Ventures v. Rodeo Capital CA2/7 ( 2021 )

Filed 3/15/21 Ventures v. Rodeo Capital CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
JHM VENTURES, B298909
Plaintiff, Appellant, and (Los Angeles County
Cross-Respondent, Super. Ct. No. 18STCV10373)
v.
RODEO CAPITAL, INC. et al.,
Defendants, Respondents,
and Cross-Appellants.
APPEALS from an order of the Superior Court of
Los Angeles County, John P. Doyle, Judge. Reversed with
directions.
Levatolaw and Stephen D. Weisskopf for Plaintiff,
Appellant, and Cross-Respondent.
Ervin Cohen & Jessup and Michael C. Lieb for Defendants,
Respondents, and Cross-Appellants.
___________________________
INTRODUCTION
Rodeo Capital, Inc. and its officers persuaded JHM
Ventures to loan $400,000 in a junior position to the owners of a
commercial property in Illinois after another, senior group of
investors had already lent the owners of the property $3,100,000.
After the property owners failed to repay JHM’s loan, Rodeo
Capital’s officers persuaded JHM not to foreclose by falsely
claiming they would “get [JHM’s] money back” and by
misrepresenting and concealing certain information about the
property. By the time JHM learned the truth, the property was
“under water.” Rodeo Capital and the senior investment group
subsequently foreclosed on the property and sought to extinguish
JHM’s interest. JHM sued Rodeo Capital, its officers, and the
senior investors, claiming JHM would not have made the loan or,
having made the loan, would have foreclosed on the property
sooner had they not misrepresented and concealed material
information about the property.
Rodeo Capital, its officers, and some of the senior investors
filed a special motion under Code of Civil Procedure section
425.16 (section 425.16) to strike certain allegations in JHM’s
complaint, arguing the allegations sought relief for petitioning
activity. In particular, the moving defendants argued the
complaint included claims based on prelitigation statements that
persuaded JHM not to foreclose on the property and that arose
from the foreclosure action filed by Rodeo Capital and the senior
investors. The trial court granted in part and denied in part the
motion, and both sides appealed.
We conclude the moving defendants failed to show that
they made the challenged misrepresentations and omissions in
2
anticipation of litigation contemplated in good faith and under
serious consideration or that JHM sought relief based on Rodeo
Capital’s foreclosure action. Therefore, we hold the challenged
conduct falls outside the scope of section 425.16, vacate the trial
court’s order, and direct the trial court to enter a new order
denying the special motion to strike.
FACTUAL AND PROCEDURAL BACKGROUND
A. JHM Invests in Illinois Real Estate
In or around December 2013 Rodeo Capital officers Richard
Katz and Gregg Bernstein (collectively with Rodeo Capital, the
Rodeo Capital Group) approached JHM about investing in a
commercial property in Illinois. A group of investors (the Illinois
Borrowers) were looking for a $3,500,000 loan, $3,100,000 of
which would come from another investment group who would be
in a position senior to JHM (the Senior Investors). Katz and
Bernstein asked JHM to loan the remaining $400,000 to the
Illinois Borrowers and receive as security a second mortgage on
the property.1
1 Under Illinois law a mortgage is “any consensual lien
created by a written instrument which grants or retains an
interest in real estate to secure a debt or other obligation.”
(735 Ill. Comp. Stat. Ann. 5/15-1207; see Paliatka v. Bush
(Ill. App. Ct. 2018) 109 N.E.3d 343, 350.) In California
promissory notes are secured by deeds of trust, not mortgages,
although deeds of trust and mortgages “perform the same basic
function, and . . . a deed of trust is ‘practically and substantially
only a mortgage with power of sale.’” (Domarad v. Fisher &
Burke, Inc. (1969) 270 Cal.App.2d 543, 553; see Jenkins v.
3
The Rodeo Capital Group acted as investment advisors to
JHM and conducted due diligence on the Illinois property.
According to JHM, Katz and Bernstein made numerous
representations to induce JHM to make the loan, including that
the Senior Investors would act as a “friendly first,” meaning that,
in the event of a default, the Senior Investors would act jointly
with JHM to foreclose. Katz and Bernstein allegedly told JHM
“they were all in this investment together.” Katz and Bernstein
also presented JHM with an appraisal valuing the property at
$5,250,000 and said the property had a “credit worthy anchor
tenant.” Based on these representations, JHM in December 2013
agreed to make a $400,000 loan to the Illinois Borrowers for a
term of one year. Specifically, JHM alleged that it “entered into a
Loan Agreement (a second mortgage) with the Illinois Borrowers
in the amount of $400,000” and that it “was a one-year loan that
matured on December 31, 2014, which required only monthly
interest payments.”
