notice of the Examination Manual, after notifying the parties.
"The decision to file a SAR is an inherently subjective judgment. Examiners should focus on whether the bank has an effective SAR decision-making process, not individual SAR decisions. . . . In those instances where the bank has an established SAR decision-making process, has followed existing policies, procedures, and processes, and has determined not to file a SAR, the bank should not be criticized for the failure to file a SAR unless the failure is significant or accompanied by evidence of bad faith." (Examination Manual, supra, at p. 68.)
As can be seen from these excerpts from the Examination Manual, banks enjoy considerable discretion regarding whether to file a SAR with the appropriate federal agency. They are not mandated reporters like the nurse in Comstock, supra, to whom the Penal Code gave no choice about whether to report an assault to the police and no investigative role in determining whether the assault took place. Instead, banks conduct their own internal investigations of reported misdeeds and decide whether to file a SAR with the banking authorities. That is what happened here; Opus Bank conducted its own investigation of True's charges - through outside counsel - and concluded they were unfounded. No SAR was therefore necessary.
Again, we express no opinion regarding the correctness of these findings.
Reporting a suspected criminal violation to a bank is not equivalent to making a report to a government agency to prompt an investigation. Indeed, if True thought Gavin or the bank was breaking the law, he could have contacted the FDIC or the appropriate regulators directly. His email is thus not protected activity under the official proceeding portion of the anti-SLAPP statute. II. Issue of Public Interest (§ 425.16 , subd. (e)(4))
True also argues there was an issue of public interest. Courts have struggled to define "public issue" and "issue of public interest" as those terms are used in section 425.16, subdivision (e)(4). After surveying the applicable cases, the court in Rivero v. American Federation of State, County and Municipal Employees, AFL-CIO (2003) 105 Cal.App.4th 913 (Rivero) concluded that a public issue (a) "concerned a person or entity in the public eye," (b) involved "conduct that could directly affect a large number of people beyond the direct participants," or (c) concerned "a topic of widespread, public interest[.]" (Id. at p. 924.) The court in Weinberg, supra, 110 Cal.App.4th 1122 added a few more observations. An issue of public interest "should be something of concern to a substantial number of people," not to a "relatively small, specific audience[.]" There must be "some degree of closeness between the challenged statements and the asserted public interest," and "the assertion of a broad and amorphous public interest is not sufficient[.]" (Id. at p. 1132.)
In determining whether section 425.16, subdivision (e)(4), applies to allegations of a complaint, one of the trial court's basic tasks is to draw the boundaries of the issue. What is this complaint really about? If the boundaries are drawn too expansively, any issue will become a "public issue" or an "issue of public interest." As the court observed in Rivero, any workplace dispute would become a public issue if the dispute is characterized as being about workplace fairness or employment in general. (Rivero, supra, 105 Cal.App.4th at p. 924.) A garden-variety contract case could be about business ethics or the entrepreneurial system. (See World Financial Group, Inc. v. HBW Ins. & Financial Services, Inc. (2009) 172 Cal.App.4th 1561, 1569 ["[D]efendants erroneously identify generalities that might be derived from their speech rather than the specific nature of what they actually said and did."].)
The evidence presented in connection with this anti-SLAPP motion demonstrated that the complaint in this case is really about a workplace dispute between a loan reviewer and his supervisor in one branch of a bank. True accused only Gavin of fraudulent concealment, and he did not suggest that fraud was widespread in the Irvine branch, let alone throughout Opus Bank as a whole. (See Du Charme v. International Brotherhood of Electrical Workers (2003) 110 Cal.App.4th 107, 119 [statement of interest only to limited group; no ongoing controversy].) The loan reviewer (True) and the supervisor (Gavin) disagreed about what the reviewer's job entailed and how he was to perform it. They also disagreed about the proper way for the reviewer to interact with people in other departments of the bank. There is no public issue or issue of public interest here. (See Baughn v. Department of Forestry & Fire Protection (2016) 246 Cal.App.4th 328, 338-339; Olaes, supra, 135 Cal.App.4th at p. 1511 ["[A]n investigation by a private employer concerning a small group of people does not rise to a public interest. . . . [A] dispute among a small number of people in a workplace does not implicate a broader public interest subject to a motion to strike . . . ."].)
In addition, causes of action alleged by the bank - breach of fiduciary duty, breach of duty of loyalty, and breach of contract - all allege that True "fail[ed] to exercise reasonable care and skill in performing his services to Opus." Although it is not clear what this means, it is also not clear that this alleged failure is related to the email to HR. As we are reversing the order granting the anti-SLAPP motion, we need not explore this issue further. --------
Because we have determined True did not show protected conduct under the first prong of anti-SLAPP analysis, we need not reach the issue of whether appellants established a probability of prevailing. (See Cashman, supra, 29 Cal.4th at pp. 80-81.)
DISPOSITION
The order granting the anti-SLAPP motion is reversed. Appellants are to recover their costs on appeal.
BEDSWORTH, J. WE CONCUR: O'LEARY, P. J. GOETHALS, J.