IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Sacramento)
February 9, 2012
ELITE POWER, INC., ET AL., PLAINTIFFS AND RESPONDENTS,
STEVEN K. ZINNEL, DEFENDANT AND APPELLANT.
(Super. Ct. No. 34200900046504CUBTGDS)
The opinion of the court was delivered by: Raye , P. J.
Elite Power v. Zinnel
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
A bitter falling-out between business partners resulted, as it often does, in lengthy, acrimonious legal action. Eventually, plaintiffs Elite Power, Inc., and Walter Zacharias (sometimes collectively Elite) filed a malicious prosecution action against defendant Steven K. Zinnel. In response, Zinnel filed an anti-SLAPP motion, which the trial court denied. On appeal, Zinnel, proceeding in pro. per., challenges the trial court's denial of his motion. We shall affirm the judgment.*fn1
FACTUAL AND PROCEDURAL BACKGROUND
The Split Between the Parties
Zacharias worked for Zinnel in a business called Hi-Voltage Wire Works, Inc. (Hi-Voltage), founded in 1987. In 2001 the pair began discussions about forming a new company and shutting down Hi-Voltage. Zinnel and Zacharias discussed the ownership, structure, and possible customer base of the new company. Once the new company was established, Hi-Voltage would shut down. According to Zacharias, Zinnel, in forming the new company, sought to hide assets from his soon to be ex-wife.
In September 2001 Zinnel and Zacharias entered into an agreement to establish the new business. Subsequently, Zacharias decided not to participate in the new venture because it would defraud Zinnel's ex-wife.
Zacharias formed Elite Power, Inc., after leaving Hi-Voltage. Zinnel accused Zacharias of taking Hi-Voltage's property and employees with him to Elite.
In November 2002 Zinnel, sole officer, director, and shareholder of Hi-Voltage, filed suit in the company's name against Zacharias and 15 other defendants, including Zinnel's ex-wife and former Hi-Voltage employees. (Hi-Voltage Wire Works, Inc. v. Zacharias (Super. Ct. Sacramento County, 2007, No. 02AS07030).) The complaint, subsequently amended four times, alleged Zacharias formed Elite by stealing millions of dollars worth of equipment, accounts, and other assets from Hi-Voltage.
Hi-Voltage alleged 20 causes of action against defendants: breach of fiduciary duty, usurpation of corporate opportunity, misappropriation of trade secrets, conversion, constructive trust, injunctive relief, unfair business practices, accounting, unfair solicitation, concealment of competitive plans, organization of a competing business, intentional interference with contractual relations, intentional or negligent interference with prospective economic advantage, trade libel, civil conspiracy, defamation, fraud, negligent misrepresentation, negligence, and appointment of a receiver. The first action sought over $3 million in damages, plus punitive damages and injunctive relief.
A few years later Zinnel filed a second action in his own name against many of the defendants named in the first action. (Zinnel v. Zacharias (Super. Ct. Sacramento County, dism. 2008, No. 05AS05785).) In the second action, based on the same facts as the first, Zinnel alleged 12 causes of action, including tortious interference with contract, intentional interference with prospective economic advantage, conversion, constructive trust, breach of written contract, breach of implied covenant of good faith and fair dealing, breach of non-compete covenant, breach of fiduciary duty, defamation-slander, fraud, appointment of receiver, and alter ego. The second action requested the same relief as the first. Subsequently, Zinnel dismissed Elite Power from the second action.
Termination of First Action
The first action went to trial. Following a series of dismissals and motions, only five causes of action went before the jury.
In its special verdict, the jury found Zacharias did not usurp corporate opportunities, solicit employees, conceal his plans, or make misrepresentations. In addition, the jury concluded defendants did not convert any property or interfere with any contract. Finally, the jury determined Hi-Voltage was aware of Zacharias's intent to start a new business.
Zacharias pleaded the affirmative defenses of illegality and unclean hands; those defenses were bifurcated and determined by the court. The trial court found Zinnel was the sole shareholder of Hi-Voltage, which was heading toward bankruptcy. Zinnel was also in the midst of an acrimonious divorce proceeding. In 2001 Zinnel entered into partnership with Zacharias to start Elite in order to hide assets from his then wife. Subsequently, Zinnel misled his wife's attorneys regarding the nature of his assets, and Zinnel and Hi-Voltage were alter egos.
