Opinion
NOT TO BE PUBLISHED
Appeal from an order of the Superior Court of Orange County, No. 30-2009-00180152, Ronald L. Bauer, Judge.
Venable, Dan Chammas, and Noah Steinsapir for Defendant and Appellant United Law Group, Inc.
Lakeshore Law Center, Jeffrey Wilens; Spencer Law Firm, and Jeffrey Spencer for Plaintiff and Respondent.
OPINION
IKOLA, J.
Defendants United Law Group, Inc. (ULG) and Sean Alan Rutledge appealed from the denial of their special motion to strike the complaint of plaintiff Cu Phan under Code of Civil Procedure section 425.16 (section 425.16 or the anti-SLAPP statute). Shortly after oral argument in this court, ULG filed a voluntary bankruptcy petition. We therefore issued our opinion (affirming the court’s order denying defendants’ anti-SLAPP motion) solely as to Rutledge. On April 7, 2011, we ordered that the appeal proceed against ULG because the United States Bankruptcy Court had granted relief from the automatic stay of proceedings under chapter 11 of the bankruptcy law. We now issue our opinion as to ULG, affirming the court’s order denying defendants’ anti-SLAPP motion.
“SLAPP is the acronym for ‘strategic lawsuit against public participation, ’ first coined by two University of Denver professors.” (A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc. (2006) 137 Cal.App.4th 1118, 1122, fn. 1.) An order denying an anti-SLAPP motion is appealable under section 425.16, subdivision (i).
FACTS
Plaintiff’s Complaint
In September 2009, plaintiff filed a first amended complaint for violation of the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) and the Consumer Legal Remedies Act (Civ. Code, § 1770 et seq.). The lawsuit was pleaded as a class action on behalf of “persons who, on or after July 31, 2005, paid money to defendants pursuant to an attorney-client fee agreement that was procured through the use of cappers.”
Plaintiff alleged the following: ULG “was a national law firm... that provided loan modification services.” Rutledge was ULG’s managing director who “personally established, maintained and supervised the practice of using cappers to recruit clients for ULG.” Defendants “marketed their services to the general public through the use of paid telemarketers hired as independent contractors by defendants”; gave the telemarketers contact information for people “who were in default or faced foreclosure on their home loans”; gave the telemarketers a script for a sales presentation “in an attempt to convince the consumers to hire defendants”; and paid the telemarketers “five to 10 percent of the attorney’s fees subsequently paid by a recruited client.” Such “use of paid telemarketers to recruit clients clearly violated the anti-capping provisions [Bus. & Prof. Code, § 6151 et seq.] and therefore the fee agreements signed by the plaintiff and class members recruited by the cappers are void.” Furthermore, defendants required “the consumers to pay a purported ‘non-refundable’ retainer of approximately $12,000.” “[U]nder California law and Rules of Professional conduct, ” unearned portions of a retainer must be refunded, but defendant’s false statement that “the advance fee paid was ‘not refundable’” intimidated many consumers “out of even trying to obtain a refund.” Defendants performed “minimal legal work, ” “apparently consist[ing] solely of sending form letters to the mortgage bank, ” which letters were “ignored for the most part by the banks.” To date plaintiff himself had paid defendants $5,833.33.
Defendants’ Anti-SLAPP Motion
In October 2009, defendants moved to strike the first amended complaint as a SLAPP under section 425.16. Defendants contended the “solicitation and engagement of clients — even if unlawful — has been held to be squarely within the SLAPP statute.” As to plaintiff’s capping allegations, Rutledge declared: ULG “acquires clients through general advertising.” “Clients respond to ULG either by filling out an on-line application form or calling us to inquire about legal services we can provide for them. Once we have received interest from a potential client, someone from ULG contacts the individual to inquire about their needs and what ULG can do for them.” “ULG has never directed anybody to call members of the public to solicit their business. The ULG has never marketed its legal services to anyone through the use of telemarketers or provided anybody with names and phone numbers of persons who were in default or faced foreclosure on their home loans. ULG has never provided anyone with a standard script to follow in communicating with potential customers.”
As further evidence that they acquired clients through advertising, defendants attached 30 copies of ULG’s customer satisfaction/evaluation form. Each form was completed and signed by a different client (not including plaintiff) who had apparently learned about ULG through advertising or a referral. The form’s last question asks the client, “How did you hear about the United Law Group? (Please check all that apply.) __ TV __ Radio __ Billboard __ Referral __ Newspaper __ Mailer __ Internet __ Magazine.” (The form contains no alternative answers (such as “telephone call”) or any catch-all (such as “other” or “none of the above”).
