Zakari v. Miller CA2/4 ( 2014 )

Filed 6/5/14 Zakari v. Miller CA2/4
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
ROBERT ZAKARI, B247454
Cross-Defendant and Appellant, (Los Angeles County
Super. Ct. No. BC485006)
v.
LLOYD I. MILLER, III,
Cross-Complainant and Respondent.
APPEAL from an order of the Superior Court of Los Angeles County,
Michael Johnson, Judge. Affirmed.
Baker & Hostetler, Ryan D. Fischbach; Law Offices of Brian J. Ward,
Brian J. Ward; Law Offices of Nate G. Kraut and Nate G. Kraut, for Cross-Defendant
and Appellant.
Valle Makoff, Jeffrey B. Valle, Susan L. Klein, and Steven M. Ragona for Cross-
Complainant and Respondent.
Robert Zakari appeals from the denial of his special motion to strike a cross-
complaint1 brought by Lloyd I. Miller in this business dispute. Zakari claims that the
cross-complaint is based on conduct which is protected under the anti-SLAPP2 statute,
Code of Civil Procedure section 425.16 (section 425.16). The trial court disagreed and
denied the motion. We conclude the cross-complaint was not based on protected activity
and affirm.
FACTUAL AND PROCEDURAL SUMMARY
On appeal of an order denying a motion to strike under section 425.16, we review
the pleadings and declarations, “accepting as true the evidence that favors the [cross-
complainant] and evaluating the [cross-defendant’s] evidence ‘“only to determine if it has
defeated that submitted by the [cross-complainant] as a matter of law.” [Citation.]’
(Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal. 4th 260, 269, fn. 3 (Soukup).)”
(Cole v. Patricia A. Meyer & Associates APC (2012) 206 Cal. App. 4th 1095, 1105.)
Nicholas Matzorkis and Zakari founded Global Agora3 (Global) in January 2009
as a limited liability company. In November 2009, Miller and Joshua Keller became
additional members of the firm. All four served as managing members, and an amended
and restated operating agreement for Global was drafted to reflect this change. From
November 2009 until October 2012, Matzorkis, Zakari, and Keller each owned 26.67
percent of outstanding units of the company, and Miller owned the remaining 20 percent.
After Global acquired SUP ATX, Zakari was appointed chief executive officer of that
entity in June 2010. Zakari handled all legal matters for both Global and SUP ATX,
either directly, or through outside counsel he hired. He also served as an officer of
1The underlying complaint brought by Zakari against Miller and others, which we
describe below, is not at issue in this appeal.
2 “SLAPP” is an acronym for Strategic Lawsuit Against Public Participation.
(Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal. 4th 53, 57.)
3 According to the cross-complaint, Global Agora is a company that launches its
own companies, as well as investing in start-ups and early stage companies.
2
Global. Matzorkis had a long working relationship with Zakari, and Miller had been an
investor in a number of Matzorkis’s companies since 2002.
In 2010, largely as a result of its acquisition of SUP ATX, Global needed
additional operating capital. Matzorkis approached Miller in May or June 2010, asking
him to loan $1 million to Global. Miller agreed, but said he required a pledge of the other
members’ interest in Global as security in the event that Global was unable to meet its
commitments under the loan. Each of the members of Global agreed to this condition.
Zakari was responsible for the drafting of the necessary documents, including the pledge
agreement. He retained the same attorney who drafted the operating agreement to draft
the promissory note and pledge agreement, and then reviewed the documents.
Before Matzorkis executed the promissory note on the first loan from Miller, and
the accompanying pledge agreement, he met with Zakari in Malibu. He described the
meeting in his declaration in opposition to the motion to strike: “Zakari mentioned to me,
almost as an aside, that regardless of the pledge agreement, Miller would not be able to
foreclose on the members’ interests in the event Global Agora defaulted on the loan.
When I pressed him on this point, he explained that, based upon his discussion [with
retained counsel], he believed that there was a conflict between the loan document,
including the pledge agreement, and Global Agora’s Operating Agreement that would
prevent Miller from foreclosing on the members’ interests in the case of a default by
Global Agora under the promissory note.”
Nevertheless, by the beginning of July 2010, all of the loan documents, including
the promissory note and pledge agreement, had been executed by all parties and Miller
made the $1 million loan to Global. When it needed additional operating funds, Miller
made personal loans to Global of $500,000 in October 2010; $400,000 in December
2010; and $500,000 through the Lloyd Miller Trust C in March 2011. We refer to these
loans collectively as the “Miller loans.” Each loan was secured by a promissory note and
amended and restated pledge agreements. (The parties treat the Third Amended and
Restated Pledge Agreement as the operative agreement. We refer to it as the pledge
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agreement.) Each of the Miller loans required Global to make monthly interest payments
and to pay off the principal by a stated maturity date.