The court found Hi-Voltage guilty of unclean hands: "Mr. Zinnel made plans to shut down Hi-Voltage in 2001, stating at the time it was heading toward bankruptcy. Mr. Zinnel agreed with Mr. Zacharias to form Elite Power, Inc. with the intent of not disclosing the new corporation to his then wife. Mr. Zinnel's actions were motivated by a desire to limit assets that would be disclosed and available to his then wife. Mr. Zinnel and Hi-Voltage, Inc., although legally distinct as individual and entity, were for all other purposes one and the same. Significantly, Mr. Zinnel directed Mr. Zacharias to shut down Hi-Voltage, Inc. even though there were no minutes or corporate formalities associated with such a drastic and fatal act. For all intents and purposes, Mr. Zinnel utilized the corporate shield at his convenience and opportunity. He now wishes to continue that design even though it is clear that his efforts with Hi-Voltage, Inc. in the second half of 2001 were improper and designed for secrecy. Finally, the Court would be remiss if it did not recognize that Mr. Zinnel's testimony was lacking in credibility on numerous key points. His responses were often evasive and his memory appeared to suffer from convenience. [¶] The Court will not countenance such actions." The court sustained the affirmative defenses to the breach of fiduciary obligation, interference with contract, and fraud causes of action.
Voluntary Dismissal of Second Action
As discovery continued in the second action, Zinnel moved for a protective order to prevent defense counsel from taking his deposition. Zinnel stated defense counsel had previously intimidated him and he did not feel safe being in the same room with him. Following the court's denial of his motion for a protective order, Zinnel dismissed the second action.
Malicious Prosecution Action
In June 2009 Elite filed an action for malicious prosecution and unfair business practices against Zinnel. The action alleged Zinnel was making false and defamatory statements about the company and discouraging customers from doing business with it. Elite also alleged Zinnel maliciously prosecuted the first and second actions.
Zinnel filed a motion under Code of Civil Procedure section 425.16, the anti-SLAPP (strategic lawsuit against public participation) statute.*fn2 Zinnel argued his two prior claims against Elite were protected speech and petition activity.
Elite opposed the motion. The trial court issued a tentative ruling finding that since some of the causes of action in the two suits survived a motion for non-suit, Elite could not establish a lack of probable cause to support an action for malicious prosecution.
At oral argument on the anti-SLAPP motion, Elite argued a malicious prosecution action can be maintained if even one cause of action was brought without probable cause. Elite offered authority for this assertion, and the trial court continued argument in order to review the proffered case law. The court then took the matter under submission.
The court ultimately denied Zinnel's anti-SLAPP motion. The court found Elite met its burden of showing the minimal merit necessary on each element of its causes of action to survive the motion.
Zinnel moved for a reconsideration of the ruling. The trial court denied the motion.
Zinnel filed an answer and a cross-complaint against Elite for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, declaratory relief, and unfair business practices. The trial court sustained Elite's demurrer without leave to amend.
Zinnel filed a timely notice of appeal of the denial of his anti-SLAPP motion.
DISCUSSION Anti-SLAPP Motions
Subdivision (b)(1) of section 425.16 sets forth the elements of an anti-SLAPP motion. It provides: "A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the 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."
Section 425.16 requires the trial court to engage in a two-step process to determine whether to grant or deny a defendant's anti-SLAPP motion. First, the court considers whether the defendant has made a threshold showing that the challenged cause of action arises from protected activity. (§ 425.16, subd. (b)(1).) The defendant bears the burden of showing the plaintiff's cause of action arises from the defendant's exercise of free speech or petition rights as defined in section 425.16, subdivision (e). If the defendant makes this threshold showing, the burden shifts to the plaintiff to make a prima facie showing of facts which, if credited by the trier of fact, would sustain a favorable judgment. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 61 (Equilon); Navellier v. Sletten (2002) 29 Cal.4th 82, 88 (Navellier).)
We review de novo a trial court's ruling on a motion to strike under section 425.16. "Whether section 425.16 applies and whether the plaintiff has shown a probability of prevailing are both reviewed independently on appeal." (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 999.) On a motion to strike under section 425.16, every legitimate inference must be drawn from the plaintiff's evidence. (Wilcox v. Superior Court (1994) 27 Cal.App.4th 809, 828 (Wilcox).)