Defendants also submitted (1) a summary “of the data collected from [plaintiff’s] ULG online application, ” including plaintiff’s comment to ULG, “Please call back as soon as possible”; and (2) a declaration of ULG’s technology director declaring the summary was true and correct.
As to the nonrefundable retainer fee, Rutledge declared: Although ULG’s “fee agreement provides that the retainer is ‘non-refundable, ’ in practice that is not how the fees are handled. While fees for services actually performed are non-refundable, if at the end of its engagement and the payment of all outstanding invoices there remains any part of the retainer, the United Law Group refunds to clients the balance.” Plaintiff had agreed to pay ULG “an $11,500 retainer.” Out of the $5,833.33 plaintiff had paid ULG to date, ULG had “billed him $2,070 for work performed on his account” and had recently “refunded him $3,763.33.”
Rutledge further declared: “In its over a year of operations, ULG has obtained nearly 3000 loan modifications for its clients with another 1500 modifications submitted to lenders.” “ULG has been successful in pushing back sales and getting loan modifications in many states, by asking the banks to reduce adjustable [rate mortgages] into fixed rate mortgages, reduce principal and interest, and working to create fair solutions between lender and borrower.” “When a client engages [ULG] in connection with a loan modification, ULG enters into an adversarial dispute, with litigation always a distinct possibility. [ULG has] routinely litigated on behalf of [its] clients when [it] could not amicably resolve disputes with banks.”
Plaintiff’s Opposition to Defendants’ Anti-SLAPP Motion
Plaintiff argued defendants’ conduct of paying telemarketers to recruit clients, and of charging clients unconscionable and deceptive fees, did not constitute protected activity under the First Amendment. Plaintiff declared that he received a phone call from Anthony Gray, a salesman for ULG, who “either took down [plaintiff’s] information or directed [him] to go to a website and enter the information there so that an attorney could call” him. “Prior to speaking to [Gray, plaintiff] did not know anything about” ULG. ULG subsequently informed plaintiff his “fee would be $11,500” and asked “how much of that [he] could pay immediately.” Plaintiff also attached a copy of ULG’s Attorney-Client Fee Agreement, which provides that the retainer fee is “non-refundable.” Plaintiff also submitted declarations from seven other ULG clients who “had never heard of” ULG until a telemarketer phoned each one with knowledge the consumer owed more on a mortgage than the house was worth. These seven clients had also signed and returned ULG’s Attorney-Client Fee Agreement and had paid ULG money.
Plaintiff’s counsel declared that Gray gave him a copy of ULG’s Independent Contractor Agreement, commission statement, and “telemarketing script.” Plaintiff attached copies of these documents as exhibits. The introductory paragraph of the “telemarketing script” states, “Hello ____ (name [of potential client]) ____, my name is _____ and I work in Customer Service here at The United Law Group. We are a national law firm who specialize in RESPA and Foreclosure Law, Ok?” Thus, pursuant to the script, the ULG agent describes to the potential client what ULG is and the type of work it does — information the potential client would presumably already know if he or she had initiated contact with ULG after learning about the firm through advertising or a referral.
Plaintiff’s counsel declared that Gray made the following admissions (despite being told that his actions for ULG had been illegal): Gray worked for ULG as an independent contractor. He “was supposed to call persons identified on a ‘leads list.’ He... was advised by [ULG] employees that the ‘leads list’ came from public records containing the identity of consumers who have been served a notice of default... as well as from leads generated by other methods of advertising.” “[H]e was supposed to follow the script... when he made the telemarketing calls.” He was paid a commission of 5-10 percent “of the attorney’s fees paid by the recruited client.” (This commission rate is also evidenced by the “Independent Consultant ‘IC’ Commission Schedules” attached to Gray’s agreement with defendants.) Defendants paid him “a $300 commission payment for his services in recruiting [plaintiff] as a client.” Other recruiters worked in the telemarketing office with Gray. “After being served the anti-SLAPP motion, [plaintiff’s counsel] attempted to contact Mr. Gray to obtain a declaration to oppose the anti-SLAPP motion, ” but Gray’s phone number had been disconnected and Gray no longer lived at his former address. Plaintiff sought leave to conduct discovery, if necessary, to locate Gray, depose other telemarketers, and depose Rutledge or another ULG agent about the Independent Contractor Agreement and the commissions paid to Gray.
Plaintiff asserts defendants did not object below to his evidence of their “capping conduct, ” apparently based on a strategic decision to forestall plaintiff’s request for leave to conduct discovery. If defendants had objected to the evidence, plaintiff’s counsel “would have sought admission of Gray’s statements under Evidence Code [section] 1222 (agent admission) or Evidence Code [section] 1230 (declaration against interest).” A reviewing court may not set aside a finding based on the erroneous admission of evidence, absent an objection of record or a timely and specific motion to exclude or to strike the evidence. (Evid. Code, § 353.)
