Firestone v. Allen Matkins Leck Gamble & Mallory

Filed 10/27/08 Firestone v. Allen Matkins Leck Gamble & Mallory CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. Stephen D. Cunnison, Judge. Affirmed.

John H. Lieberg; Hughes Hubbard & Reed, Daniel H. Slate, David A. Lombardero and Paul M. Smith for Plaintiffs and Appellants.

Paul, Hastings, Janofsky & Walker, Donald L. Morrow and Panteha Abdollahi for Defendants and Respondents Rutan & Tucker LLP and Penelope Parmes.

Hill, Farrer & Burrill and Michael K. Collins for Defendants and Respondents Allen Matkins Leck Gamble Mallory & Natsis LLP and Stephen R. Thames.

1. Introduction

In December 2003, John F. Firestone, a landowner, directed his attorney to write a letter to the Temecula City Council, opposing the adoption of a multi-species habitat conservation plan (the habitat plan) affecting his real property. That letter prompted Ocean Atlantic Development,^[1]a developer, to file a civil suit against Firestone^[2][the OAD lawsuit]. After the OAD lawsuit was removed to bankruptcy court, the bankruptcy court eventually granted Firestones special motion to strike the OAD lawsuit. (Code Civ. Proc., 425.16.)^[3] Firestone then filed a state malicious prosecution action [the Firestone lawsuit], the subject of the present appeal.

The superior court granted the joint special motions to strike filed by these defendants, the law firms of Allen Matkins^[4]and Rutan & Tucker,^[5]in the present case. The superior court denied Firestones motion for a new trial. Now Firestone appeals from the superior courts orders granting defendants anti-SLAPP motions and denying his new trial motion.

On appeal, [w]e review the trial courts order de novo. (Christian Research Institute v. Alnor (2007) 148 Cal.App.4th 71, 79.) We will not weigh the evidence; rather, we accept as true evidence favorable to the plaintiff, and evaluate evidence favorable to the defendant to determine whether it defeats the plaintiffs claim as a matter of law. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3; accord, Dyer v. Childress (2007) 147 Cal.App.4th 1273, 1279.) (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1262.)

Because we decide there was probable cause on the part of the attorney defendants to bring the OAD lawsuit and, therefore, no prima facie case for malicious prosecution against them, we do not need to decide many of the other issues raised on appeal. We affirm the superior courts order granting the attorney defendants anti-SLAPP motions.

2. Factual and Procedural Background

This rather convoluted case has its genesis in a real estate purchase-option agreement executed in September 2003 between Firestone and Ocean Atlantic Development. Firestone was the owner of about 270 acres of real property in Temecula. Firestone gave Ocean Atlantic Development a 15-month option to purchase the property for development. During the period of the option, Ocean Atlantic Development agreed to pay Firestone $150,000 a month as nonrefundable feasibility study payments.

In the fall of 2003, Temecula was considering the adoption of a habitat plan affecting Firestones property. OAD met with Firestone and others on December 9, 2003, to discuss development strategy concerning the habitat plan. During the meeting, there was a discussion about whether Firestone should write a letter objecting to the plan and asserting a takings claim or a polite letter asking Temecula to defer adoption of the habitat plan.

On December 10, 2003, Firestone, through his attorney, Jon Lieberg, wrote a letter to the Temecula City Council, urging it not to adopt the habitat plan or Firestone would seek damages of $40 million for a taking of his property. In subsequent litigation, Firestone took the positionstrongly disputed by Ocean Atlantic Developmentthat Ocean Atlantic Development wanted him to file an objection and he had a contractual obligation to cooperate . . . . At a public hearing on December 13, 2003, the city council adopted the habitat plan without any apparent consideration of Firestones letter.