The pledge agreement included express representations and warranties by Zakari,
Matzorkis and Keller, including that each had the right and full legal capacity to pledge
his security interest as collateral for the Miller loans.4 The pledge agreement and note
expressly stated they were nonrecourse.
In March 28, 2012, counsel for Miller informed Global by letter that it was in
default by failing to pay accrued interest under each note due on March 1, 2012. Miller
elected to accelerate each debt and demanded immediate payment of all principal and
interest. In September 2012, Miller notified Matzorkis, Zakari and Keller that he would
proceed with sale of their membership interests in Global (collateral under the pledge
agreement) on October 25, 2012. On October 25, Miller purchased the Global
membership interests of Matzorkis, Zakari and Keller.
Zakari filed an action in Los Angeles Superior Court against Miller, the Lloyd I.
Miller Fund C, Global, Keller, and others. The first amended complaint, the charging
pleading, alleged causes of action for rescission of the pledge agreement, breach of
contract, unjust enrichment, breach of fiduciary duty, and others.
Miller filed a cross-complaint against Zakari alleging causes of action for fraud,
breach of fiduciary duty, constructive fraud, and breach of representations and warranties
in the pledge agreement. It alleged a fraudulent scheme by which Zakari induced Miller
to make loans with the membership interests of the other three members serving as
4 Paragraph 3 stated in pertinent part: “Representations and Warranties. Each
Pledgor severally represents and warrants as follows: . . . [¶] (b) such Pledgor has full
legal capacity to enter into this Agreement and has the right to pledge and grant a security
interest in the Member Interests as provided by this Agreement. The execution, delivery
and performance hereof does not contravene or violate any law or the terms of any
agreement or undertaking to which such Pledgor is a party or by which such Pledgor is
bound. [¶] (c) This Agreement has been duly executed and delivered by such Pledgor
and constitutes a legal, valid and binding obligation of such Pledgor, enforceable against
such Pledgor in accordance with its terms, [except for certain specified creditor’s rights
circumstances].”
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collateral in the event of Global’s default. Miller alleged: “Unbeknownst to Miller,
Zakari never had any intention of honoring his promise to pledge his membership interest
in Global Agora and to surrender his membership interest in the event that Global Agora
defaulted on the loans. Nonetheless, despite Zakari’s fiduciary obligations to Miller as a
Manager, officer and counsel for Global Agora, Zakari told Miller he would do so in
order to induce Miller to provide the Miller Loans.” Miller alleged that in the event of a
default, Zakari planned to avoid his obligation under the pledge agreement by asserting
that it was invalid under section 11.1 of the operating agreement, which prohibits any lien
on a membership agreement. The cross-complaint alleged that Zakari believed the
pledge agreement to be unenforceable, evidenced by his conversation with Matzorkis
before the documents were executed. But Zakari never told this to Miller, despite his
fiduciary obligations.
The cross-complaint alleged: “Consistent with Zakari’s fraudulent and wrongful
scheme, rather than comply with his contractual promises made in the Pledge Agreement,
he instead filed his Complaint in this action on May 18, 2012” and a first amended
complaint after the defendants demurred. It alleged the pledge agreement was
enforceable and valid, “[h]owever, if for any reason the Pledge Agreement is found to be
unenforceable, either in whole or in part, Zakari is liable for damages as a result of his
breach of the express representations and warranties he made in the Pledge Agreement.
Moreover, he is liable for his fraudulent and wrongful conduct as alleged herein.”
The first cause of action for fraud alleged that Zakari represented he would pledge
his membership interest as collateral, played a role in drafting the necessary documents,
and executed the pledge agreement. But, allegedly, Zakari had no intention of complying
with these promises, because in the event of a Global default he intended to assert Section
11.1 of the operating agreement as a basis to avoid compliance with the contractual
obligations. It was alleged that Zakari knew his representations were false when made,
and that they were made in order to induce Miller to rely on the representations by
making the loans to Global. The damages allegation of the fraud cause of action is that
after the default, Zakari brought his action to rescind the pledge agreement or otherwise
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invalidate Miller’s foreclosure on his ownership interest, based on the argument that the
pledge was invalid under section 11.1 of the operating agreement. Miller alleged: “As a
result, if for any reason the Pledge Agreement is found to be unenforceable, either in
whole or in part, as Zakari alleges in his [first amended complaint], Miller would be
damaged in an amount to be proven at trial.”