The Illinois Borrowers made monthly interest payments on
the loan through 2014, but did not repay the principal when it
became due on December 31, 2014. Throughout 2015 Katz and
Bernstein persuaded JHM not to foreclose on the property by
assuring JHM it would recover the principal amount of the loan.
Katz and Bernstein stated the Illinois Borrowers were about to
sell the property, were in escrow to sell the property, or had a
signed letter of intent to sell the property, none of which was
true. According to JHM, the Rodeo Capital Group also gave the
Illinois Borrowers “extensions” without JHM’s prior consent.
JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 507,
fn. 2, disapproved on another ground in Yvanova v. New Century
Mortgage Corp. (2016) 62 Cal.4th 919, 939.)
4
In approximately May 2017 the Illinois Borrowers stopped
making monthly interest payments. Katz and Bernstein
continued to discourage JHM from foreclosing by making false
representations about a pending sale or refinance. JHM learned
the anchor tenant had not been paying rent for some time, had
defaulted on its lease, had vacated the premises, and owed
creditors hundreds of thousands of dollars. Katz and Bernstein
allegedly knew the anchor tenant was “a shell limited liability
company with no assets” whose parent company had not
guaranteed the lease, but they did not reveal that information
before JHM agreed to make the loan. At some point JHM also
learned the Illinois Borrowers had fallen behind on property tax
payments beginning in 2015 and owed almost $2 million in taxes
by the end of 2018. The loss of the anchor tenant, together with
the unpaid taxes, reduced the value of the property to less than
$3,500,000.
Unbeknownst to JHM, in March 2017 Rodeo Capital and
the Senior Investors entered into a settlement agreement with
the Illinois Borrowers and took possession of the property
without assuming responsibility for JHM’s second mortgage. In
June 2018 Rodeo Capital and the Senior Investors filed a
foreclosure action in Illinois to extinguish JHM’s mortgage.
B. JHM Files This Action Against the Rodeo Capital
Group and the Senior Investors, Who File a Special
Motion To Strike Under Section 425.16
JHM sued the Rodeo Capital Group and the Senior
Investors for intentional misrepresentation, concealment,
promissory fraud, and negligent misrepresentation, and Rodeo
Capital only for breach of fiduciary duty and negligence. JHM
5
alleged the Rodeo Capital Group and the Senior Investors
misrepresented certain material facts and omitted others to
induce JHM to lend the Illinois Borrowers $400,000, failed to
disclose material information about the property, misrepresented
certain material facts and concealed others to persuade JHM not
to foreclose on the property when JHM could have recouped its
investment, secretly entered into a settlement agreement with
the Illinois Borrowers, and sought to extinguish JHM’s interest
in the property through a foreclosure action. JHM alleged that,
at all relevant times, Katz and Bernstein acted as
“owners/representatives” of Rodeo Capital and as agents for the
Senior Investors. JHM sought damages for inducing JHM to
invest in the Illinois property, failing to repay JHM’s loan, and
convincing JHM under false pretenses to “forbear from
foreclosing” on the Illinois property.
The Rodeo Capital Group and some of the Senior Investors
filed a special motion to strike certain allegations in the
complaint under section 425.16, subdivision (e)(2).2 In particular,
2 The Senior Investors that JHM named as defendants
included Rodeo Capital, HIF Lenders II, Inc., Edwin H. Bernstein
and Jeanne C. Bernstein in their representative capacities as
trustees of the E&J Bernstein Revocable Trust, Jacqueline Davis
in her representative capacity as trustee of the Jacqueline Davis
Living Trust, Gary I. Jubas and Jo Ann Jubas in their
representative capacities as trustees of the Gary I. Jubas and Jo
Ann Jubas Revocable Trust dated February 11, 1997, Marvin
Jubas in his representative capacity as trustee of the Jubas
Living Trust, Katz, as trustee of the Katz Lending 401K Plan,
and Rava Capital, Inc. Rodeo Capital, Katz as trustee of the Katz
Lending 401K Plan, HIF Lenders II, Inc., and Rava Capital, Inc.
