FINDINGS AND RECOMMENDATIONS
This matter came before the court on August 31, 2012, for hearing of defendant Rama Gogineni's motion to dismiss (Doc. No. 10) and motion for an order setting amount of security (Doc. No. 13), and defendant Bullivant Houser Bailey's motion for an order setting amount of security (Doc. No. 26), motion to dismiss (Doc. No. 30) and special motion to strike. (Doc. No. 32.) Jeff Stone, Esq. appeared for defendant Rama Gogineni. Kate Kimberlin, Esq. appeared for defendant Bullivant Houser Bailey. Plaintiff Kelly Crowe appeared on his own behalf.
On August 31, 2012, oral argument was heard, defendant Bullivant Houser Bailey's unopposed motion to dismiss (Doc. No. 30) was granted, defendant Bullivant Houser Bailey's June 7, 2012 motion for an order setting amount of security (Doc. No. 26) was denied as having been rendered moot and defendants' remaining motions were taken under submission at that time.*fn1 (Doc. No. 57.)
Plaintiff Kelly Crowe, proceeding pro se, commenced this action on December 27, 2011, by filing a complaint and paying the required filing fee. (Doc. No. 1.) Therein, plaintiff alleged as follows. On February 19, 2000, plaintiff and defendant Rama Gogineni entered into a shareholder agreement in which each party held shares of Cosmic Technologies Corp. ("Cosmic"), a now dissolved California corporation. (Compl. (Doc. No. 1) at 2.)*fn2
Defendant Gogineni was the director, president, secretary, treasurer and majority shareholder of Cosmic. (Id.)
On February 7, 2003, unbeknownst to plaintiff, defendant Gogineni began approving money transfers from Cosmic to Titan Infotech Corp. ("Titan"), a now dissolved California corporation wholly owned by defendant Gogineni. (Id. at 5.) By the end of April of 2003, however, Cosmic was generating sufficient profits to make distributions to its shareholders. (Id. at 2.) Gogineni informed plaintiff that a tax professional had advised Gogineni that there were significant tax benefits to making those distributions in the form of salary to plaintiff and Gogineni instead of paying formal dividends. (Id.) Plaintiff agreed to permit the distributions to be made in the form of unearned salary. (Id.)
On May 8, 2003, Cosmic commenced declaring constructive dividends in the form of unearned salary.*fn3 (Id. at 3.) Around the same time plaintiff and Gogineni began having trouble working together. (Id.) Moreover, the constructive dividends paid and "labeled falsely as salary" were raised, lowered or temporally suspended from time to time, the shareholders roles in Cosmic and their hours worked did not warrant the payments received, the payments grossly exceed compensation paid to similarly situated employees and the condition of Cosmic's sales and income did not warrant the payments made. (Id. at 6.)
On June 20, 2003, plaintiff received a letter from Whitney Washburn, an attorney hired by Gogineni, informing plaintiff that Gogineni was contesting plaintiff's title to stock in Cosmic, was alleging that plaintiff was in breach of the shareholders' agreement and that plaintiff's employment with Cosmic was therefore terminated. (Id. at 3.) Plaintiff stopped receiving constructive dividends in the form of unearned salary from Cosmic, although Gogineni continued to receive such dividends through 2005. (Id. at 5.)
In July of 2003, defendant Bullivant Houser Bailey ("BHB") was retained by Cosmic to respond to an application for order directing Cosmic to hold an annual shareholders meeting. (Id. at 4.) On August 29, 2003, plaintiff received a letter from BHB informing plaintiff that BHB was retained to serve as Cosmic's corporate counsel, BHB had determined that plaintiff was a valid shareholder in Cosmic, Cosmic would be holding an annual shareholders meeting on December 31, 2003, BHB was aware that Gogineni had retained counsel concerning a pending dispute between the shareholders, BHB would like to discuss the purchase of plaintiff's shares in Cosmic and Cosmic's board of directors would consider any dividend distributions at the close of the fiscal year after consultation with the corporation's accountants. (Id.) BHB also represented Cosmic in an action filed in October of 2003, which concluded in June of 2004. (Id.) On July 27, 2004 BHB sent plaintiff a letter indicating that BHB had again been retained by Cosmic to file an action to quiet title to each shareholder's stock. (Id. at 4.)