The second cause of action for breach of fiduciary duty alleges that Zakari owed
such duties to Miller. He allegedly breached them by agreeing to execute the pledge
agreement without any intention of performing it, and by failing to tell Miller he believed
the pledge agreement to be unenforceable as contrary to the operating agreement. The
damages allegation is: “As a result, if for any reason the Pledge Agreement is found to
be unenforceable, either in whole or in part, as Zakari alleges in his [first amended
complaint], Miller would be damaged in an amount to be proven at trial.” The third
cause of action for constructive fraud is based on the same allegations. The fourth cause
of action for breach of representation and warranties in the pledge agreement is based on
the representation that Zakari had “‘full legal capacity to enter into this [pledge]
Agreement and has the right to pledge and grant a security interest in the Member
Interests as provided by this Agreement . . .’” and that the execution, delivery, and
performance of the pledge agreement did not contravene any law or other agreement, and
that it is legal, valid, and binding. The prayer for relief seeks compensatory damages,
punitive damages, and costs and fees according to proof.
Zakari filed a special motion to strike the cross-complaint pursuant to section
425.16 as an anti-SLAPP action. “‘Section 425.16 posits . . . a two-step process for
determining whether an action is a SLAPP. First, the court decides whether the
defendant has made a threshold showing that the challenged cause of action is one arising
from protected activity. . . . If the court finds that such a showing has been made, it must
then determine whether the plaintiff has demonstrated a probability of prevailing on the
claim.’ (Navellier v. Sletten [(2006)] 29 Cal.4th [82,] 88 [(Navellier)].) ‘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
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being stricken under the statute.’ (Id. at p. 89.)” (Soukup, supra, 39 Cal.4th at pp. 278–
279.)
The trial court concluded the cross-complaint did not arise from protected activity
on the part of Zakari and denied the motion on that basis. For that reason, we confine our
procedural summary to the trial court proceedings regarding the first prong of the section
425.16 analysis.
Zakari’s motion to strike argued that Miller induced him into signing a
“meaningless and utterly unenforceable pledge agreement” encumbering his membership
interest. He cited the portions of the cross-complaint which alleged that he brought the
rescission action rather than complying with his contractual promises. Zakari asserted:
“[Miller] then goes further and claims that if ZAKARI is actually victorious in his claim
for rescission, then [he] is liable for fraud. (Cross-Complaint [¶]33).” Paragraph 33 is a
general allegation that if the pledge agreement is found unenforceable, Zakari is liable for
damages for breach of express representations and warranties. The paragraph continues:
“Moreover, he is liable for his fraudulent and wrongful conduct as alleged herein.” This
is a separate allegation from the claim that Zakari is liable under the pledge agreement for
breach.
Zakari argued that section 425.16 applied because his “filing of a claim [for]
rescission obviously constitutes a statement in a civil proceeding and thus, is absolutely
protected by C.C.P. § 425.16. No additional showing on this issue is or should be
required.” He asserted that Miller’s cross-complaint was grounded on the filing of the
rescission action, as a basis for the fraud and breach of fiduciary causes of action, citing
the damages allegations for each of the four causes of action. Anticipating Miller’s
opposition, Zakari argued that the entire cross-complaint should be stricken even if the
causes of action alleged both protected and nonprotected activities.
The trial court denied the motion to strike. It observed that “not every reference to
protected activity brings an action within the statute” and found the “principal thrust or
gravamen” of the cross-complaint was not the protected activity of filing the rescission
action. Instead, it found Miller’s references to Zakari’s litigation activity to be “merely
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incidental to his claims in the cross-complaint” and “not an independent basis of
liability.”
Zakari filed a timely notice of appeal from denial of his motion.
DISCUSSION
We review an order denying a motion to strike under section 425.16 de novo.
(Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 820.)
Filing a lawsuit is an exercise of the plaintiff’s constitutional right to petition. A
lawsuit arising from the allegedly improper filing of an action may be the subject of a
motion to strike under section 425.16. (Jay v. Mahaffey (2013) 218 Cal. App. 4th 1522,
1538–1539.) But “a defendant in an ordinary private dispute cannot take advantage of
the anti-SLAPP statute simply because the complaint contains some references to speech
or petitioning activity by the defendant. [Citation.]” (Martinez v. Metabolife Internat.,
Inc. (2003) 113 Cal. App. 4th 181, 188 (Martinez).) On the other hand, “a plaintiff cannot
avoid operation of the anti-SLAPP statute by attempting, through artifices of pleading, to
characterize an action as a ‘garden variety breach of contract [or] fraud claim’ when in
fact the liability claim is based on protected speech or conduct.” (Id. at p. 187, citing
Navellier, supra, 29 Cal.4th at pp. 90–92.)
In light of these principles, the general rule is that “it is the principal thrust or
gravamen of the plaintiff’s cause of action that determines whether the anti-SLAPP
statute applies [citation], and when the allegations referring to arguably protected activity
are only incidental to a cause of action based essentially on nonprotected activity,
collateral allusions to protected activity should not subject the cause of action to the anti-
SLAPP statute.” (Martinez, supra, 113 Cal.App.4th at p. 188.)