On December 22, 2003, Ocean Atlantic Development, represented by the law firm of Allen Matkins,^[6]filed the OAD lawsuit for specific performance and breach of contract against Firestone, including a claim that Firestone had breached an agreement not to make any written or oral commitments or representations to the applicable governmental authorities. The specific language in the contract was set forth in two places. Paragraph 11, concerning Sellers Representations, Warranties and Covenants, provides: (b) [Firestone] will not make any written or oral commitments or representations to the applicable governmental authorities . . . which would in any manner be binding upon [Ocean Atlantic Development] or the Property. Paragraph 13, concerning Cooperation; Confidentiality, provides: (a) [Firestone] and [Ocean Atlantic Development] agree to cooperate fully in prosecuting all necessary approvals for zoning, subdivision, development and permitting of the Property and to join in all applications therefor, where appropriate . . . .

Firestone challenged the OAD lawsuit by filing a special motion to strike. In June 2004, Judge Gary Tranbarger announced his tentative ruling to grant the motion based on legislative privilege. While Firestones anti-SLAPP motion was still pending, Ocean Atlantic Development hired a second law firm, Rutan & Tucker; filed bankruptcy on July 16, 2004; and caused the OAD lawsuit to be removed to federal court. Judge Tranbarger never made a final ruling on Firestones anti-SLAPP motion in the superior court.

Firestone renewed the anti-SLAPP motion in bankruptcy court. Judge Meredith Jury granted the motion in April 2005 based on grounds of legislative privilege but permitted Ocean Atlantic Development to file a supplemental complaint for declaratory relief. The OAD lawsuit was dismissed in June 2005 without prejudice to Firestone filing the supplemental pleading. The district court adopted the findings of the bankruptcy judge that the OAD lawsuit lacked even minimal merit under the anti-SLAPP statute.

In January 2006, while the bankruptcy case was still pending in some aspects, Firestone filed the Firestone lawsuit, asserting six causes of action for malicious prosecution.^[7] Allen Matkins is named in every cause of action. The complaint alleges that the OAD lawsuit was maliciously initiated and prosecuted by defendants without probable cause because Firestones letter of December 10 was not actionable and Firestone did not breach the agreement with Ocean Atlantic Development. Instead, Ocean Atlantic Development acted with an improper motive and purpose to force a favorable renegotiation of the purchase agreement. The Firestone lawsuit further alleges Firestones anti-SLAPP motion in the OAD lawsuit was granted in Firestones favor and against Ocean Atlantic Development.

Rutan & Tucker is named only in the fifth and sixth causes of action. These causes of action allege that Rutan & Tucker became cocounsel in the OAD lawsuit on July 16, 2004, and was actively instrumental in maintaining and continuing to prosecute the [OAD lawsuit] and, with the other defendants, between July 16, 2004, and December 20, 2005, maintained and continued to prosecute the [OAD lawsuit] in federal court, knowing that the Specific Performance Cause of Action . . . [] . . . [] . . . [and] the Damages Cause of Action lacked minimal merit and [were] not supported by probable cause. Firestone sought monetary damages of almost $7 million.

Rutan & Tucker withdrew as Ocean Atlantic Developments bankruptcy counsel. Allen Matkins and Rutan & Tucker filed joint anti-SLAPPback motions against the Firestone lawsuit. ( 425.18.) Judge Stephen D. Cunnison of the superior court granted the motions on April 10, 2007.

In its order granting the special SLAPPback motions, the court recognized Firestone must establish by some admissible evidence that the [OAD] lawsuit was commenced or maintained by the defendant attorneys and pursued to a termination favorable to [Firestone]; that it was brought or maintained without probable cause; and that it was brought or maintained with malice. The court reasoned that the moving defendants correctly contend that, although the complaint in the [OAD] lawsuit was drafted with several causes of action, all depended upon a single theory of liability; namely, that [Firestone] had breached the contract (either by breaching the express terms thereof or by breaching the implied covenant of good faith and fair dealing) and that plaintiffs had no right to demand an immediate close of escrow or to terminate the contract. It is to that theory of liability that the any reasonable attorney test applies.