On December 26, 2008, plaintiff discovered the money transfers from Cosmic to Titan that Gogineni had previously approved. (Id. at 5.) On March 17, 2009, plaintiff sent Gogineni a letter demanding that Gogineni provide proof that the transactions between Cosmic and Titan were just and reasonable as to Cosmic. (Id.) On April 1, 2009, plaintiff sent another letter to Gogineni, this one demanding proof that the large and irregular payments to Gogineni from Cosmic labeled as pay were just and reasonable as to Cosmic. (Id. at 6.) Gogineni refused to respond. (Id.) Plaintiff claims that Gogineni used Cosmic's corporate funds to send money to Kantamaneni Rajani in India, who performed no work for Cosmic and who distributed the money sent by Gogineni to Gogineni's family members. (Id. at 7.)
Based on these allegations, plaintiff instituted this action alleging fraudulent concealment, breach of fiduciary duty and civil conspiracy against all defendants as well as negligent misrepresentation against defendant Gogineni only.*fn4
On May 3, 2012, defendant Gogineni filed a motion to dismiss (Doc. No.
10) and a motion for an order setting amount of security.*fn5
(Doc. No. 13). On August 17, 2012, plaintiff filed an
opposition to Gogineni's motion to dismiss (Doc. No. 43), and an
opposition to Gogineni's motion for an order setting amount of
security. (Doc. No. 44.) Gogineni filed his replies on August 24,
2012. (Doc. Nos. 52 & 55.) Following the September 7, 2012, hearing of
defendants' motions, plaintiff was allowed to file a supplemental
opposition to defendant
Gogineni's motion to dismiss and defendant Gogineni was permitted to
file a sur reply. (Doc. No. 57.) Plaintiff filed his supplemental
opposition on September 7, 2012, (Doc. No. 58) and defendant Gogineni
filed his sur reply on September 13, 2012. (Doc. No. 61.)
Defendant BHB filed its special motion to strike on June 7, 2012. (Doc. No. 32.) Plaintiff filed his opposition to that motion on August 17, 2012, (Doc. No. 46), and BHB filed its reply on August 22, 2012. (Doc. No. 50.) After the September 7, 2012, hearing of defendants' motions, plaintiff was granted leave to file a declaration with respect to BHB's special motion to strike and defendant BHB was granted leave to file a reply to plaintiff's declaration. (Doc. No. 57.) Plaintiff filed his declaration on September 10, 2012, (Doc. No. 60) and defendant BHB filed its reply on September 17, 2012. (Doc. No. 64.)
I. BHB's Special Motion to Strike Under C.C.P. § 425.16 California Code of Civil Procedure § 425.16(b)(1), (also know as the "anti-SLAPP statute") 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.
See Manufactured Home Communities, Inc. v. County of San Diego, 655 F.3d 1171, 1176 (9th Cir. 2011). California's anti-SLAPP law is aimed at curtailing civil actions designed to deter private citizens from exercising their rights of free speech. U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 970 (9th Cir. 1999). The Ninth Circuit permits anti-SLAPP motions in federal court directed at state law claims such as that asserted by plaintiff against defendant BHB in this action. Id. at 973; see also Verizon Delaware, Inc. v. Covad Communications Co., 377 F.3d 1081, 1091 (9th Cir. 2004) ("We have previously confirmed that defendants sued in federal courts can bring anti-SLAPP motions to strike state law claims and are entitled to attorneys' fees and costs when they prevail.").