joined Katz and Bernstein’s special motion to strike. JHM
6
the moving defendants asked the trial court to strike the
allegations in paragraphs 45-47, 87, 97, 102, 119, and part of
paragraph 75. These are those allegations:
In paragraph 45 JHM alleged the defendants’ “ultimate
violation of . . . trust” occurred when the Rodeo Capital Group
and the Senior Investors “filed a foreclosure action seeking to
extinguish [JHM’s] second mortgage despite years of persuading
[JHM] not to foreclose, and all the statements made to induce
[JHM] to loan the $400,000 to the Illinois Borrower[s],
specifically that they were all in this together and would not seek
to wipe out the second mortgage.” In paragraph 46 JHM
provided information about the foreclosure action that sought to
extinguish JHM’s mortgage and alleged the Rodeo Capital Group
and the Senior Investors secretly entered into a settlement
agreement and a “deed in lieu” with the Illinois Borrowers after
attempting unsuccessfully to negotiate “an intercreditor
agreement” with JHM. In paragraph 47 JHM, after
summarizing its allegations in paragraphs 45 and 46, alleged the
Rodeo Capital Group and the Senior Investors’ conduct was “the
height of duplicity and deception.”
In paragraph 87 JHM alleged, in connection with its
cause of action for concealment, it would have foreclosed on the
property in 2014 or 2015 had the Rodeo Capital Group and the
Senior Investors disclosed that the property taxes were in arrears
and that the anchor tenant was not paying rent. In
paragraph 97 JHM alleged, in connection with its cause of
alleged causes of action against other defendants who have not
appeared in the action or who were involved in a Florida real
estate investment unrelated to the Illinois property, none of
whom is a party to this appeal.
7
action for promissory fraud, the Rodeo Capital Group and the
Senior Investors repeatedly promised JHM “it would get paid
back [its] $400,000 investment” but “did not perform the
promised acts, as evidenced by” the filing of a foreclosure action
that sought to extinguish JHM’s mortgage. In paragraph 102
JHM alleged, in connection with its cause of action for negligent
misrepresentation, the Rodeo Capital Group and the Senior
Investors “made certain representations to [JHM] to induce it to
forbear from foreclosing on the Property.” And in
paragraph 119 JHM alleged, in connection with its cause of
action for breach of fiduciary duty, Rodeo Capital “knowingly
acted against [JHM’s] interests in connection with persuading
[JHM] not to foreclose on the Illinois Property . . . .”
Finally, the allegation in paragraph 75 that the moving
defendants asked the trial court to strike was that, in connection
with JHM’s cause of action for intentional misrepresentation, the
Rodeo Capital Group and the Senior Investors “made certain
representations to [JHM] to induce it to forbear from foreclosing
on the Illinois Property.” The Rodeo Capital Group and the
Senior Investors did not challenge the allegations in
paragraph 75 concerning statements or omissions about the joint
nature of the first and second loans (the “friendly first
allegation”), the inflated appraisal, or the creditworthiness of the
anchor tenant.
The moving defendants argued the allegations they were
challenging in the special motion to strike sought “to impose
liability . . . for commencing a legal action for judicial foreclosure
and/or for pre-litigation communications, for which they are
insulated from liability” under Civil Code section 47,
subdivision (b). The moving defendants argued JHM’s alleged
8
damages were based entirely on the harm JHM claimed it
suffered “by refraining from foreclosing and by [the Rodeo Capital
Group and the Senior Investors] pursuing a judicial foreclosure
on the Illinois Property.” Without any analysis or substantive
supporting declarations, the moving defendants argued that
JHM’s claims arose from protected activity under section 425.16
and that the litigation privilege under Civil Code section 47,
subdivision (b), provided “complete immunity” from liability for
misleading JHM “into refraining from foreclosing or from the
judicial foreclosure proceedings commenced by [the Rodeo Capital
Group and the Senior Investors].”
JHM opposed the special motion to strike, arguing its
claims did not arise from protected activities under section
425.16. JHM argued that its causes of action arose instead from
statements and omissions Katz and Bernstein made years before
the Rodeo Capital Group and the Senior Investors filed their
foreclosure action and that references to the Illinois foreclosure
action only provided “‘context, without supporting a claim for
recovery.’” (Baral v. Schnitt (2016) 1 Cal.5th 376, 394 (Baral).)