About probable cause, the court commented that Ocean Atlantic Development could have seized upon Firestones letter to the city council, the effect of which on the city councils decision could, in all likelihood, never be proved, to force Firestone to the bargaining table. But the court concluded, the test is a narrow one. Evidence of even a minor breach might persuade a reasonable attorney that an action for breach of contract had merit, if only to obtain a judgment that [Firestones] actions were premature. [] If probable cause existed, no comment or ruling of a judge can vitiate it. [] [Firestone has] failed to establish that Allen Matkins knew that no probable cause existed to initiate the lawsuit. There is no evidence that Rutan knew of any facts that would change the initial existence of probable cause. Furthermore, the attorney-client privilege existing between Ocean Atlantic Development and its lawyers would prevent Firestone from establishing that the defendants initiated or continued the lawsuit without probable cause. As to the issue of favorable termination, the superior court found there had not yet been a favorable termination for Firestone of Ocean Atlantic Developments claims as raised in its supplemental complaint in the bankruptcy court.

We acknowledge the subsequent bankruptcy proceedings which occurred after the superior court granted defendants anti-SLAPP motions.^[8] On June 26, 2007, the automatic stay terminated and Firestone terminated the purchase and development agreement with Ocean Atlantic Development. On July 5, 2007, the bankruptcy court expunged the lis pendens that Ocean Atlantic Development had recorded against Firestones property. The bankruptcy court also denied confirmation of Ocean Atlantic Developments proposed plan of reorganization and converted Ocean Atlantic Development to a Chapter 7 liquidation. Finally, in September 2007, the bankruptcy court granted Firestones summary judgment motion on Ocean Atlantic Developments supplemental complaint.

3. Discussion

The OAD lawsuit for specific performance or breach of contract, filed in December 2003, metamorphosed into the bankruptcy proceeding, which the bankruptcy court dismissed under the SLAPP statute ( 425.16) in April 2005. Under the SLAPPback statute ( 425.18), the superior court dismissed Firestones 2006 malicious prosecution lawsuit in April 2007. This appeal was filed in June 2007. The bankruptcy case was finally terminated completely as to Firestone in September 2007.

A special section of the SLAPP statutes, section 425.18, concerns malicious prosecution or SLAPPback actions:

(a) The Legislature finds and declares that a SLAPPback is distinguishable in character and origin from the ordinary malicious prosecution action. The Legislature further finds and declares that a SLAPPback cause of action should be treated differently, as provided in this section, from an ordinary malicious prosecution action because a SLAPPback is consistent with the Legislatures intent to protect the valid exercise of the constitutional rights of free speech and petition by its deterrent effect on SLAPP (strategic lawsuit against public participation) litigation and by its restoration of public confidence in participatory democracy.

(b) For purposes of this section, the following terms have the following meanings:

(1) SLAPPback means any cause of action for malicious prosecution or abuse of process arising from the filing or maintenance of a prior cause of action that has been dismissed pursuant to a special motion to strike under Section 425.16.

The elements of malicious prosecution are set forth in Soukup v. Law Offices of Herbert Hafif, supra, 39 Cal.4th at p. 292: To prevail on a malicious prosecution claim, the plaintiff must show that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination favorable to the plaintiff; (2) was brought without probable cause; and (3) was initiated with malice. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871.)

The parties disagree on nearly every element of malicious prosecution and the corresponding SLAPPback as applied in this case. They dispute whether and when the prior cause of action, the OAD lawsuit, was actually and finally dismissed pursuant to Firestones special motion to strike under section 425.16. They also disagree about whether the OAD lawsuit was pursued to a legal termination favorable to Firestone, whether it was brought without probable cause, and whether it demonstrated malice. The parties also disagree about whether legislative privilege would exclude any evidence about the reasons for the city councils decision to approve the habitat plan and the effect of Firestones December 10 letter.

Additionally, defendants contend that the attorney-client privilege would prohibit Firestone from proving and defendants from opposing the malicious prosecution claims. The defendant attorneys maintain that, because the information supporting probable cause for the OAD lawsuit was communicated to them by Ocean Atlantic Development, it is protected from discovery or disclosure by the attorney-client privilege.

