California Court of Appeals, Fourth District, Third Division
RUSSELL C. JAY et al., Plaintiffs and Respondents,
DOUGLAS MAHAFFEY et al., Defendants and Appellants
Order Filed Date: 8/23/13
Appeal from an order of the Superior Court of Orange County, Super. Ct. No. 30-2012-00550608 Franz E. Miller, Judge.
Sandler, Lasry, Laube, Byer & Valdez, James G. Sandler and Jeffrey M. Byer for Defendants and Appellants Douglas Mahaffey and Susan Ghormley.
Julander, Brown & Bollard and Richard L. Brown for Defendants and Appellants Michael Lawrence and Victoria Lawrence.
Horvitz & Levy, Jeremy B. Rosen, Steven S. Fleischman; McDermott Will & Emery and Chris C. Scheithauer for Plaintiffs and Respondents.
This is an appeal from an order denying defense motions pursuant to Code of Civil Procedure section 425.16,  the anti-SLAPP statute,  in a malicious prosecution action. The underlying dispute relates to a long-term ground lease for property used as a mobilehome park in Anaheim. Defendants Michael and Victoria Lawrence (the Lawrences) owned the property. Defendants Douglas Mahaffey and Susan Ghormley (collectively the attorneys) previously represented the Lawrences. JR Enterprises (JR), the property’s lessee under a long-term ground lease, was a limited partnership. In a dispute primarily between the Lawrences and JR, the Lawrences brought a number of JR’s limited partners into the underlying case via Roe amendments to their pleading. The limited partners were dismissed by the Lawrences several months later, and 12 of the limited partners subsequently filed the instant malicious prosecution action. The Lawrences and the attorneys (collectively defendants) filed anti-SLAPP motions, which the trial court denied, concluding the limited partners had set forth a prima facie case sufficient to defeat the motions. We agree with the trial court that the limited partners satisfied all three elements of a malicious prosecution case: favorable termination, lack of probable cause, and malice, as to each of the defendants. We therefore affirm.
At all times relevant, JR was a real estate and development company that owned and leased property in Orange and San Bernardino Counties. JR Capital Group, LLC (JR Capital) was JR’s sole general partner. JR had many limited partners (more than 50) who were characterized by JR as passive investors. JR, as lessee, was the successor in interest to a long-term ground lease in Anaheim that is not due to expire for another 50 years. The property, since the 1960’s, has been operated as a mobilehome park.
At some point, the Lawrences became the property’s owners as successors in interest to the original owner and lessor. Michael was apparently unhappy with the lease’s terms, and expressed his desire to sell and redevelop the property, which was impossible because of the long-term lease. In 2007, Michael began to look for ways to end the lease. He offered JR’s president, John Spiezia, a personal seven-figure payment if Spiezia would work with him to end the lease. He contacted one of the limited partners, Diane Rochelle, and through her attorney attempted to obtain contact information for the limited partners to organize them against Spiezia and JR. Michael also tried to persuade the City of Anaheim to “at least threaten condemnation to get the lessee to fall in line.”
B. First Breach of Lease Action
In August 2008, the Lawrences filed their first breach of lease action against JR, alleging claims for quiet title and declaratory relief and seeking to terminate the lease. They were represented by Mahaffey and Mahaffey & Associates. JR filed a cross-complaint, alleging claims for breach of the lease and declaratory relief. During closing argument, Mahaffey stated, with respect to JR, that in a general partnership, “There are no shareholders. There are no directors. The limited partners make no decisions.”
The trial was bifurcated, with the court deciding some issues and the jury others. The Lawrences prevailed on several claims, but JR prevailed on the others. In March 2011, an amended net judgment was entered in JR’s favor for $129, 766.50. The Lawrences appealed, but the trial court’s decision was subsequently affirmed by this court. (Lawrence et al. v. JR Enterprises, L.P. (May 15, 2013, G044999) [nonpub. opn.].)