The parties agree Elite's cause of action for malicious prosecution is based on protected activity. Zinnel argues section 425.16 also applies to Elite's cause of action for unfair business practices because it is a mixed cause of action involving both protected and unprotected activities.
When a cause of action alleges both protected and unprotected activity, it falls under section 425.16 unless the protected conduct is merely incidental to the unprotected conduct. We consider the principal thrust or gravamen of the cause of action to determine whether the anti-SLAPP statute applies. On the one hand, a plaintiff cannot frustrate the purposes of the statute by combining protected and unprotected allegations in a single cause of action. On the other, a defendant in an ordinary private dispute cannot take advantage of the statute simply because the complaint contains some references to speech or petition on the part of the defendant. (Raining Data Corp. v. Barrenechea (2009) 175 Cal.App.4th 1363, 1369.)
Here, Elite's cause of action for unfair business practices alleges Zinnel intercepted Elite's communications unlawfully in an effort to ascertain the company's bids in order to unfairly compete with Elite. Elite also alleged Zinnel made false, defamatory, and slanderous statements about Elite to discourage customers from doing business with the company.
In addition, Elite claimed Zinnel maliciously prosecuted lawsuits against Elite to drive it out of business. The malicious prosecution included Zinnel's efforts to enforce an illegal covenant not to compete and false allegations of theft designed to defraud Zinnel's ex-wife.
Elite argues Zinnel's unfair business practice was not in his bringing suit against it, "but was his malicious and fabricated claims that were unfair, unlawful and fraudulent." Zinnel's actions, Elite argues, constituted an abuse of process not protected under section 425.16.
In support, Elite cites Paul for Council v. Hanyecz (2001) 85 Cal.App.4th 1356 (Paul for Council), overruled on other grounds in Equilon, supra, 29 Cal.4th at p. 68, fn. 5. In Paul for Council, a political candidate sued several defendants who had illegally laundered campaign contributions to benefit the candidate's opponent in violation of the Political Reform Act of 1974. (Paul for Council, at pp. 1360-1361.) The defendants filed an anti-SLAPP motion, contending their activities were in furtherance of free speech. The trial court granted the motion. (Id. at pp. 1361-1362.)
The appellate court reversed. Although political contributions are a form of speech, campaign money laundering was not a valid activity undertaken by the defendants in furtherance of their right to free speech. (Paul for Council, supra, 85 Cal.App.4th at pp. 1365-1367.) The court concluded that to enjoy the protection of the anti-SLAPP statute, it is elementary that the purported exercise of constitutional rights of free speech and petition must be a valid exercise of those rights. (Id. at pp. 1365-1366.)
Elite contends the same principles apply in the present case. According to Elite, Zinnel maliciously prosecuted two cases alleging theft by Elite, which was "absolutely fraudulent and untrue." Such activities are not valid petitioning activities protected by section 425.16.
However, there is a vast difference between the indisputably illegal activity in Paul for Council and Elite's characterization of Zinnel's claims in the underlying litigation. The case before us is filled with vituperation on both sides; each accuses the other of wrongdoing and deception. However, Elite's cause of action for unfair business practices alleges Zinnel maliciously prosecuted Elite to drive it out of business. A claim that a defendant maliciously prosecuted a legal action clearly falls within the purview of section 425.16. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 734-735.) It is not removed from the anti-SLAPP statute because plaintiff asserts the maliciously prosecuted case rested on allegations that were fraudulent and untrue. Therefore, Elite's cause of action on unfair business practices, like its malicious prosecution cause of action, implicates protected activity.
Probability of Prevailing
We consider the second step for resolving this anti-SLAPP motion, whether Elite has demonstrated a probability of prevailing on its claims for malicious prosecution and unfair business practices. Section 425.16 does not bar a plaintiff from litigating an action that arises out of the defendant's rights to speech or petition. We dismiss only those causes of action as to which Elite is unable to show a probability of prevailing on the merits. We interpret this as requiring the court to determine only if the plaintiff has stated and substantiated a legally sufficient claim. (Navellier, supra, 29 Cal.4th at pp. 88-89.) Two causes of action are at issue: malicious prosecution and unfair competition. We consider each in turn.