Plaintiff noted defendants had “submitted no evidence of the massive advertising campaign that could have somehow triggered” the large number of clients who retained ULG between August 2008 and October 2009 (at least 4, 500 clients according to defendant Rutledge’s declaration).
Plaintiff also contended his lawsuit was exempt from the anti-SLAPP statute under the “Public Benefit” class action and “Commercial Speech” exemptions set forth in Code of Civil Procedure section 425.17.
The Court’s Ruling
In November 2009, the court denied defendants’ anti-SLAPP motion, stating this was “a simple case for money had and received” “that is way beyond the scope of a SLAPP action” and it appeared some of the statutory exceptions to section 425.16 might apply. The court ruled plaintiff’s discovery motion was therefore moot.
DISCUSSION
Plaintiff Has Established a Probability of Prevailing on His Claim
“[I]t is the principal thrust or gravamen of the plaintiff’s cause of action that determines whether the anti-SLAPP statute applies....” (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 188.) According to plaintiff, “the gravamen of the complaint is twofold: defendants procured clients in violation of the anti-capping law and defendants imposed a fee that was deceptive, unfair and/or unconscionable because it was supposedly ‘non-refundable’ and excessive given the minimal work performed.”
Defendants contend that an attorney’s solicitation and engagement of clients is “petitioning activity” protected under the anti-SLAPP statute. Although they “admit that they paid agents to contact individuals who had asked for a consultation, ” they argue this conduct did not constitute capping. Rather, they insist that “[c]apping depends on an uninvited solicitation, ” i.e., “cold calling” potential clients. (Italics added.) They further contend the litigation privilege under Civil Code section 47, subdivision (c), “shields from civil liability communications made in connection with litigation, ” “including the unlawful solicitation of clients.” And although they also admit their “fee agreement refers to the retainer as ‘non-refundable, ’” they contend it was only non-refundable “once legal work has been performed.” Defendants assert plaintiff “failed to produce sufficient evidence to demonstrate a probability of prevailing on the essential element of capping — that he was solicited as a client before he expressed interest in” ULG, or a probability of prevailing on his allegations of non-refundable retainers. Based on these contentions, defendants claim the court erred by denying their special motion to strike plaintiff’s complaint under section 425.16.
Defendants also challenge plaintiff’s standing to pursue his claims, asserting he lost no money since defendants refunded him “all unused portions of his retainer.” By defendants’ own admission, however, they have retained a portion of the fees paid by plaintiff.
The anti-SLAPP statute provides in pertinent part: “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 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).)
In evaluating an anti-SLAPP motion, a court conducts a potentially two-step inquiry. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.) “First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity.” (Navellier v. Sletten (2002) 29 Cal.4th 82, 88.) “‘A defendant meets this burden by demonstrating that the act underlying the plaintiff’s cause fits one of the categories spelled out in section 425.16, subdivision (e).’” (Ibid.)
Section 425.16, subdivision (e) describes four categories of protected speech or petitioning. Defendants do not specify the category or categories upon which they rely for their claim of protected activity.
If the defendant meets its burden of showing its activity was protected, the court proceeds to the second step of the inquiry and asks “whether the plaintiff has demonstrated a probability of prevailing on the claim.” (Equilon Enterprises v. Consumer Cause, Inc., supra, at p. 67.) This does not mean a plaintiff must “‘prove the specified claim to the trial court’”; otherwise section 425.16 might result in the “‘deprivation of jury trial.’” (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1123.) Instead, the “plaintiff need only have ‘“stated and substantiated a legally sufficient claim.”‘ [Citations.] ‘Put another way, the plaintiff “must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.”‘“ (Navellier v. Sletten, supra, Cal.4th at pp. 88-89.) Stated yet a third way, “the plaintiff need only demonstrate the cause of action has some merit. ([Citation.] [‘a court need not engage in the time-consuming task of determining whether the plaintiff can substantiate all theories presented within a single cause of action’].)” (A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc., supra, 137 Cal.App.4th at p. 1125.) If a plaintiff fails to make this demonstration, “the cause of action must be stricken.” (Id. at p. 1124.)
Where, as here, a plaintiff contends a defendant’s activity was illegal, the court must determine whether the defendant’s conduct “was illegal as a matter of law.” (Flatley v. Mauro (2006) 39 Cal.4th 299, 305.) Conduct that is “illegal as a matter of law” is not protected activity under the first step of the anti-SLAPP analysis. (Flatley, at p. 305.) But, for a defendant’s activity to be illegal as a matter of law for purposes of the first step, the defendant must either concede the illegality of the conduct or the illegality must be shown “by uncontroverted and conclusive evidence.” (Id. at p. 320; see also id. at p. 316.) “If, however, a factual dispute exists about the legitimacy of the defendant’s conduct, it cannot be resolved within the first step but must be raised by the plaintiff in connection with the plaintiff’s burden to show a probability of prevailing on the merits.” (Id. at p. 316.)