JHM also argued the moving defendants failed to show JHM’s
causes of action arose from statements made in anticipation of
litigation. In their reply, the moving defendants argued that
“both the act of convincing [JHM] not to foreclose and the
commencement of a foreclosure proceeding are protected
activities” and that section 425.16 “applies to all activities in
connection with litigation.” JHM’s “sole theory of damages,”
according to the moving defendants, “consists of the claim that
defendants undermined the value of JHM’s collateral by first
convincing JHM not to foreclose, and then commencing a judicial
foreclosure that will, if successful, eliminate JHM’s lien.”
9
C. The Trial Court Grants in Part and Denies in Part
the Special Motion To Strike
The trial court granted in part and denied in part the
special motion to strike. The court broadly characterized the
challenged allegations as pertaining to (1) the defendants’ act of
filing a foreclosure action that sought to eliminate JHM’s lien on
the Illinois property (paragraphs 45-47 and 97); and (2) the
defendants’ misrepresentations and omissions that caused JHM
to refrain from filing a foreclosure action in Illinois
(paragraphs 75, 87, 102, and 119). The court further divided the
second category of allegations (regarding forbearance) into
allegations of affirmative misrepresentations (there was no need
to foreclose because the defendants would ensure JHM was
repaid) and those of omissions (JHM would have foreclosed when
it had the chance had it known about the unpaid property taxes
and the problems with the anchor tenant).
Under the first step of the section 425.16 analysis the trial
court ruled JHM’s allegations concerning the filing of the
foreclosure action by the defendants did not arise from protected
activity. The court stated that “a close reading of the Complaint
indicates that [JHM’s] claims do not seek relief for Defendants’
filing of a foreclosure action.” For example, the court pointed out,
JHM’s third cause of action for promissory fraud sought damages
because the borrowers failed to repay the $400,000 loan, not
because the defendants foreclosed on the property. “This makes
sense,” the court reasoned, “to the extent that the presence or
absence of a lien does not fundamentally relate to the borrowers’
obligation to [JHM].”
But the trial court ruled that affirmative
misrepresentations that caused JHM to refrain from filing a
10
foreclosure action were protected statements made by a senior
lender in anticipation of litigation. The court concluded that the
alleged omission concerning the payment of property taxes was
protected activity because Rodeo Capital had a duty as the loan
servicer to disclose that information, but that the alleged
omission concerning the anchor tenant was not protected activity
because Rodeo Capital did not have a duty to disclose that
information.
Under the second step of the section 425.16 analysis, the
trial court ruled “the allegations that Defendants made certain
misrepresentations and omitted the fact that property taxes had
not been paid in order to preclude a foreclosure action are barred
by the litigation privilege” for the same reasons that those
misrepresentations and omissions constituted protected activity.
JHM filed a timely appeal, and the moving defendants filed a
timely cross-appeal.
DISCUSSION
A. Section 425.16
“A strategic lawsuit against public participation . . . is one
which ‘seeks to chill or punish a party’s exercise of constitutional
rights to free speech and to petition the government for redress of
grievances.’” (Contreras v. Dowling (2016) 5 Cal.App.5th 394,
404; see Rand Resources, LLC v. City of Carson (2019) 6 Cal.5th
610, 619 (Rand Resources) [“‘participation in matters of public
significance . . . should not be chilled through abuse of the
judicial process’”].) Section 425.16 “provides a procedural remedy
to dispose of lawsuits that are brought to chill the valid exercise
of constitutional rights.” (Contreras, at p. 404; see Rand
11
Resources, at p. 619; Trinity Risk Management, LLC v. Simplified
Labor Staffing Solutions, Inc. (2021) 59 Cal.App.5th 995, 1003
(Trinity Risk Management) [“The Legislature enacted section
425.16 to prevent and deter ‘lawsuits brought primarily to chill
the valid exercise of the constitutional rights of freedom of speech
and petition for the redress of grievances.’”].) “The statute
‘authorizes a defendant to file a special motion to strike any
cause of action arising from an act in furtherance of the
defendant’s constitutional right of petition or free speech in
connection with a public issue.’” (Contreras, at p. 404; see Barry
v. State Bar of California (2017) 2 Cal.5th 318, 321.) And the
Legislature has instructed that the statute “‘be construed
broadly.’” (Rand Resources, at p. 619; see § 425.16, subd. (a).)
A special motion to strike under section 425.16 may be used
to attack entire causes of action or “parts of a count as pleaded.”