In order to establish a cause of action for malicious prosecution, a plaintiff must plead and prove that the prior action (1) was commenced by or at the direction of the defendant and pursued to a legal termination in the plaintiff's favor, (2) was brought without probable cause, and (3) was initiated with malice. (Crowley v. Katleman (1994) 8 Cal.4th 666, 676.) We conclude that Elite established each of the required elements.
a. The action was commenced at the direction of Zinnel and terminated in Elite's favor.
The first action was tried in 2007, resulting in a jury verdict for Elite. It was brought by Hi-Voltage. The trial court found Zinnel to be the alter ego of Hi-Voltage. Zinnel conceded he was Hi-Voltage's "authorized representative." The first suit was brought at Zinnel's direction.
Elite prevailed on all of its causes of action at trial. The jury found Elite not liable and awarded Hi-Voltage nothing. In addition, the trial court found unclean hands prevented any recovery. The first action terminated in Elite's favor.
Zinnel filed the second action in his own name. However, he argues it was not terminated in Elite's favor because he voluntarily dismissed the action to avoid being deposed by Elite's counsel.
A voluntary dismissal is presumed to be a favorable termination on the merits unless otherwise proved to a jury. The dismissal of a lawsuit in order to avoid being deposed reflects badly on the merits of the action. In theory, a litigant does not abandon a meritorious action once instituted. A reasonable fact finder could find a litigant's refusal to be deposed constituted acknowledgment that the claim lacked merit. (Ross v. Kish (2006) 145 Cal.App.4th 188, 200-201; Sycamore Ridge Apartments LLC v. Naumann (2007) 157 Cal.App.4th 1385, 1400.) Therefore, the second action terminated in Elite's favor.
b. The action lacked probable cause.
The question of probable cause is whether, as an objective matter, the prior action was legally tenable. Probable cause is a suspicion founded on circumstances sufficiently strong to warrant a reasonable belief that the charge is true. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 292 (Soukup); Bertero v. National General Corp. (1974) 13 Cal.3d 43, 55 (Bertero).)
Probable cause is a low threshold designed to protect a litigant's right to assert arguable legal claims, even those claims unlikely to succeed. In essence, probable cause exists if any reasonable attorney would have believed the claim tenable. Although this standard is lenient, it reflects the important policy of avoiding discouragement of novel or debatable legal claims. Only actions that any reasonable attorney would agree are totally and completely without merit may form the basis for a malicious prosecution suit. (Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1047-1048.)
In the first lawsuit, which pleaded 20 causes of action, only five causes of action went to the jury. The other causes of action were disposed of through motions in limine and dismissals. The jury rejected the remaining claims. As to all the claims that went before the jury, except the conversion claim, the trial court found them barred by Zinnel's unclean hands.
We resolve all inferences and construe all evidence liberally in favor of the party opposing the anti-SLAPP motion. (Wilcox, supra, 27 Cal.App.4th at p. 828.) Given the jury verdict and the court's statement of decision regarding Zinnel's unclean hands, it is reasonable to conclude Zinnel lacked probable cause to bring the first action.
Zinnel dismissed the second action. We presume Zinnel knew his claims lacked probable cause or else he would not have dismissed his second action and would have gone forward with the deposition. There is a natural assumption that one does not simply abandon a meritorious action once instituted. (Minasian v. Sapse (1978) 80 Cal.App.3d 823, 827-828.)
Zinnel contends, in the first action, he relied on the advice of counsel to bring suit, establishing probable cause. In order to establish this defense, Zinnel must establish he followed counsel's advice after full disclosure of the facts. The burden of proving this defense rests with Zinnel. If Zinnel acted in bad faith or withheld facts from counsel he knew or should have known would defeat a cause of action, the defense fails. (Bertero, supra, 13 Cal.3d at pp. 53-54.)
Here, Zinnel fails to establish that he filed the first action pursuant to the advice of counsel after full disclosure of all relevant facts. Zinnel must have sought counsel's advice in good faith and not as "'a mere cloak'" to protect Zinnel against a suit for malicious prosecution. (Bertero, supra, 13 Cal.3d at p. 54, quoting Walker v. Jensen (1949) 95 Cal.App.2d 269, 274.) Zinnel has not met his burden of establishing advice of counsel as a defense.
