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Haight Ashbury Free Clinics, Inc. v. Happening House Ventures

May 26, 2010

HAIGHT ASHBURY FREE CLINICS, INC., PLAINTIFF AND RESPONDENT,
v.
HAPPENING HOUSE VENTURES ET AL., DEFENDANTS AND APPELLANTS.



(San Francisco County Super. Ct. No. CPF-09-509138). Charlotte W. Woolard, Judge.

The opinion of the court was delivered by: Jones, P.J.

CERTIFIED FOR PUBLICATION

Respondent Haight Ashbury Free Clinics, Inc., (HAFCI) filed a complaint against appellants Happening House Ventures (HHV) and David E. Smith alleging Smith had violated his fiduciary duties to HAFCI. HHV and Smith filed a motion to strike under the SLAPP statute (Code Civ. Proc., § 425.16*fn1 ), arguing that two of the causes of action HAFCI alleged must be dismissed because they were based in part on constitutionally protected activity. The trial court disagreed and denied the motion. HHV and Smith now appeal arguing the trial court erred when it denied their motion. We agree and will hold that acts that are protected under the SLAPP statute are not "merely incidental" to a cause of action simply because they represent a relatively small number of many alleged wrongful acts.

I. FACTS AND PROCEDURAL HISTORY

In 1967, appellant David E. Smith founded HAFCI, a nonprofit corporation that provides free medical services in San Francisco. Also in 1967, Smith founded appellant HHV, which became a limited partnership by 1977. HHV was formed to assist HAFCI by acquiring San Francisco real estate, which would serve as a home for HAFCI's services and ultimately be acquired by HAFCI at HHV's cost less the mortgage balance. Smith was the general partner of HHV, and HAFCI became a limited partner in 1977.

HHV acquired three buildings in San Francisco for HAFCI's use (the Buildings) and leased them to HAFCI, which used them in its operations.

In 2005, a dispute arose between HAFCI and HHV, and the HAFCI board of directors removed Smith from his position as HAFCI's president.

A. The Partnership Case

In August 2005, HAFCI filed a lawsuit against HHV, Smith, and HHV's administrator David Newlin (Newlin), entitled Haight Ashbury Free Clinics, Inc. v. Happening House Ventures, et al., San Francisco County Superior Court, No. CGC-05-444472 (the Partnership Case). HAFCI sought an accounting of limited partnership interests in HHV and a judicial declaration of the amount of HAFCI's proper partnership interest in HHV.

After a trial, the court determined in July 2008 that HAFCI's proper percentage of interest in HHV was 30.68 percent.

B. The Lease Case

Meanwhile, in March 2006, HHV filed a lawsuit against HAFCI, entitled Happening House Ventures v. Haight Ashbury Free Clinics, Inc., in San Francisco County Superior Court, No. CGC-06-450040 (the Lease Case). HHV alleged that HAFCI had breached its lease with HHV (the Lease), which obligated HAFCI to repair, keep and maintain the Buildings in good condition, return them to HHV in the same condition as when received (reasonable wear and tear excepted), and comply with governmental requirements regarding the Buildings.*fn2

In March 2008, HHV accepted HAFCI's offer to settle the Lease Case pursuant to section 998. The court entered judgment in HHV's favor and awarded HHV prejudgment interest, attorney fees, and costs, for a total judgment of $594,237.95. HAFCI appealed the awards of prejudgment interest, attorney fees and costs. We affirmed the award of prejudgment interest in case No. A122792, and HAFCI abandoned its appeal of the fees and costs award in case No. A124121.

HHV obtained a writ of execution on the Lease Case judgment and began to levy on HAFCI's property.

