Loanvest I, LLC v. Utrecht , 235 Cal. App. 4th 496 ( 2015 )

Filed 3/26/15
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
LOANVEST I, LLC,
Plaintiff and Appellant, A141564
v.
PAUL F. UTRECHT et al., (Alameda County
Super. Ct. No. RG12654982)
Defendants and Respondents.
Plaintiff Loanvest I, LLC (Loanvest) appeals from the dismissal of its cause of
action against its former attorneys, Paul F. Utrecht and Utrecht & Lenvin, LLP
(collectively Utrecht), after the court granted Utrecht’s special motion to strike under the
“anti-SLAPP”1 statute (Code Civ. Proc., § 425.16).2 Utrecht is being sued for malpractice
by Loanvest, now under the control of James Madow, for allegedly disregarding the
interests of Loanvest in order to protect the interests of the person who formerly
controlled Loanvest in an action that Madow himself brought against Loanvest. After
summarizing the complicated facts underlying the cause of action, we conclude, contrary
to the trial court, that the malpractice claim fails to satisfy the first prong of the anti-
SLAPP analysis. Thus, we do not reach the second prong of the analysis, leaving for
consideration upon a summary judgment motion or other appropriate proceedings the
multiple reasons for which the trial court concluded that Loanvest’s claim lacks merit.
1
“SLAPP” is an acronym for a strategic lawsuit against public participation.
2
All statutory references are to the Code of Civil Procedure.
1
Background
The following facts, which are taken from the second amended complaint, appear
to be undisputed.
In 2008, Loanvest had a single member, South Bay Real Estate Commerce Group,
LLC (South Bay), which was managed by Scott Carter, a relative of George Cresson, and
subsequently by Cresson. In 2008, Carter, on behalf of South Bay, signed an “Operating
Agreement” naming South Bay as Loanvest’s manager and providing that anyone
purchasing a membership interest in Loanvest would have no voting or management
rights, and that the manager could be removed only for breach of fiduciary duty and by a
super-majority vote of Loanvest’s members. In 2009, Madow purchased a 70 percent
interest in and became a member of Loanvest.
In November 2011, Madow added Loanvest and South Bay as defendants in an
action he had filed in February 2011 against other entities allegedly owned and controlled
by Cresson. This action, referred to as the “San Francisco action” (Madow v. Post
Construction Services, LP et al. (Super Ct. S.F. City and County, 2011, No. CGC-11-
508188)), asserted several claims against Cresson and entities Cresson allegedly
controlled, including Loanvest. The claim arose, in part, out of a complex series of
transactions involving a loan from Loanvest to Post Construction Services secured by an
interest in certain real property in Oakland. Utrecht represented Loanvest in that action
and successfully opposed Madow’s motion for a preliminary injunction. The requested
injunction would have prevented Loanvest from paying out of the proceeds of the sale of
Loanvest’s interest in the Oakland property “more than $300,000 . . . to discharge
‘Loanvest I expenses,’ the ‘vast majority’ of which was paid to Cresson’s lawyers in the
San Francisco action,” and “more than $100,000” to other attorneys “for legal services
totally unrelated to South Bay’s activities as Loanvest[’s] manager.” Pursuant to a
settlement agreement, as of May 6, 2013, Madow replaced South Bay as the manager of
Loanvest. Then, with Madow in control, Loanvest brought this action alleging that in
successfully opposing Madow’s motion in the prior action, “Utrecht never represented
Loanvest[’s] interests, instead egregiously breaching the duty of loyalty owed to his
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purported client” and aided his “true client,” Cresson, in “looting” Loanvest to pay
Cresson’s obligations, including the obligation to pay Utrecht’s attorney fees. Utrecht
allegedly did so by taking “the position that the outstanding . . . legal bills owed by South
Bay (i.e., Cresson) in connection with the San Francisco action were the legal
responsibility of his purported client, Loanvest I, notwithstanding the fact that South
Bay’s claims for indemnity from Loanvest I were patently” without merit.
Utrecht moved to dismiss the cause of action under the anti-SLAPP statute. The
trial court first determined that the claim is based on an act in furtherance of the right of
petition, satisfying the first prong of the anti-SLAPP analysis and, at a later hearing,
found that for multiple reasons Loanvest failed to make a prima facie showing of its
ability to prevail in the action. In concluding that the malpractice cause of action is based
on an act in furtherance of the protected right of petition, the trial court considered the
decision of this court in Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton
(2005) 133 Cal. App. 4th 658 (Peregrine), to be “highly analogous.” As in Peregrine, in
which this court held that claims based in significant part on allegations made by
attorneys in judicial filings brought the claims within the scope of the anti-SLAPP statute,
the trial court held “[t]he same is true in the present case. While some of the allegations
arguably fall outside the categories of protected activity under section 425.16(e), there are
numerous allegations of conduct falling squarely within that subsection, as in Peregrine.