Our conclusion, however, that the attorney defendants had probable cause to file and prosecute the OAD lawsuit relieves us from discussing most of these other issues as raised by the parties.

a. Section 425.18

We consider first whether the OAD lawsuit qualifies under section 425.18, subdivision (b)(1) as a prior cause of action that has been dismissed pursuant to a special motion to strike under Section 425.16. Although it was unquestionably a prior lawsuit, there is considerable debate about the circumstances of its dismissal. In April 2005, Judge Jury granted Firestones anti-SLAPP motion against Ocean Atlantic Development but allowed Ocean Atlantic Development to file a supplemental complaint.

In April 2007, when Judge Cunnison granted defendants special motions to strike the Firestone lawsuit, the bankruptcy proceedings were still pending. Firestone contends the OAD lawsuit was properly dismissed under SLAPP and the supplemental complaint was different from the original OAD lawsuit. Defendants predictably take the opposing position, which is that the supplemental complaint was effectively the same as the original OAD lawsuit; therefore, the OAD lawsuit was not entirely dismissed under SLAPP in April 2005. The supplemental complaint, however, sought declaratory relief about whether the purchase contract between Ocean Atlantic Development and Firestone was terminated when the bankruptcy petition was filed on July 15, 2004. The supplemental complaint concerns the effect of events occurring months after the alleged breach of contract in December 2003.

In our view, for purposes of section 425.18, the dismissal by the bankruptcy court in April 2005 of the OAD lawsuit qualified as the dismissal of a maintenance of a prior cause of action . . . pursuant to a special motion to strike under Section 425.16. ( 425.18, subd. (b)(1).) Although Judge Jury permitted a supplemental complaint to be filed and the supplemental complaint was related to the dispute between Firestone and Ocean Atlantic Development, the original complaint, the prior cause of action, had unquestionably been dismissed under section 425.16. Under the SLAPP statute, Ocean Atlantic Development would not have been allowed to amend. (Simmons v. Allstate Ins. Co. (2001) 92 Cal.App.4th 1068, 1073.) The supplemental bankruptcy proceeding was a different cause of action, not the original prior cause of action. The original prior cause of action fits within the literal definition of section 425.18.

b. Malicious Prosecution

Our next step in the analysis is whether, for purposes of malicious prosecution, the OAD lawsuit was pursued to a legal termination favorable to Firestone. (Soukup v. Law Offices of Herbert Hafif, supra, 39 Cal.4th at p. 292.) As already discussed, the record reflects the OAD lawsuit was dismissed under the SLAPP statute by the bankruptcy court. The grounds for dismissal in April 2005 was that legislative privilege would prohibit any evidence being presented about the effect of Firestones December 10 letter on the decision of the city council to approve the habitat plan. The principle of legislative privilege precludes judicial inquiry into the motivation or mental processes of legislators in enacting legislation. (County of Los Angeles v. Superior Court (1975) 13 Cal.3d 721, 723, 726-727; City of Santa Cruz v. Superior Court (1995) 40 Cal.App.4th 1146, 1153; City of King City v. Community Bank of Central California (2005) 131 Cal.App.4th 913, 943-944.)

As articulated by the bankruptcy court, the operation of legislative privilege meant neither party would be able to prove the impact of Firestones letter. As such, Firestone achieved a favorable termination of the OAD lawsuit, the prior cause of action. (Crowley v. Katleman (1994)8 Cal.4th 666, 684-685.)

Whether the bankruptcy court was correct about legislative privilege is not directly the subject of this appeal from a state judgment. But we disagree with the superior courts conclusion that there was not a favorable termination because the supplemental bankruptcy complaint was still outstanding. (Crowley v. Katleman, supra, 8 Cal.4th at pp. 684-685.) As already discussed, the OAD lawsuit and the supplemental complaint were different. Nevertheless, whether there was a procedural termination or a termination on the merits of the OAD lawsuit, the issue of favorable termination is not dispositive on appeal.