While final judgment in this action was still pending, Mahaffey sent an e-mail to JR’s counsel on December 8, 2010. Purportedly seeking information regarding the turnover of the one-acre parcel that was the subject of JR’s cross-complaint, the e-mail pointed to “many other battles ahead between these clients.” Mahaffey stated: “As to the bigger picture, you know of course that final rulings on the issue of lease termination and forfeiture, the final wording on the judgment, who is the prevailing party, attorneys fees... new trial motions, and finally an appeal on over 20 separate issues will be filed.”
He went on to say: “Also, and I am sure this comes as no surprise, a new action for lease termination, raising several breaches and illegal conduct issues will be filed, probably next week.” According to Mahaffey, he learned for the first time during trial that JR was illegally selling mobilehomes on the property, because it lacked the proper licensing. After going on to list other possible issues that might be raised in a second lawsuit, Mahaffey stated: “I know there is a number that my clients would sell their fee interest and your clients and their partners would not only avoid substantial risk, but would still make millions of dollars from the investment. [¶] If it is not time to talk about a serious number that reflects the reality of the risk your clients are taking, I understand. There will be many opportunities in the next five years of Superior Court and Court of Appeal litigation to further develop the clients view points. We are available to discuss that number... your clients are nowhere near close to what it would take. At this point I assume they understand that 500K a year of an attorneys fees budget on this lease will become the norm for many years to come, and that all of [the rulings in the first action] will be fully reviewed in approximately 18 months, about the time the next jury completes its verdict form. This is a very interesting case to me... I am excited for round two. If they wish to deprive me of that, let me know if your clients want to exchange numbers in a range that my clients will consider. If not, congratulations are in order on the jury verdict — I guess.”
C. The Interpleader Action and Cross-Complaints
On January 17, 2011, the Lawrences sent JR a demand for payment of some $30, 000 relating to utilities for one part of the property. The letter requested payment be made to Mahaffey’s trust account. Shortly thereafter, JR was served with a notice of lien against Mahaffey by Plan 53, LLC. JR’s counsel sent a response seeking clarification as to whether the amounts claimed in the January 17 letter were subject to the lien, but no response was forthcoming.
On March 2, JR filed a complaint for interpleader, declaratory relief and unjust enrichment regarding payment of money under the lease. On April 26, the Lawrences, represented by Mahaffey, filed the first of two cross-complaints. The first cross-complaint alleged breach of contract for the failure to pay the money demanded in the January 17 letter, breach of contract and request for lease termination/forfeiture based on the allegedly illegal mobilehome sales, and declaratory relief. JR filed an anti-SLAPP motion directed toward the first breach of contract cause of action, which the trial court denied. We affirmed in JR Enterprises, L.P. v. Lawrence et al. (Jan. 9, 2013, G046180) [nonpub. opn.]).
On April 28, Mahaffey sent another e-mail to JR’s counsel. “As fun as the next five to ten years are going to be between our clients in multiple Courts” he began, before urging JR to settle and purchase the property. He then stated that he would like to depose some of the limited partners, before closing with: “Regards, and wow this next round is going to be a fee generator for a lot of lawyers at your firm... (and of course me)!”
On June 20, the Lawrences filed a pleading captioned “Cross-Complaint to Cross-Complaint” in the interpleader action (the second cross-complaint). It alleged essentially the same three causes of action as the first cross-complaint: breach of contract, breach of covenant, and request for lease termination/forfeiture, and declaratory relief. The second cross-complaint, which eventually became the subject of the instant malicious prosecution action, named both JR and Rochelle, one of the limited partners. The Lawrences alleged Rochelle had ratified JR’s conduct with respect to the mobilehome sales, and alleged generally that the limited partners were co-venturers who had ratified JR’s conduct. The Lawrences had not, at that point, taken the deposition of Rochelle or any of the limited partners.
On July 26, the Lawrences dismissed the first cross-complaint with prejudice. On September 12, the Lawrences filed Roe amendments to the second cross-complaint in the interpleader action, thus adding 45 of JR’s limited partners as cross-defendants. Some of the amendments were signed by Mahaffey and some were signed by Ghormley, his associate.