Here, defendants do not concede that they illegally paid cappers (as defined in Bus. & Prof. Code, § 6151) to solicit or procure business. Rather, they insist that capping is limited to cold calling. A factual dispute exists as to whether defendants engaged in cold calling.
Article 9 of chapter 3 of the Business and Professions Code governs unlawful solicitation by attorneys. Business and Professions Code section 6151 defines a “capper” as “any person... acting for consideration in any manner or in any capacity as an agent for an attorney at law or law firm... in the solicitation or procurement of business for the attorney at law or law firm....” (Bus. & Prof. Code, § 6151, subd. (a).) Under Business and Professions Code section 6152, it is unlawful for any “person to solicit another person to” act as a capper. “Any contract for professional services secured by any attorney... through the services of a... capper is void. In any action [under Business and Professions Code section 17200 et seq.], any judgment shall include an order divesting the attorney or law firm of any fees and other compensation received pursuant to any such void contract.” (Bus. & Prof. Code, § 6154, subd. (a).) It appears to be an issue of first impression whether capping is limited to uninvited solicitation.
If, however, the evidence is such that we would conclude plaintiff has established a probability of prevailing, it is unnecessary to examine the first prong. For even if the conduct is protected activity, and thus subject to the anti-SLAPP statute, plaintiff’s proof under these circumstances would require the motion to be denied. (Scalzo v. Baker (2010) 185 Cal.App.4th 91, 99 [“We need not determine, however, whether Martin has met his initial burden on this threshold issue, as, even assuming Martin has done so, our evaluation of the showing of illegality in considering the second prong demonstrates that the motion” should have been denied].) The purpose of the anti-SLAPP statute is to “screen[] out meritless claims” (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 737) “at an early stage of the litigation” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 192). “Only a cause of action that satisfies both prongs of the anti-SLAPP statute — i.e., that arises from protected speech or petitioning and lacks even minimal merit — is a SLAPP, subject to being stricken under the statute.” (Navellier v. Sletten, supra, Cal.4th at p. 89.) As we shall discuss, plaintiff has demonstrated that his claim has the requisite merit to withstand defendants’ anti-SLAPP motion.
In deciding whether plaintiff has a probability of prevailing, we consider “the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.” (§ 425.16, subd. (b)(2).) Our review is de novo. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3.) “However, we neither ‘weigh credibility [nor] compare the weight of the evidence. Rather, [we] accept as true the evidence favorable to the plaintiff [citation] and evaluate the defendant’s evidence only to determine if it has defeated that submitted by the plaintiff as a matter of law.’ [Citation.]” (Ibid.)
Here, plaintiff’s evidence establishes “a sufficient prima facie showing of facts to sustain a favorable judgment” and is not defeated by defendants’ evidence as a matter of law. (Navellier v. Sletten, supra, Cal.4th at p. 89.) Plaintiff’s evidence substantiates a legally sufficient claim for capping (and therefore unfair competition), even assuming that only uninvited solicitation constitutes capping under Business and Professions Code section 6151 et seq. His evidence also shows defendants imposed a fee that was called “non-refundable” and therefore unlawful under the Consumer Legal Remedies Act (Civil Code, § 1770, subd. (a)(14) [it is unlawful, “in a transaction intended to result or which results in the sale... of... services to any consumer, ” to represent that a transaction involves obligations “which are prohibited by law”]). Plaintiff’s evidence, described in detail in our factual recitation, consisted of (1) plaintiff’s declaration that ULG cold called him and then instructed him to submit an online application; (2) declarations of seven other ULG clients declaring they received uninvited solicitations; (3) an Independent Contractor Agreement; (4) a commission statement; (5) a solicitation script; (6) Gray’s statement that some leads came from public records of borrowers in default; (7) ULG’s Attorney/Client Fee Agreement which states the retainer fee is non-refundable; and (8) plaintiff’s declaration he paid money to ULG. In sum, accepting plaintiff’s evidence as true for these purposes, plaintiff has amply established that his claims have the requisite merit.
DISPOSITION
The order is affirmed. Plaintiff shall recover his costs on appeal.
Plaintiff’s motion for sanctions is denied. Because it appears to be an issue of first impression whether capping includes only cold calling, we cannot say “the appeal was frivolous or taken solely for delay.” (Code Civ. Proc., § 907.)
WE CONCUR: RYLAARSDAM, ACTING P. J., BEDSWORTH, J.