(Baral, supra, 1 Cal.5th at p. 393; see Kettler v. Gould (2018)
22 Cal.App.5th 593, 600.) The “distinctive two-part structure”
applies in either circumstance. (Rand Resources, supra, 6 Cal.5th
at p. 619; see Baral, at p. 396.) “At the first step, the moving
defendant bears the burden of identifying all allegations of
protected activity, and the claims for relief supported by them.
When relief is sought based on allegations of both protected and
unprotected activity, the unprotected activity is disregarded at
this stage.” (Baral, at p. 396.) “Allegations of protected activity
that merely provide context, without supporting a claim for
recovery, cannot be stricken under [section 425.16].” (Baral, at
p. 394; see Oakland Bulk & Oversized Terminal, LLC v. City of
Oakland (2020) 54 Cal.App.5th 738, 753 (Oakland Bulk)
[“‘“collateral or incidental allusions to protected activity will not
trigger”’” application of section 425.16].) “[T]he focus is on
12
determining what ‘the defendant’s activity [is] that gives rise to
his or her asserted liability—and whether that activity
constitutes protected speech or petitioning.’” (Park v. Board of
Trustees of California State University (2017) 2 Cal.5th 1057,
1063 (Park); see Oakland Bulk, at p. 753.)
“If the court determines that relief is sought based on
allegations arising from activity protected by the statute, the
second step is reached. There, the burden shifts to the plaintiff to
demonstrate that each challenged claim based on protected
activity is legally sufficient and factually substantiated. The
court, without resolving evidentiary conflicts, must determine
whether the plaintiff’s showing, if accepted by the trier of fact,
would be sufficient to sustain a favorable judgment. If not, the
claim is stricken. Allegations of protected activity supporting the
stricken claim are eliminated from the complaint, unless they
also support a distinct claim on which the plaintiff has shown a
probability of prevailing.” (Baral, supra, 1 Cal.5th at p. 396; see
Kettler v. Gould, supra, 22 Cal.App.5th at p. 601.)
We review de novo an order granting or denying a special
motion to strike under section 425.16. (Park, supra, 2 Cal.5th at
p. 1067; Trinity Risk Management, supra, 59 Cal.App.5th at
p. 1002.) “‘[O]ur job is to review the trial court’s ruling, not its
reasoning.’ [Citation.] We consider ‘the pleadings, and
supporting and opposing affidavits stating the facts upon which
the liability or defense is based.’ [Citation.] In considering the
pleadings and declarations, we do not make credibility
determinations or compare the weight of the evidence; instead,
we accept the opposing party’s evidence as true and evaluate the
moving party’s evidence only to determine if it has defeated the
13
opposing party’s evidence as a matter of law.” (Trinity Risk
Management, at pp. 1002-1003; see Park, at p. 1067.)
B. The Challenged Allegations Do Not Arise from
Protected Petitioning Activity
1. Applicable Law
Section 425.16, subdivision (e), describes four types of
communications or conduct that constitute acts in furtherance of
a person’s right of speech or petition, including “any written or
oral statement or writing made before a legislative, executive, or
judicial proceeding, or any other official proceeding authorized by
law” and “any written or oral statement or writing made in
connection with an issue under consideration or review by a
legislative, executive, or judicial body, or any other official
proceeding authorized by law.” (§ 425.16, subd. (e)(1), (2); see
Rand Resources, supra, 6 Cal.5th at p. 620; Trinity Risk
Management, supra, 59 Cal.App.5th at p. 1003.) “‘[J]ust as
communications preparatory to or in anticipation of the bringing
of an action or other official proceeding are within the protection
of the litigation privilege,’” such “‘statements are equally entitled
to the benefits of section 425.16.’” (Briggs v. Eden Council for
Hope & Opportunity (1999) 19 Cal.4th 1106, 1115; see Trinity
Risk Management, supra, 59 Cal.App.5th at pp. 1004-1005;
