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Baral v. Schnitt

Supreme Court of California

August 1, 2016

ROBERT C. BARAL, Plaintiff and Respondent,
v.
DAVID SCHNITT, Defendant and Appellant.

         Los Angeles County Super. Ct. No. BC475350, Maureen Duffy-Lewis Judge.

          Kerr & Wagstaffe, James M. Wagstafffe, Kevin B. Clune; Ervin Cohen & Jessup, Michael C. Lieb and Leemore L. Kushner for Defendant and Appellant.

          Davis Wright Tremaine, Thomas R. Burke, Rochelle L. Wilcox and John D. Freed for Los Angeles Times Communications LLC, Reporters Committee for Freedom of the Press, California Newspaper Publishers Association, Californians Aware, The First Amendment Coalition, The McClatchy Company, First Look Media, Inc., The Associated Press, News Corporation, Dow Jones & Co., Inc., The New York Times Company, Cable News Network, Inc., ABC, Inc., The Hearst Corporation, Bloomberg, L.P. and CBS Broadcasting, Inc., as Amici Curiae on behalf of Defendant and Appellant,

          Sauer & Wagner, Gerald L. Sauer and Amir A. Torkamani for Plaintiff and Respondent.

          CORRIGAN, J.

         California’s anti-SLAPP statute provides that “[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... shall be subject to a special motion to strike, unless the court determines... there is a probability that the plaintiff will prevail on the claim.” (Code Civ. Proc., § 425.16, subd. (b)(1).)[1] This case raises a question that has perplexed the Courts of Appeal: How does the special motion to strike operate against a so-called “mixed cause of action” that combines allegations of activity protected by the statute with allegations of unprotected activity?

         The difficulty arises from the statute’s use of the term “cause of action,” which has various meanings. It may refer to distinct claims for relief as pleaded in a complaint. These are usually set out as “first cause of action,” “second cause of action,” and so forth. But the term may also refer generally to a legal claim possessed by an injured person, without reference to any pleading. A person may have a cause of action for defamation or breach of contract even if no suit has been filed. In theory, the right of an injured party to seek legal relief may be analyzed in terms of the plaintiff’s “ ‘primary right,’ ” the defendant’s “ ‘primary duty,’ ” and a breach of that duty entitling the plaintiff to a remedy. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 34, p. 98.)

         Typically, a pleaded cause of action states a legal ground for recovery supported by specific allegations of conduct by the defendant on which the plaintiff relies to establish a right to relief. If the supporting allegations include conduct furthering the defendant’s exercise of the constitutional rights of free speech or petition, the pleaded cause of action “aris[es] from” protected activity, at least in part, and is subject to the special motion to strike authorized by section 425.16(b)(1). Some courts, including the Court of Appeal in this case, have held that the motion lies only to strike an entire count as pleaded in the complaint. However, this rule leads to anomalous results when the count is supported by allegations of unprotected activity as well as protected activity.

         Viewing the term in its statutory context, we conclude that the Legislature used “cause of action” in a particular way in section 425.16(b)(1), targeting only claims that are based on the conduct protected by the statute. Section 425.16 is not concerned with how a complaint is framed, or how the primary right theory might define a cause of action. While an anti-SLAPP motion may challenge any claim for relief founded on allegations of protected activity, it does not reach claims based on unprotected activity.

         It follows that “mixed cause of action,” the term frequently used to designate a count alleging both protected and unprotected activity, is not strictly accurate. Section 425.16(b)(1) applies only to “causes of action” that arise from allegations of protected speech or petitioning. However, “mixed cause of action” is a term in common usage, and we sometimes employ it for its customary purpose. We also sometimes use “cause of action” in its ordinary sense, to mean a count as pleaded. To avoid confusion, we refer to the proper subject of a special motion to strike as a “claim,” a term that also appears in section 425.16(b)(1).[2]

         The Court of Appeal below held that an anti-SLAPP motion must be brought against a mixed cause of action in its entirety. It affirmed the denial of defendant’s motion because plaintiff established a probability of succeeding on claims based on allegations of activity not protected by section 425.16. This application of the anti-SLAPP statute unduly limits the relief contemplated by the Legislature. Accordingly, we reverse.

         I. BACKGROUND

         We summarize the Court of Appeal’s account of the litigation below, which is essentially undisputed. Robert C. Baral and David Schnitt owned and managed a company, IQ BackOffice LLC (IQ).[3] Baral sued Schnitt for fraud and multiple breaches of fiduciary duty. The original complaint alleged 16 counts supported by allegations that Schnitt secretly negotiated to sell IQ on terms advantageous to him and detrimental to Baral. It also included causes of action for libel and slander, based on allegations that Schnitt unilaterally commissioned the accounting firm Moss Adams to investigate possible misappropriation of IQ assets. Baral contended that Schnitt controlled the scope of the audit, knowingly gave Moss Adams false information to discredit Baral, and told the firm not to interview him. He claimed that because of Schnitt’s falsehoods, Moss Adams incorrectly concluded Baral had engaged in unauthorized transactions. The complaint alleged that Schnitt refused to correct the false information in the report, which was ultimately published to the potential purchaser and the other members of IQ.