C. This Proceeding

In January 2009, HAFCI filed the instant lawsuit against HHV and Smith (the Dissolution Case). The first and second causes of action seek a declaratory judgment that the HHV limited partnership has been dissolved or, in the alternative, a judicial decree dissolving HHV. The third cause of action, against Smith in his individual capacity, alleges that Smith breached fiduciary duties he owed to HAFCI as general partner of HHV and as a director, officer, and key employee of HAFCI. A fourth cause of action incorporates the allegations of the third cause of action and seeks an accounting based on Smith's purported breaches of his fiduciary duties.

1. The Third Cause of Action

Of particular relevance to this appeal is HAFCI's third cause of action, which alleges that Smith breached his fiduciary duties to HAFCI in several ways. In part, the cause of action is based on the allegation that Smith allowed Newlin to manage key aspects of HAFCI's and HHV's business (including granting Newlin power of attorney to perform Smith's duties as general partner of HHV) without adequate supervision, resulting in Newlin's commission of a number of wrongful and improper acts. In addition, paragraph 31 in the third cause of action asserts that Smith breached his fiduciary duties to HAFCI by committing numerous other acts, two of which would become the subject of the motion at issue in this appeal (and which we set forth in italics): "(a) purporting to consent on behalf of all HHV limited partners, including HAFCI, to waive their right to purchase HHV interests that other limited partners wished to sell; [¶] (b) engaging in the conduct found to be improper in the Decision in the Partnership Case; [¶] (c) engaging in conduct designed to enhance Smith's personal tax position in ways that were of no benefit to HAFCI as a nonprofit corporation; [¶] (d) failing to give HAFCI the opportunity promised by HHV and Smith to acquire the three HHV Buildings at HHV's cost less the mortgage balance; [¶] (e) using rent paid by HAFCI under the Lease to build Smith's personal wealth through the acquisition of real estate partnerships, other securities and tax benefits; [¶] (f) diverting HAFCI opportunities to himself; [¶] (g) using HAFCI resources for his personal use; [¶] (h) causing HHV to pay the legal expense of defending him against his own breaches of fiduciary duties to HAFCI; [¶] (i) causing HHV to enter into a settlement agreement with Newlin under which HHV recovered far less than the damage caused by Newlin's conduct as described above and released all claims against Newlin; [¶] (j) causing HAFCI to consent to a Lease that imposed on HAFCI all of the burdens of ownership of the Buildings without receiving any of the benefits of ownership; [¶] (k) causing HHV to pay personal expenses; [¶] (l) saddling HAFCI with the obligation to repay a 1985 'loan' from HHV at a time when HAFCI's rent payments to HHV exceeded the combined amount of the loan and HHV's expenses for the Buildings, in effect 'loaning' back to HAFCI a portion of HAFCI's own excessive rent payments; [¶] (m) using HHV's securities accounts for the benefit of SFREIC and other Smith-related entities; [¶] (n) causing HHV to enter into a settlement with its former attorney Arthur Brunwasser that insufficiently compensated HHV for Brunwasser's conflicts of interest in representing HHV, Smith and Newlin at the same time; [¶] (o) willfully conspiring with Newlin to have both of them testify falsely in depositions in the Partnership Case in what Smith described as a 'legal compromise;' and [¶] (p) willfully misrepresenting facts surrounding the claims in the Partnership Case in a letter to the San Francisco Bay Guardian." (Italics added.)

The complaint alleges that "Smith's breaches of fiduciary duty alleged above proximately caused injury to HAFCI and/or HHV and entitle them to recover damages from Smith." (Italics added.)*fn3

2. Motion to Strike

Appellants' counsel informed HAFCI's counsel that appellants intended to file a SLAPP motion based on the allegations in paragraphs 31(o) and 31(p), explaining that the allegations regarding the discussion of deposition testimony and the letter to the newspaper "need to be dropped." Early in a string of e-mail messages, HAFCI's attorney proposed that they try to resolve the issue "without a motion," disagreed with appellants' position, but asked to postpone further discussion until after HAFCI's attorney returned to town.