Bel Air Internet, LLC v. Morales (2018) 20 Cal.App.5th 924, 940
(Bel Air Internet).) But a “prelitigation communication is
privileged only if it ‘relates to litigation that is contemplated in
good faith and under serious consideration.’” (Trinity Risk
Management, at p. 1005; see Kettler v. Gould, supra,
22 Cal.App.5th at p. 608.)
14
“In determining whether a statement was made in
anticipation of litigation contemplated in good faith and under
serious consideration, [the] court may look to how this test has
been applied in cases involving the litigation privilege of Civil
Code section 47.” (Bailey v. Brewer (2011) 197 Cal.App.4th 781,
790; accord, Kettler v. Gould, supra, 22 Cal.App.5th at
pp. 607-608; Bel Air Internet, supra, 20 Cal.App.5th at p. 941.) In
such cases, “‘the “mere possibility or subjective anticipation” of
litigation is insufficient’” to demonstrate litigation contemplated
in good faith and under serious consideration. (Strawn v. Morris,
Polich & Purdy, LLP (2019) 30 Cal.App.5th 1087, 1095-1096; see
Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 35
(Edwards).) Instead, there must be “‘proof of “some actual
verbalization of the danger that a given controversy may turn
into a lawsuit.”’” (Strawn, at p. 1096; see Edwards, at p. 35.)
Courts considering whether a prelitigation statement is
privileged under Civil Code section 47, subdivision (b), also
consider whether litigation was imminent or contemplated at the
time the statements are made. (See Strawn, at p. 1096;
Edwards, at pp. 35-36; see also Neville v. Chudacoff (2008)
160 Cal.App.4th 1255, 1268-1269 [discussing imminency].)
“‘Although “[t]he classic example of an instance in which the
privilege would attach to prelitigation communications is the
attorney demand letter threatening to file a lawsuit if a claim is
not settled,” it is not the mere threat of litigation that brings the
privilege into play, but rather the actual good faith contemplation
of an imminent, impending resort to the judicial system for the
purpose of resolving a dispute. [Citation.] “[B]ecause the
privilege does not attach prior to the actual filing of a lawsuit
unless and until litigation is seriously proposed in good faith for
15
the purpose of resolving the dispute, even a threat to commence
litigation will be insufficient to trigger application of the privilege
if it is actually made as a means of inducing settlement of a
claim, and not in good faith contemplation of a lawsuit.”’”
(Strawn, at p. 1096; see Eisenberg v. Alameda Newspapers,
Inc. (1999) 74 Cal.App.4th 1359, 1379-1380.)
2. JHM Does Not Seek Relief Based on the Illinois
Foreclosure Action
The moving defendants argue the trial court erred in
denying their special motion to strike paragraphs 45-47 and 97,
which they contend allege harm arising from the filing of the
foreclosure action in Illinois. But the trial court correctly
distinguished between “‘“(1) speech or petitioning activity that is
mere evidence related to liability and (2) liability that is based
on speech or petitioning activity.”’” (Area 51 Productions, Inc. v.
City of Alameda (2018) 20 Cal.App.5th 581, 594; see Oakland
Bulk, supra, 54 Cal.App.5th at p. 753.) JHM did not sue the
Rodeo Capital Group and the Senior Investors for filing a
foreclosure action, which would be protected petitioning activity.
JHM sued them for inducing JHM to loan the Illinois Borrowers
$400,000 under the false pretense of a “friendly first,” which is
not protected petitioning activity, and the foreclosure action filed
in Illinois is evidence the Rodeo Capital Group and the Senior
Investors reneged on their promise. Indeed, JHM’s causes of
action and damages do not depend on whether the Rodeo Capital
Group and the Senior Investors ever filed the foreclosure action;
JHM would have lost its investment either way. The foreclosure
action does not underlie or form the basis for the challenged
allegations (see Park, supra, 2 Cal.5th at p. 1062; Oakland Bulk,
16
supra, 54 Cal.App.5th at p. 753), and instead only provides
“context” for JHM’s claims “without supporting a claim for
recovery” (Baral, supra, 1 Cal.5th at p. 394; see Oakland Bulk, at
p. 753). In other words, that the Illinois foreclosure action “may
have triggered a lawsuit” does not mean JHM’s causes of action
arose from protected activity. (Third Laguna Hills Mutual v.
Joslin (2020) 49 Cal.App.5th 366, 373; accord, ValueRock
TN Properties, LLC v. PK II Larwin Square SC LP (2019)
36 Cal.App.5th 1037, 1047; see Episcopal Church Cases (2009)
45 Cal.4th 467, 477-478 [“the 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 [section 425.16]”].) Thus,
the trial court did not err in denying the part of the special
motion to strike targeting paragraphs 45-47 and 97 that the
moving defendants contend the court erred in denying.