Zinnel filed the second action in pro. per. and does not claim to have relied on advice of counsel in that case.
c. The action was initiated with malice.
Zinnel strenuously disputes that malice motivated either of the underlying suits. Instead, he contends the two suits were brought to bring Elite to justice for stealing assets, customers, and employees and to obtain compensation for his damages. He also urges this court to disregard Zacharias's declaration in opposition to the anti-SLAPP motion. According to Zinnel, we cannot infer from the evidence before us that he acted out of malice in suing Elite.
In denying Zinnel's motion to strike, the trial court cited the declaration of Zacharias, which stated that when he severed his relationship with Zinnel, Zinnel made the following statements: "I'm going to sue you for everything I can"; "I am going to tie you up in litigation so that you and your business fails [sic]"; "I am going to fuck with you for the rest of my life"; "I will personally attack you and your family"; "I am going to fuck with all of your accounts"; "You stole all of my tools, office and shop supplies"; and "I am going to ruin your reputation."
Although Zinnel denied making the statements, the court noted it must accept as true those statements favorable to plaintiffs. The court found the statements sufficient to establish that the underlying lawsuits were initiated with malice.
The element of malice relates to the subjective intent or purpose that motivated the defendant to initiate the prior action. The defendant's motivation must have been other than a desire to bring a perceived guilty person to justice or the satisfaction in a civil action of some personal or financial purpose. (Soukup, supra, 39 Cal.4th at p. 292.)
"Suits with the hallmark of an improper purpose are those in which: '" . . . (1) the person initiating them does not believe that his claim may be held valid; (2) the proceedings are begun primarily because of hostility or ill will; (3) the proceedings are initiated solely for the purpose of depriving the person against whom they are initiated of a beneficial use of his property; (4) the proceedings are initiated for the purpose of forcing a settlement which has no relation to the merits of the claim."' [Citation.]" (Sierra Club Foundation v. Graham (1999) 72 Cal.App.4th 1135, 1157.) The scope of malice ranges from open hostility to indifference. (Soukup, supra, 39 Cal.4th at p. 292.)
As the trial court noted, Zacharias and counsel submitted declarations outlining the threatening and harassing conduct on Zinnel's part. Zinnel requests that we ignore these declarations, claiming they are self-serving and untruthful. Zinnel contends other evidence contradicts the declarations.
On appeal, we do not reject the testimony of a witness in support of the judgment unless it is physically impossible or inherently improbable. Nor may we entertain testimony of a witness in opposition to the judgment simply because it contradicts the plaintiff's evidence, no matter how "overwhelming" it is claimed to be. (Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1204.)
Although Zinnel attacks the declarations establishing malice on his part, we do not reweigh evidence on appeal. We resolve all conflicts in the evidence and all inferences from that evidence in favor of the judgment. We do not reverse based on a conflict in the evidence or due to challenged testimony. (Oldham v. Kizer (1991) 235 Cal.App.3d 1046, 1065.) Here, the declarations of Zacharias and counsel are not inherently improbable or incredible and therefore will not be rejected on appeal simply because Zinnel disagrees with them.
Unfair Business Practices Cause of Action
In its second cause of action, Elite alleged Zinnel committed unfair business practices. Elite contends Zinnel threatened to destroy Elite as a business concern.
Unfair competition includes any unlawful, unfair, or fraudulent business act or practice. (Bus. & Prof. Code, § 17200.) "'[I]n the context of an unfair competition claim by a competitor, the term "unfair" in [Business and Professions Code] section 17200, "means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." [Citation.]'" (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1364.)
The unfair competition claim is established by the malicious prosecution and by a litany of Zinnel's statements about destroying his competitor: "I'm going to sue you for everything I can"; "I am going to tie you up in litigation so that you and your business fails [sic]"; "I am going to fuck with all of your accounts"; and "I am going to ruin your reputation." Zinnel's statements and conduct establish a probability of Elite's prevailing on its unfair business practices cause of action.
The judgment is affirmed. Elite shall recover costs on appeal.
We concur: HULL , J. HOCH , J.