"However, '[s]pecial procedural rules apply where an anti-SLAPP motion is brought in federal court.'" Thornbrough v. Western Placer Unified School District, No. 2:09-cv-02613-GEB-GGH, 2010 W L 2179917, at *3-4 (E.D. Cal. May 27, 2010) (quoting Lauter v. Anoufrieva, 642 F. Supp.2d 1060, 1109 (C.D. Cal. 2009)). See also Robinson v. Alameda County, No. C-12-00730 (JCS), 2012 WL 2367821, at *15 (N.D. Cal. June 21, 2012); Bulletin Displays, LLC v. Regency Outdoor Advertising, Inc., 448 F. Supp.2d 1172, 1180 (C.D. Cal. 2006)); but see Verizon Delaware, Inc., 377 F.3d at 1091 ("[P]rocedural state laws are not used in federal court if to do so would result in a direct collision with a Federal Rule of Civil Procedure . . . . ").
If a defendant makes an anti-SLAPP motion based on the plaintiff's failure to submit evidence to substantiate its claims, the motion is treated as a motion for summary judgment, and discovery must be developed sufficiently to permit summary judgment under Rule 56. This is because to permit a defendant to invoke the Anti-SLAPP statute to require a plaintiff to present evidence to support his claims before an opportunity for discovery would directly conflict with Federal Rule of Civil Procedure 56. If an anti-SLAPP motion is based on legal deficiencies in the complaint, a federal court must determine the motion in a manner that complies with the standards set by Federal Rules 8 and 12.
Lauter, 642 F. Supp.2d at 1109 (quotation and citations omitted) (denying an anti-SLAPP motion to dismiss or strike without prejudice because discovery in the action had not closed). See also Condit v. National Enquirer, Inc., 248 F. Supp.2d 945, 953 (E.D. Cal. 2002) ("A special motion to strike under section 425.16 can be based on any defect in the Complaint, including legal deficiencies addressable on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), or a failure to support a stated claim with evidence, analogous to a motion for summary judgment under Fed. R. Civ. P. 56.").
Here, "since this action is still in its infancy, requiring Plaintiff to present evidence to support his claims without the opportunity for discovery would directly conflict with Federal Rule of Civil Procedure 56." Thornbrough, 2010 WL 2179917, at * 4. See also Rogers v. Home Shopping Network, Inc., 57 F. Supp.2d 973, 980 (C.D. Cal. 1999) ("If a defendant desires to make a special motion to strike [under section 425.16] based on the plaintiff's lack of evidence, the defendant may not do so until discovery has been developed sufficiently to permit summary judgment under Rule 56."). Moreover, it appears clear from BHB's motion to strike that they are arguing that plaintiff's complaint is legally deficient with respect to its allegations and claims against them. Therefore, the pending motion brought on behalf of defendant BHB will be evaluated as a challenge to the legal sufficiency of plaintiff's complaint under Rule 8 and Rule 12 of the Federal Rules of Civil Procedure.
Evaluating a motion made pursuant to the anti-SLAPP statute "requires a two-part analysis: (1) the defendant must make a prima facie showing that the suit arises 'from an act in furtherance of the defendant's rights of petition or free speech'; and (2) once the defendant makes this showing, 'the burden shifts to the plaintiff to demonstrate a probability of prevailing on the challenged claims.'" Roberts v. McAfee, Inc., 660 F.3d 1156, 1163 (9th Cir. 2011) (quoting Mindys Cosmetics, Inc. v. Dakar, 611 F.3d 590, 595 (9th Cir. 2010)). See also Equilon Enterprises v. Consumer Cause, Inc., 29 Cal.4th 53, 67 (2002).
An "act in furtherance of a person's right of petition or free speech" includes:
1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law;
(2) 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;
(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest;
(4) or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.
Mindys, 611 F.3d at 595-96 (quoting CAL. CIV. PROC. CODE § 425.16(e)). "'In the anti-SLAPP context, the critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity.'" In re Episcopal Church Cases, 45 Cal.4th 467, 477-78 (2009) (quoting Navellier v. Sletten, 29 Cal.4th 82, 89 (2002)); see also City of Cotati v. Cashman, 29 Cal.4th 69, 78 (2002) ("[T]he critical point is whether the ...