(See, e.g., . . . [‘Utrecht took the position [in the San Francisco Action] that the
outstanding . . . legal bills owed by South Bay (i.e., Cresson) in connection with the San
Francisco Action were the legal responsibility of his purported client, Loanvest’], . . .
[‘Utrecht successfully took this position in opposition to a motion brought by Madow in
the San Francisco Action for injunctive relief to prevent the payment of South Bay legal
fees’ from proceeds of . . . Loanvest property], . . . [‘the foregoing position taken by
Utrecht in the San Francisco Action was . . . in furtherance of his own personal objective
of obtaining payment for his law firm’s outstanding legal bills’], . . . [‘In taking a position
in the San Francisco Action that had no legal basis and was patently contrary to the best
interests of his purported client,’ Utrecht aided Cresson in breaching a fiduciary duty to
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Loanvest.].) As the Peregrine court recognized, ‘an attorney who is sued for statements
made on behalf of a client in a judicial proceeding, or in connection with an issue under
review by a court, has standing to bring a motion under section 425.16’ even though the
statements are allegedly made on behalf of a client rather than the attorney’s own behalf.
(133 Cal.App.4th at p. 670, fn. 7.)”
Following the trial court’s determination that Loanvest failed to establish its
ability to prevail, it entered judgment in favor of Utrecht, and Loanvest timely appealed.
Discussion
The basic principles applicable to motions to strike under section 425.16 have
been restated many times. We quote from this court’s opinion in Peregrine:
“Section 425.16 provides for the early dismissal of certain unmeritorious claims
by means of a special motion to strike. [Citation.] In this regard, the statute states: ‘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 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).)
“Consideration of a section 425.16 motion to strike involves a two-step process.
‘First, the court decides whether the defendant has made a threshold showing that the
challenged cause of action is one arising from protected activity. The moving defendant’s
burden is to demonstrate that the act or acts of which the plaintiff complains were taken
“in furtherance of the [defendant]’s right of petition or free speech under the United
States or California Constitution in connection with a public issue,” as defined in the
statute. (§ 425.16, subd. (b)(1).) If the court finds such a showing has been made, it then
determines whether the plaintiff has demonstrated a probability of prevailing on the
claim.’ [Citation.]
“A defendant who files a special motion to strike bears the initial burden of
demonstrating that the challenged cause of action arises from protected activity.
[Citations.] However, as our Supreme Court has observed, ‘the “arising from”
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requirement is not always easily met. [Citations.]’ [Citation.] A cause of action does not
‘arise from’ protected activity simply because it is filed after protected activity took
place. [Citation.] Nor does the fact ‘[t]hat a cause of action arguably may have been
triggered by protected activity’ necessarily entail that it arises from such activity.
[Citation.] The trial court must instead focus on the substance of the plaintiff’s lawsuit in
analyzing the first prong of a special motion to strike. [Citations.] In performing this
analysis, the Supreme Court has stressed, ‘the critical point is whether the plaintiff’s
cause of action itself was based on an act in furtherance of the defendant's right of
petition or free speech. [Citations.]’ [Citation.] In other words, ‘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. [Citation.]’ [Citation.]
“ ‘In deciding whether the “arising from” requirement is met, a court considers
“the pleadings, and supporting and opposing affidavits stating the facts upon which the
liability or defense is based.” (§ 425.16, subd. (b).)’ [Citation.] On appeal, we
independently determine whether this material demonstrates that the cause of action
arises from protected activity. [Citation.]” (Peregrine, supra, 133 Cal.App.4th at pp. 669-
670.)
Rejecting the plaintiffs’ contention in Peregrine that “the fundamental basis or
gravamen of their claims rest[ed] in [the firm’s] breaches of duty and not its petitioning
activity,” this court held “that some of the alleged actions constituting these breaches of
duty involved petitioning activity the firm undertook on behalf of its client . . . . Although
the overarching thrust of [the] plaintiffs’ claims may be that [the firm’s] conduct helped
advance the Ponzi scheme—to [its] detriment—some of the specific conduct complained
of involves positions the firm took in court, or in anticipation of litigation with the
[Securities and Exchange Commission]. We cannot conclude these allegations of classic
petitioning activity are merely incidental or collateral to the plaintiff[s’] claims against
[the firm]. The complaint alleges [the plaintiffs] suffered substantial losses due to [the
firm’s] conduct in delaying resolution of the [Securities and Exchange Commission]
5
investigation and lawsuit and its legal strategies opposing early provisional relief.”
(Peregrine, supra, 133 Cal.App.4th at p. 673.)