         Schnitt filed an anti-SLAPP motion. The court struck the defamation counts. It concluded that, because those claims were based on communications in a prelitigation fraud investigation, they were protected by the litigation privilege. Baral filed a notice of appeal and a first amended complaint. Schnitt responded with another motion to strike. At this point, Baral retained new counsel and abandoned his appeal. By stipulation, the pending anti-SLAPP motion was withdrawn and a second amended complaint was filed.

         The second amended complaint is the pleading at issue here. It pleads four causes of action: breach of fiduciary duty, constructive fraud, negligent misrepresentation, and a claim for declaratory relief. In support of those counts, Baral alleges as follows: Schnitt violated his fiduciary duties by usurping Baral’s ownership and management interests so that Schnitt could benefit from the sale of IQ to LiveIt Investments, Ltd. (LiveIt). Schnitt sold a 72.6 percent interest in IQ based on his representation that he was its sole member and manager, and negotiated an employment position and ownership interest for himself without Baral’s knowledge or consent. Schnitt also excluded Baral from the Moss Adams investigation in an effort to coerce his cooperation in the sale of the business.[4] After the sale of IQ closed, Baral unsuccessfully renewed his efforts to provide information to the Moss Adams auditors. The second amended complaint sought an injunction to reopen the audit with Baral’s participation, and to bar Schnitt from interfering with any corrections Moss Adams might make to its report.

         Schnitt filed another anti-SLAPP motion, seeking to strike all references to the Moss Adams audit. The trial court denied the motion without deciding whether the second amended complaint contained allegations of protected activity. Instead, it ruled that the motion to strike applied only to entire causes of action as pleaded in the complaint, or to the complaint as a whole, not to isolated allegations within causes of action like the Moss Adams claims.

         On Schnitt’s appeal, the Court of Appeal affirmed. It held that the allegations concerning the Moss Adams audit arose from protected activity. Because Schnitt commissioned the audit with litigation in mind, he was acting “in furtherance of [his] right of petition.” (§ 425.16(b)(1).) Even so, the court agreed with the trial judge that Schnitt’s motion improperly sought to excise allegations from “mixed” causes of action. Schnitt conceded that Baral could make a prima facie case supporting his claims based on the sale of IQ to LiveIt, and that only the Moss Adams claims were vulnerable to the motion to strike. The court concluded that anti-SLAPP relief was not available because no cause of action enumerated in the second amended complaint would be eliminated if the allegations of protected activity were stricken.

         The court recognized a split of authority in Court of Appeal cases dealing with mixed causes of action. It sided with those holding that section 425.16 applies to such causes of action in their entirety, and may not be used to strike particular allegations within them.

         II. DISCUSSION

         The anti-SLAPP statute does not insulate defendants from any liability for claims arising from the protected rights of petition or speech. It only provides a procedure for weeding out, at an early stage, meritless claims arising from protected activity. Resolution of an anti-SLAPP motion involves two steps. First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. (Taus v. Loftus (2007) 40 Cal.4th 683, 712 (Taus).) If the defendant makes the required showing, the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success. We have described this second step as a “summary-judgment-like procedure.” (Id. at p. 714.)[5] The court does not weigh evidence or resolve conflicting factual claims. Its inquiry is limited to whether the plaintiff has stated a legally sufficient claim and made a prima facie factual showing sufficient to sustain a favorable judgment. It accepts the plaintiff’s evidence as true, and evaluates the defendant’s showing only to determine if it defeats the plaintiff’s claim as a matter of law. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 819-820 (Oasis).) “[C]laims with the requisite minimal merit may proceed.” (Navellier v. Sletten (2002) 29 Cal.4th 82, 94 (Navellier).)

         The question here arises at the second step of the analysis: What showing is required of a plaintiff with respect to a pleaded cause of action that includes allegations of both protected and unprotected activity?

         A. The Court of Appeal Cases

         The question was first squarely addressed in Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90 (Mann). The complaint in Mann included causes of action for defamation and trade libel. Some of the factual allegations supporting those counts involved protected activity, and some did not. (Id. at p. 105.) The Mann court declared: “Where a cause of action refers to both protected and unprotected activity and a plaintiff can show a probability of prevailing on any part of its claim, the cause of action is not meritless and will not be subject to the anti-SLAPP procedure. [¶] Stated differently, the anti-SLAPP procedure may not be used like a motion to strike under section 436, eliminating those parts of a cause of action that a plaintiff cannot substantiate. Rather, once a plaintiff shows a probability of prevailing on any part of its claim, the plaintiff has established that its cause of action has some merit and the entire cause of action stands. Thus, a court need not engage ...


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