While HAFCI's counsel was still away, HHV and Smith filed their special motion to strike the third and fourth causes of action of HAFCI's complaint pursuant to section 425.16, on the grounds that those causes of action were based on activity protected by the SLAPP statute. In particular, HHV and Smith urged that the allegations of a conspiracy to testify in deposition, and the allegations of false statements in a letter to a newspaper about the Partnership Case, targeted activity in furtherance of Smith's constitutional right to free speech and petition.*fn4

In support of the motion to strike, Smith submitted a declaration explaining the activity alleged in paragraphs 31(o) and 31(p). As to the alleged conspiracy to testify falsely in deposition, Smith averred that at a meeting with Newlin and their attorney in the Partnership Case, he proposed that he and Newlin testify to events surrounding a transfer of partnership units from HAFCI to Newlin as they each remembered them, but that they also note that the other person had a different recollection. As to the letter to the newspaper, Smith averred that his attorney in the Partnership Case demanded that he send a letter affirming Newlin's version of the events surrounding the transfer of the partnership units, his attorney prepared the letter and the letter was sent to the newspaper, which published it in April 2006. Appellants also submitted a copy of the decision in the Partnership Case, in which the judge stated there was no evidence that HHV authorized or ratified Newlin's misconduct in converting HHV units owned by HAFCI, and there was no finding that Smith had not acted in good faith or in a manner he reasonably believed to be in HHV's best interests.

HAFCI opposed the motion to strike, contending the allegations in paragraphs 31(o) and 31(p) were merely incidental to the third and fourth causes of action, the gravamen of those causes of action did not target protected activity, and paragraphs 31(o) and 31(p) did not allege protected activity anyway. HAFCI submitted excerpts from the transcript of Smith's testimony in the Partnership Case, which, in HAFCI's view, showed Smith's agreement to testify falsely in deposition and his admission that his letter to the editor contained false statements.

The trial court denied the special motion to strike. The court stated: "... the Court having concluded that the gravamen of the third and fourth causes of action is that defendant Smith mismanaged plaintiff and Happening House Ventures and engaged in self-dealings, that the allegations that are the subject of this motion are incidental to those causes of action, and that the motion was not frivolous, it is [¶] ORDERED that the special motion be, and the same hereby is DENIED, and that plaintiff's request for fees be, and the same hereby is, DENIED."

II. DISCUSSION

As mentioned, appellants' motion to strike was based on the contention that paragraphs 31(o) and 31(p) - alleging an agreement to testify falsely in deposition and a letter to a newspaper containing statements about pending litigation - targeted protected activity. Because paragraphs 31(o) and 31(p) set forth two of several acts allegedly constituting the breach of fiduciary duty cause of action, appellants urge that the third cause of action should be stricken in its entirety. Contending the fourth cause of action is based on Smith's alleged breaches of fiduciary duty--including the breaches alleged in paragraphs 31(o) and 31(p)--appellants further insist that the fourth cause of action should be stricken in its entirety.

A. Code of Civil Procedure Section 425.16

Section 425.16 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.*fn5 It establishes a procedure by which the trial court evaluates the merits of the lawsuit using a summary-judgment-like procedure at an early stage of the litigation. (Flatley v. Mauro (2006) 39 Cal.4th 299, 312 (Flatley); Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 192.) The purpose is to curtail the chilling effect meritless lawsuits may have on the valid exercise of free speech and petition rights, and the statute is to be interpreted broadly to accomplish that goal. (§ 425.16, subd. (a); Schaffer v. City and County of San Francisco (2008) 168 Cal.App.4th 992, 997-998 (Schaffer).)

In its motion, the defendant must make a threshold showing that the plaintiff's cause of action arises from the defendant's free speech or petition activity, as specified in the statute. (§ 425.16, subd. (b), (e).) The burden then shifts to the plaintiff to establish a probability of prevailing on the claim. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67 (Equilon).) If the plaintiff fails to do so, the motion to strike is granted and the prevailing defendant is entitled to recover his or her attorney fees and costs. (ยง ...


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