In PrediWave Corp. v. Simpson Thacher & Bartlett LLP (2009) 179 Cal. App. 4th
1204, 1227 (PrediWave), the Court of Appeal for the Sixth District pointed out an
important distinction. “In determining the applicability of the anti-SLAPP statute, we
think a distinction must be drawn between (1) clients’ causes of action against attorneys
based upon the attorneys’ acts on behalf of those clients, (2) clients’ causes of action
against attorneys based upon statements or conduct solely on behalf of different clients,
and (3) nonclients’ causes of action against attorneys. In the first class, the alleged speech
and petitioning activity was carried out by attorneys on behalf of the plaintiffs in the
lawsuits now being attacked as SLAPP’s, although the attorneys may have allegedly
acted incompetently or in violation of the Professional Rules of Conduct. The causes of
action in this first class categorically are not being brought ‘primarily to chill the valid
exercise of the constitutional rights of freedom of speech and petition . . . .’ (§ 425.16,
subd. (a).)” In holding the anti-SLAPP statute inapplicable to a cause of action brought
by a former client against the client’s former attorney, the court stated, “it is unreasonable
to interpret this language to include a client’s causes of action against the client’s own
attorney arising from litigation-related activities undertaken for that client.” (Id. at p.
1228.)3
Utrecht seeks to avoid the distinction drawn in PrediWave, arguing that this
court’s “holding” in Peregrine is “squarely on point.” According to Utrecht, Peregrine
established that the anti-SLAPP statute applies to a client’s causes of action against an
3
The trial court here also considered Fremont Reorganizing Corp. v. Faigin (2011) 198
Cal. App. 4th 1153 to support its conclusion. However, in that case, which held a legal
malpractice claim against a client’s former attorney to be within the scope of the anti-
SLAPP statute, the attorney’s alleged misdeed was not the assertion of a claim on behalf
of the former client. (Id. at pp. 1162, 1171.) The former client alleged that the attorney
had breached his obligations to him by reporting to the California Insurance
Commissioner, acting as liquidator of an insolvent insurer, that the former client was in
the process of auctioning artworks that the attorney falsely represented were owned by
the insolvent insurer.
6
attorney for litigation positions that benefit someone other than the client, such as a joint
client or the principal of a business entity client. However, the decision in Peregrine did
not turn on the factual nuance that Utrecht claims. The analysis in Peregrine was focused
on whether the anti-SLAPP statute applies to claims that are partially based on protected
activity. (Peregrine, supra, 133 Cal.App.4th at pp. 669–675.) The court in Peregrine did
not expressly consider or discuss the issue of whether the anti-SLAPP statute applies to a
client’s causes of action against attorneys based upon actions taken on behalf of that
client. Language used in an opinion is not authority for a proposition the court did not
consider. (People v. Superior Court (Marks) (1991) 1 Cal. 4th 56, 65–66.)
Further, the causes of action alleged in Peregrine were not limited to a client’s
claims against a former attorney. The plaintiffs in Peregrine included third parties who
had invested in the entities through which an alleged Ponzi scheme was perpetrated.
(Peregrine, supra, 133 Cal.App.4th at p. 668, fn. 4.) These third-party investors were not
the attorneys’ former clients but were instead harmed “because [the attorneys’] stalling
and stonewalling tactics delayed the progress of the SEC’s investigation and lawsuit and
enabled the scheme’s perpetrators to solicit—and steal—more money from the
investors.” (Id. at p. 671.) Even applying the distinction drawn in PrediWave, these
claims by nonclients fall within the scope of section 425.16. Consequently, this aspect of
Peregrine is consistent with cases holding that a claim for injuries suffered by adversaries
or other nonclients resulting from an attorney’s acts in the course of litigation is based on
protected activity and within the scope of the anti-SLAPP statute.4 (See, e.g., Jarrow
Formulas, Inc. v. LaMarche (2003) 31 Cal. 4th 728, 735; Thayer v. Kabateck Brown
4
The other plaintiff in Peregrine was a bankruptcy trustee asserting claims on behalf of
entities formerly represented by the attorneys. (Peregrine, supra, 133 Cal.App.4th at
p. 668, fn. 4.) Although the trustee was not technically the attorneys’ former client, he
nevertheless stood in the shoes of the former client (see id. at p. 680) and would be
treated as the former client for purposes of the distinction drawn in PrediWave. As noted
above, the Peregrine court did not consider the issue addressed in PrediWave and was
not urged to treat the nonclient plaintiffs any differently from the bankruptcy trustee
plaintiff, who asserted claims on behalf of former clients.
7
Kellner LLP (2012) 207 Cal. App. 4th 141; Kashian v. Harriman (2002) 98 Cal. App. 4th
892, 907–909.)