3. The Challenged Misrepresentations and
Omissions Are Not Protected Prelitigation
Statements
JHM argues the trial court erred in granting the special
motion to strike the allegations of affirmative representations
Katz and Bernstein made to persuade JHM not to foreclose on
the Illinois property (essentially, “we’ll make sure you get your
money back”) and omissions regarding the payment of property
taxes. Conversely, the moving defendants argue the trial court
erred in denying the special motion to strike the allegations of
omissions concerning the anchor tenant’s lease payments. We
conclude the moving defendants failed to carry their burden to
show any of the alleged misrepresentations or omissions were
protected prelitigation statements under section 425.16, which
17
means that, on both issues, JHM is right and the moving
defendants are wrong.
JHM in its complaint did not allege that it or any other
person or entity ever affirmatively threatened to foreclose on the
Illinois property or to file a declaratory relief action or any other
litigation to determine the rights and interests of the various
parties. JHM also did not allege that it ever retained an attorney
to file a foreclosure action or to threaten to foreclose or that JHM
ever received a communication from any attorney representing
any of the defendants regarding the Illinois property. Similarly,
in his declaration in opposition to the special motion to strike,
Jason Mitchell, JHM’s principal, stated that he “was persuaded
by Katz and Bernstein not to foreclose” and that he “would have”
foreclosed on the property had he known the truth about the
property’s value. The only indication JHM actually considered
foreclosing on the property is implied from a sentence in
Mitchell’s declaration stating he relied on the alleged
misrepresentations and omissions “in deciding not to foreclose
. . . in 2015.” None of the moving defendants provided a
declaration in support of the special motion to strike, and none
submitted any evidence other than an order granting a motion for
entry of default entered by an Illinois court in the foreclosure
action.
The moving defendants did not show JHM’s allegations
that their misrepresentations and omissions caused JHM to
refrain from filing a foreclosure action, allegations we assume are
true, were made in anticipation of litigation contemplated in good
faith and under serious consideration. “In order for [defendants]
to be able to take advantage of the [litigation] privilege by
applying it to their own communications, they must establish
18
that at the time they made the subject communications, they
themselves actually contemplated prospective litigation, seriously
and in good faith.” (Edwards, supra, 53 Cal.App.4th at p. 39; see
Strawn v. Morris, Polich & Purdy, LLP, supra, 30 Cal.App.5th at
p. 1096; Cornell v. Berkeley Tennis Club (2017) 18 Cal.App.5th
908, 948; Eisenberg v. Alameda Newspapers, Inc. (1999)
74 Cal.App.4th 1359, 1380; see also Bel Air Internet, supra,
20 Cal.App.5th at p. 944 [“Whether or not a person intends to
exercise his or her constitutional right to petition the government
by persuading another to file [or not to file] a lawsuit depends
upon the state of mind of the person offering the persuasion, not
the state of mind of the person whom he or she attempts to
persuade.”].)
For example, in Edwards, supra, 53 Cal.App.4th 15, a case
strikingly similar to this one, a homeowners’ association sued a
developer and its insurer for fraudulently inducing the
homeowners to release the developer from liability in exchange
for making repairs to cracks in the foundations of the plaintiffs’
homes. (Id. at pp. 25-27.) The defendants filed a motion in
limine to exclude under Civil Code section 47, subdivision (b), the
defendants’ prelitigation communications as evidence they had
fraudulently induced the homeowners to execute the releases.
(Edwards, at pp. 25-26.) The court in Edwards reversed an order
granting the motion in limine. The court stated: “[The
homeowners] merely alleged that [the defendants] intended, by
means of fraudulent misrepresentations and omissions, to protect
themselves from potential liability by inducing [the homeowners]
not to pursue their rightful judicial remedies. [The homeowners]
have never alleged or admitted that at the time they informed
[the developer] of the cracks in their foundations, [the
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homeowners] themselves were actually contemplating litigation,
seriously and in good faith. . . . [¶] . . . The allegations of [the]
complaints only state that [the defendants] were trying to avoid
potential litigation by acting in a way that would induce [the
homeowners] not to pursue or even consider filing lawsuits until
the statute of limitations had already run. Nowhere in their
complaints do [the homeowners] allege [the defendants]
contemplated anything more than the mere possibility that [the
homeowners] might consider litigation.” (Id. at p. 39; see Cornell
v. Berkeley Tennis Club, supra, 18 Cal.App.5th at p. 948
[defendant “identified no evidence that the allegedly defamatory
statements were made when [the defendant] contemplated
litigation in good faith”]; Eisenberg v. Alameda Newspapers, Inc.,
supra, 74 Cal.App.4th at p. 1380 [litigation privilege did not
protect as a prelitigation statement a retraction that was
published “not to obtain access to the courts, but to avoid
litigation”].) Here, as with the defendants in Edwards, the
moving defendants pointed to no evidence that, at the time they
made the alleged misrepresentations and omissions, they
actually contemplated litigation in good faith and under serious
consideration.