Prior to filing the amendments, no depositions of limited partners had been taken, although five depositions were noticed subsequently on October 3. Both Mahaffey and Ghormley’s names appeared in the captions of the deposition notices. According to Mahaffey, he believed, based on his experience, that the limited partners received reports relating to financial performance, “attend meetings and are well-informed about the dealings of their partnership.”  He therefore believed the limited partners knew, among other things, about the purportedly illegal mobilehome sales.
During a phone call with Ghormley on November 4, counsel for the limited partners, Chris C. Scheithauer, asked why they had been sued when the limited partners were not parties to the lease. She replied, “Doug Mahaffey has plans for the Limited Partners.”
Leland Jay, one of the limited partners who held a three percent interest in JR, had his deposition taken on November 10. According to Mahaffey: “[Jay] testified that as a JR limited partner he was unaware of how much income JR generated from the Property, or what portion of his partnership distributions were attributable to the Property (as opposed to JR’s other holdings).... Mr. Jay further testified he did not know if JR had a license which allowed it to sell mobile homes, did not know whether JR sold mobile homes at the Property, and, if so, did not know if JR generated any income from such sales.... He testified that while he annually receives a schedule K-1 and an occasional memo from JR... he had never seen JR’s books or records.” Mahaffey later claimed he decided almost immediately to dismiss the limited partners for a number of business reasons.
On November 15, the limited partners (except Rochelle) filed a demurrer to the third cause of action in the second cross-complaint. On the same date, the limited partners filed a challenge under section 170.6 (the 170.6 motion) to trial Judge B. Tam Nomoto Schumann. They also filed a cross-complaint against JR for indemnity. Mahaffey claims he told counsel for the limited partners about the dismissals before they filed these papers.
On November 16, Mahaffey contacted Scheithauer. According to Scheithauer, Mahaffey complained about the 170.6 motion and stated that the Lawrences and the limited partners should be “aligned” against JR and Spiezia. Mahaffey stated that if the limited partners would withdraw their 170.6 motion, the Lawrences would dismiss the limited partners except for Rochelle. He also stated that he would “represent the Limited Partners in a ‘derivative’ action against JR Enterprises and John Spiezia on contingency and would provide a ‘finders fee’ to my law firm.” Mahaffey was not concerned about a conflict of interest because the limited partners “were ‘not really at fault.’” The limited partners had been sued “‘to get their attention’ and be sure they were aware of how JR Enterprises had ignored the Lawrences’ attempts to settle....”
Scheithauer and Mahaffey also discussed Rochelle. Mahaffey told Scheithauer she was a “special case, ” and the Lawrences would only dismiss her if she produced certain financial information, including confidential tax reports, and agreed to testify on the Lawrences’ behalf. Scheithauer declined all of Mahaffey’s offers.
On November 17, Scheithauer was contacted by Ghormley. She called to ask whether there would be a stipulation to dismiss the limited partners in exchange for a withdrawal of the 170.6 motion. Scheithauer declined again, but did ask about whether Rochelle would be included in such a stipulation. Ghormley said she would need to check with Mahaffey because Rochelle was a “special case.” Nonetheless, on the same day, November 17, the Lawrences proceeded to file dismissals without prejudice as to all the limited partners except Rochelle.
On November 18, Mahaffey wrote Scheithauer a letter expressing his desire to “work with [the limited partners] on a business solution that includes, but is not limited to, a buyout of some or all of their interest” in exchange for financial documents. He also repeated the offer of a derivative action. Among other things, the letter stated: “It is transparent, however, from my deposition of Leland Jay, that the limited partners have absolutely no involvement with the general partner as to decisions regarding the management of the subject lease.”
On November 21, Mahaffey called Scheithauer and told him that if the 170.6 motion was not withdrawn and was granted, the Lawrences would “re-sue” the limited partners they had just dismissed. On November 22, Judge Thomas J. Borris granted the 170.6 ...