Where, on the other hand, a legal malpractice action is brought by an attorney’s
former client, claiming that the attorney breached fiduciary obligations to the client as the
result of a conflict of interest or other deficiency in the representation of the client, the
action does not threaten to chill the exercise of protected rights and the first prong of the
anti-SLAPP analysis is not satisfied. This is made clear by PrediWave and by numerous
other decisions. (See, e.g., Kolar v. Donahue, McIntosh & Hammerton (2006) 145
Cal. App. 4th 1532, 1540 [“A malpractice claim focusing on an attorney’s incompetent
handling of a previous lawsuit does not have the chilling effect on advocacy found in
malicious prosecution, libel, and other claims typically covered by the anti-SLAPP
statute. In a malpractice suit, the client is not suing because the attorney petitioned on his
or her behalf, but because the attorney did not competently represent the client’s interests
while doing so. Instead of chilling the petitioning activity, the threat of malpractice
encourages the attorney to petition competently and zealously. This is vastly different
from a third party suing an attorney for petitioning activity, which clearly could have a
chilling effect.”]; Chodos v. Cole (2012) 210 Cal. App. 4th 692, 702 [quoting an
authoritative text: “ ‘California courts have held that when a claim [by a client against a
lawyer] is based on a breach of the fiduciary duty of loyalty or negligence, it does not
concern a right of petition or free speech, though those activities arose from the filing,
prosecution of and statements made in the course of the client’s lawsuit. The reason is
that the lawsuit concerns a breach of duty that does not depend on the exercise of a
constitutional right.’ ”]; Jespersen v. Zubiate-Beauchamp (2003) 114 Cal. App. 4th 624,
632 [rejecting attorney’s “attempt to turn garden-variety attorney malpractice into a
constitutional right”].)
The claim in the present case falls squarely within this latter category. Loanvest is
not a third party allegedly harmed by Utrecht’s representation of another client, but
Utrecht’s former client that allegedly was harmed as the result of his “egregiously
breaching the duty of loyalty” that was owed to Loanvest. The fact that the complaint
8
refers to Cresson as Utrecht’s “true client” and Loanvest as his “purported client” does
not alter the admitted fact that Utrecht was the attorney for Loanvest and Loanvest is
claiming that Utrecht breached its duty of loyalty by taking steps that were not in its
interests but in the interests of Cresson and his other entities. The fact that the complaint
“focus[es] specifically on particular statements or positions taken in connection with
matters under review by a court,” as the trial court noted, does not alter the fact that the
claim is not for injuries suffered by a third party caused by the attorney’s advocacy but is
based on the alleged breach of loyalty owed to Loanvest. (See, e.g., Coretronic Corp. v.
Cozen O’Connor (2011) 192 Cal. App. 4th 1381, 1392 [anti-SLAPP statute does not apply
to malpractice claim against attorney where “it was the breach of the duty of loyalty
owed to the clients that gave rise to liability, not protected speech or petitioning
activity”]; Freeman v. Schack (2007) 154 Cal. App. 4th 719, 729, 733 [although legal
malpractice action had “as a major focus” the attorney’s actions in representing former
client, anti-SLAPP statute did not apply because “principal thrust of the conduct
underlying [the] causes of action is . . . [attorney’s] undertaking to represent a party with
interests adverse to plaintiffs, in violation of the duty of loyalty he assertedly owed them
in connection with the [prior] litigation”]; United States Fire Ins. Co. v. Sheppard,
Mullin, Richter & Hampton LLP (2009) 171 Cal. App. 4th 1617; Benasra v. Mitchell
Silberberg & Knupp LLP (2004) 123 Cal. App. 4th 1179.)
Since Loanvest’s claim is not a challenge to the exercise of protected activity, the
first prong of the anti-SLAPP analysis is not met. Therefore, there is no occasion to
consider the merits of the claim. (Freeman v. Schack, supra, 154 Cal.App.4th at p. 733
[“merits based arguments have no place in our threshold analysis of whether plaintiffs’
causes of action arise from protected activity”].) The many reasons for which the trial
court concluded that the claim lacks merit must await consideration on a motion for
summary judgment or other appropriate proceedings.
Disposition
The judgment is reversed and the matter is remanded to the trial court for further
proceedings. The parties shall bear their own costs on appeal.
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_________________________
Pollak, J.
We concur:
_________________________
McGuiness, P. J.
_________________________
Jenkins, J.
A141564
10
Trial Court: Alameda County Superior Court
Trial Judge: Hon. Robert B. Freedman
Counsel for Plaintiff and Appellant: James S. Madow
Counsel for Defendant and Respondent: UTRETCHT & LEVIN, LLP
Ronal D. Schivo
Patrick J. Connolly
A141564
11