The court in Edwards further stated that “the [litigation]
privilege only arises at the point in time when litigation is no
longer a mere possibility, but has instead ripened into a proposed
proceeding that is actually contemplated in good faith and under
serious consideration as a means of obtaining access to the courts
for the purpose of resolving the dispute.” (Edwards, supra,
53 Cal.App.4th at p. 39.) This requirement prevents the
litigation privilege from being used “‘as a cloak to provide
immunity’ for fraud and other tortious conduct.” (Id. at p. 33;
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accord, Cornell v. Berkeley Tennis Club, supra, 18 Cal.App.5th at
p. 947; see Olivares v. Pineda (2019) 40 Cal.App.5th 343, 357 [“a
threat to file a lawsuit is insufficient to activate the privilege if it
is merely a negotiating tactic and not a serious proposal made in
good faith contemplation of going to court”].) Here, JHM did not
even allege there was a dispute with the Rodeo Capital Group or
the Senior Investors at the time Katz and Bernstein made
misrepresentations and omissions to induce JHM not to foreclose
on the Illinois property. Instead, JHM alleged it believed JHM,
the Rodeo Capital Group, and the Senior Investors “were all in
this together.” The moving defendants failed to show litigation
was anything more than a “mere possibility,” if that. (Edwards,
at p. 39; see id. at p. 38 [“it is not clear from the record that there
was even a ‘dispute’ to be resolved before [the defendants]
demanded that [the homeowners] execute the releases as a
condition of repairing the foundations”].)
Finally, the policy underlying the litigation privilege is not
served by applying section 425.16 to the misrepresentations and
omissions at issue in this case. “‘The principal purpose of [the
litigation privilege] is to afford litigants and witnesses [citation]
the utmost freedom of access to the courts without fear of being
harassed subsequently by derivative tort actions.’” (Action
Apartment Assn., Inc. v. City of Santa Monica (2007)
41 Cal.4th 1232, 1241; accord, Trinity Risk Management, supra,
59 Cal.App.5th at p. 1006.) This purpose is not served by
protecting “[n]egotiations and persuasion [that] are part of any
business deal.” (Haneline Pacific Properties, LLC v. May (2008)
167 Cal.App.4th 311, 320; see Mission Beverage Co. v. Pabst
Brewing Co., LLC (2017) 15 Cal.App.5th 686, 703-704 [letter
communicating a decision to terminate a contract was not
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protected pre-arbitration activity because the sender “had ‘no
reason to believe’ that arbitration ‘will follow’ from its letter
because [the parties] could well have negotiated a settlement and
obviated any need for arbitration”].) “To suggest that nearly any
attempt at negotiation is covered by the privilege . . . is unduly
overbroad.” (Haneline, at p. 320; see Eisenberg v. Alameda
Newspapers, Inc., supra, 74 Cal.App.4th at p. 1381 [applying the
litigation privilege to settlement negotiations when litigation is a
mere possibility “is totally unrelated to the rationale underlying
the litigation privilege”].) Katz and Bernstein hoped to forestall
any effort by JHM to foreclose on the Illinois property by
persuading JHM it would get its money back and by withholding
material information about the property. There was no
allegation or evidence that Katz or Bernstein contemplated any
litigation (much less seriously or in good faith) at the time they
made the challenged misrepresentations and omissions. Thus,
JHM’s causes of action arising from those alleged
misrepresentations and omissions did not restrict any party’s
freedom of access to the courts. Thus, the trial court erred in
granting the part of the special motion to strike JHM contends
the court erred in granting, and it did not err in denying the part
of the motion to strike allegations regarding the omission of
information regarding the anchor tenant.
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DISPOSITION
The order granting in part and denying in part the special
motion to strike certain allegations of the complaint is reversed.
The trial court is directed to enter a new order denying the
special motion to strike. JHM is to recover its costs on appeal.
SEGAL, J.
We concur:
PERLUSS, P. J.
FEUER, J.
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