Instead, we deem the critical issue in the case to be probable cause: whether the OAD lawsuit was brought without probable cause and with malice and pursued by or at the direction of the defendant attorneys. Did the OAD lawsuit have any merit or was it initiated and did it continue to be litigated without cause and with malice?

At the outset, we observe the merits of the OAD lawsuit were questionable in many aspects. The complaint was based primarily on the December 10 letter, in which Firestone expressed opposition to the habitat plan that was shared by Ocean Atlantic Development. It was apparently the reasoning, as expressed by Allen Matkins in its appellate brief, that the letter, by its threatening tone, derailed OADs negotiations to have the City delay adoption of the habitat plan, with the delay being sought to give OAD the opportunity to discuss modifications of the [habitat plan] that would mitigate its impact on the proposed development.

There also was no convincing evidence, even if it was admissible, presented in the SLAPP motions, that the letter affected the city councils decision to adopt the habitat plan. One city council person denied there was any impact from the letter. Although Ocean Atlantic Development contended the letter breached the cooperation clause in its purchase-option agreement with Firestone, that clause, when read in full and in context, seemed to apply primarily to zoning efforts.

Furthermore, at the time Ocean Atlantic Development filed its complaint for specific performance, it was already in default for failing to make payments and provide reports as required by the option agreement. (C. Robert Nattress & Assoc. v. CIDCO (1986) 184 Cal.App.3d 55, 65.) All these points undermine even the minimal merits of the OAD lawsuit.

Notwithstanding our skepticism about the ultimate viability of Ocean Atlantic Developments claims, we apply a standard of review that accept[s] as true evidence favorable to the plaintiff, and evaluate[s] evidence favorable to the defendant to determine whether it defeats the plaintiffs claim as a matter of law. (Neville v. Chudacoff, supra, 160 Cal.App.4th at p. 1262.) Under this standard, we uphold the trial courts order granting the anti-SLAPPback motion as to the attorney defendants.

In deciding the issue of probable cause, the test is whether a reasonable attorney would have believed the lawsuit against Firestone was tenable, based on the facts known to Ocean Atlantic Development. (Bergman v. Drum (2005) 129 Cal.App.4th 11, 19, citing Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 817.) Only those actions that any reasonable attorney would agree [are] totally and completely without merit may form the basis for a malicious prosecution suit. [Citation.] (Wilson v. Parker, Covert & Chidester, supra, at p. 817; Zamos v. Stroud (2004) 32 Cal.4th 958, 970.)

The gravamen of the OAD lawsuit was either specific performance or breach of contract, based on the December 10 letter. It seems counter-intuitive that Firestones letter opposing the habitat plan could be the basis for a claim that the letter provoked the city council to adopt the plan. Nevertheless, it is possible that the letter could be legally actionable as a literal breach of paragraphs 11 and 13 of the contract not to communicate with governmental authorities and to cooperate with Ocean Atlantic Development in its development efforts. As prohibited by paragraph 11, Firestones letter could be interpreted to be a written representation to Temecula that in some manner was binding upon the property OAD hoped to develop.

Similarly the Firestone letter could be construed as a violation of his promise in paragraph 13 to cooperate with OADs efforts.

Although not directly related to zoning issues, the habitat plan certainly had a bearing on the proposed development of the property. The court could have granted specific performance of the contract by Firestone by ordering him to cooperate and not interfere with Ocean Atlantic Development. (Midland Pacific Bldg. Corp. v. King (2007) 157 Cal.App.4th 264, 273-274.)There was also evidence that Firestones letter threatened Ocean Atlantic Developments funding by its lender, Equivest, even though Firestone offered evidence of preexisting problems for OAD.