Zakari attempts to avoid this rule by arguing that it does not apply to causes of
action which mix allegations of protected and nonprotected activity. He contends that
Miller’s cross-complaint is such a mixed conduct action. In such circumstances, Zakari
contends, courts should not employ the “principal thrust/gravamen” test described in
Martinez, supra, 113 Cal.App.4th at p. 188. He relies on Peregrine Funding, Inc. v.
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Sheppard Mullin Richter & Hampton (2005) 133 Cal. App. 4th 658 and Salma v. Capon
(2008) 161 Cal. App. 4th 1275.
We disagree with Zakari’s characterization of the claims in the cross-complaint.
Miller is not suing Zakari because Zakari sued to rescind. This is not a mixed conduct
action. His suit is based on Zakari’s allegedly fraudulent promises which induced Miller
to make the loans to Global. The first three causes of action for fraud, breach of fiduciary
duty and constructive fraud, are based on Zakari’s fraudulent inducement of Miller to
make loans secured by the pledge agreement, which Zakari allegedly knew to be
unenforceable because it conflicted with the express terms of the Global operating
agreement which barred any liens on membership interests. Similarly, the fourth cause of
action alleges that Zakari breached his express representations and warranties in the
pledge agreement that he had full capacity to enter into to the agreement and had the right
to pledge and grant a security interest in his membership interests; that the agreement did
not violate any law or terms of any other agreement to which Zakari was a party [i.e. the
operating agreement for Global]; and that the pledge agreement was legal, valid and
binding. Thus all the causes of action are based on Zakari’s promises, on which Miller
relied in making the loans to Global. Miller makes it clear that his damages are
contingent on Zakari’s success in rescinding the pledge agreement on the ground that it is
invalid and unenforceable. Zakari fails to distinguish between the allegations of liability,
all based on unprotected activity, and damages, which are contingent on the outcome of
the rescission action.
“[T]he mere fact that an action was filed after protected activity took place does
not mean the action arose from that activity for the purposes of the anti-SLAPP statute.
[Citation.] Moreover, that a cause of action arguably may have been ‘triggered’ by
protected activity does not entail 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. [Citations.]” (Navellier, supra,
29 Cal.4th at p. 89; City of Cotati v. Cashman (2002) 29 Cal. 4th 69, 76–78; Personal
Court Reporters, Inc. v. Rand (2012) 205 Cal. App. 4th 182, 189–190.) We must
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distinguish “‘between (1) speech or petitioning activity that is mere evidence related to
liability and (2) liability that is based on speech or petitioning activity.’ [Citation.]” (Id.
at p. 189; see also City of Alhambra v. D’Ausilio (2011) 193 Cal. App. 4th 1301, 1307.)
We conclude that the allegations in the cross-complaint regarding the rescission
action are only incidental to the nonprotected activity, a business dispute between Zakari
and Miller sounding in fraud and breach of fiduciary duty. Section 425.16 does not apply
to the cross-complaint and the motion to strike was properly denied.
Alternatively, Zakari argues that the conduct alleged in the cross-complaint is
protected under section 425.16 because it constitutes prelitigation conduct related to
subsequent protected activity. Section 425.16 has been held to apply to communications
or conduct in preparation for or anticipation of the bringing of an action or other official
proceeding. (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal. 4th 1106,
1115.) But, as Miller points out, such communications are protected only if made “‘“‘in
anticipation of litigation ‘contemplated in good faith and under serious consideration .
. . .’””’’ (Bailey v. Brewer (2011) 197 Cal. App. 4th 781, 789–790.)
Zakari’s complaint for rescission alleges that Global had sufficient funds to make
the March 2012 payments due on the Miller loans, obviating the need for foreclosure on
the membership interest pledges and the ensuing action for rescission. We infer that
when hen the pledge agreements were made, the parties contemplated that the infusion of
funds from the Miller loans would provide sufficient capital for continued operation of
Global. That was the purpose of the loans. The only evidence of contemplated litigation
appears in Matzorkis’s declaration that Zakari told him before the pledge agreements
were signed that they were unenforceable. Even if we construed this as anticipation of
litigation, it can hardly be considered to be in good faith. We conclude that Zakari failed
to demonstrate that his promises which form the basis of the cross-complaint were made
in anticipation of litigation contemplated in good faith and under serious consideration.
Section 425.16 does not apply to the allegations of Miller’s cross-complaint
because it is not based on protected activity. The special motion to strike was properly
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denied. In light of that conclusion, we need not and do not reach the second prong of the
anti-SLAPP analysis.
DISPOSITION
The order denying Zakari’s special motion to strike under section 425.16 is
affirmed. Respondent shall recover his costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EPSTEIN, P. J.
We concur:
WILLHITE, J.
MANELLA, J.
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