Furthermore, in view of the contract provisions, it is questionable to what extent Firestone could independently assert his objection to the habitat plan. One who in fact has validly contracted not to speak or petition has in effect waived the right to the anti-SLAPP statutes protection in the event he or she later breaches that contract. (Navellier v. Sletten (2002) 29 Cal.4th 82, 94; DaimlerChrysler Motors Co. v. Lew Williams, Inc. (2006) 142 Cal.App.4th 344, 352-354; Midland Pacific Bldg. Corp. v. King, supra, 157 Cal.App.4th at p. 272.) Firestones threatening tone was significantly at variance with the polite tone that OAD suggested be used.

Additionally, in support of its SLAPP motion, Allen Matkins submitted the declaration of defendant Stephen R. Thames, the responsible attorney for the OAD lawsuit, who stated that he is a 1982 graduate of UCLA law school with many years of experience in real estate litigation. For the purposes of the OAD lawsuit, he was retained by Ocean Atlantic Development on December 18, 2003, two days after the city council approved the habitat plan. Thames discussed the case with Michael Ferraguto, Ocean Atlantic Developments CEO. Based on that conversation and on his review of the purchase agreement, the letter of December 10, and other related documents and correspondence, Thames decided there was probable cause to file a claim for specific performance and breach of contract. Throughout the litigation, his opinion did not alter.

Ocean Atlantic Development was also justified in including the alternative second cause of action for breach of contract and damages even though the contract seemed expressly to preclude recovery for damages. Any possible claim for damages had to be joined in the OAD lawsuit: . . . a breach of contract gives rise to a single cause of action in which all remedies based on that breach must be requested. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 906.) Furthermore, specific performance and damages are alternative remedies related to the violation of one primary right, constituting a single cause of action, which may entitle the injured party to many forms of relief. The relief is not to be confounded with the cause of action, one not being determinative of the other. [Citation.] (Id. at p. 904, citing Crowley v. Katleman, supra, 8 Cal.4th at p. 682.) Consequently, it would have been imprudent for a reasonable lawyer not to include both a specific performance cause of action and a claim for damages. The superior court recognized as much when it ruled: Evidence of even a minor breach might persuade a reasonable attorney that an action for breach of contract had merit, if only to obtain a judgment that the sellers actions were premature.

Based on the foregoing, we similarly conclude a reasonable attorney would have plausible reasons to file the OAD lawsuit and to continue to litigate it. It was not until Judge Jury dismissed the OAD lawsuit that its meritlessness was establishedand perhaps not even then, given the parties ongoing dispute about the application of legislative privilege.

Firestone did not establish the absence of probable cause for the OAD lawsuit as to the attorney defendants; any evidence of his malicious prosecution claims was defeated by their evidence. Because we decide probable cause existed based on the known facts, we do not address the issue of attorney-client privilege. Even if other reasonssubject to the privilegemay exist to support probable cause, we are satisfied we do not need to conduct further inquiry. Because we deem there was probable cause defeating Firestones malicious prosecution action, we also decline to discuss the element of malice.

4. Disposition

We affirm the judgment. The prevailing parties shall recover their costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

s/Gaut

J.

We concur:

s/Hollenhorst

Acting P. J.

s/King

J.

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^[1] Ocean Atlantic Development, LLC, a Delaware company.

^[2] John F. Firestone and Hub Management, Inc., a Texas corporation.

^[3] All statutory references are to the Code of Civil Procedure unless stated otherwise.

^[4] Allen Matkins Leck Gamble Mallory and Natsis LLP and Stephen Thames (collectively Allen Matkins)

^[5] Rutan & Tucker, LLC, and Penelope Parmes.

^[6] Rutan & Tucker was not involved in this litigation initially.

^[7] Ocean Atlantic Development was not named a defendant. Instead, Firestone named Ocean Atlantic Service Corporation, a Virginia corporation, the sole owner of Ocean Atlantic Development. On appeal, we treat both entities as Ocean Atlantic Development.

^[8] We grant Firestones second request for judicial notice filed November 15, 2007. We deny Firestones third request for judicial notice filed May 1, 2008.