McCombs v. Confidential Report
Filed 3/26/13 McCombs v. Confidential Report CA2/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
SECOND
APPELLATE DISTRICT
DIVISION
ONE
MATTHEW McCOMBS,
Plaintiff and Respondent,
v.
CONFIDENTIAL REPORT, LLC, et
al.,
Defendants and Appellants.
B234525
(Los Angeles
County
Super. Ct.
No. BC457751)
APPEAL from an order of the Superior Court of
County. Mary H.
Strobel, Judge. Affirmed.
Law Offices of Frances L. Diaz and Frances L. Diaz for
Defendants and Appellants.
Ingber & Associates and Kenneth
S. Ingber for Plaintiff and Respondent.
_____________________
In a prior action, Confidential
Report, LLC, sued Paragon Film Group, LLC, and Matthew McCombs for fraud and
other causes of action. At some point
during the proceedings, Paragon ceased conducting business and filed a
certificate of dissolution with the California Secretary of State. Ultimately, the trial court granted McCombs’s
motion for summary judgment, which
was affirmed on appeal.
Thereafter, McCombs filed a
complaint against Charles E. Ruben and Charles E. Ruben and Associates (the
firm that represented Confidential in the underlying action, referred to
collectively as Ruben) and Confidential for malicious prosecution based on
Confidential’s fraud cause of action against McCombs. Confidential and Ruben brought a special
motion to strike pursuant to Code of Civil Procedure section 425.16, which the trial court denied.
that the court erred in denying the special motion to strike, contending that
McCombs failed to establish a probability of prevailing on his claim that
Confidential lacked probable cause and acted with malice in pursuing the
underlying fraud action. We disagree and
affirm the order.
The international sales agency agreement
The
procedural and factual background leading up to the instant appeal has been
well documented in Confidential Report,
LLC v. Paragon Film Group, LLC, et al. (Apr. 16, 2010, B215101)
[nonpub. opn.], from which we derive the following background. According to the opinion, McCombs stipulated
that he and Paragon are alter egos for purposes of that action. Confidential produces films, and Paragon
distributes films. Confidential produced
a low-budget monster movie entitled, “‘The Creature of the Sunny Side Up
Trailer Park’ AKA ‘The Creature’†(the film).
In May 2005, Confidential granted Paragon the exclusive right to
distribute the film under an “International Sales Agency Agreement†(the
contract). The contract term ran from May 4, 2005, to July 1, 2006.
The
contract contained several provisions of central importance to the present
dispute. Paragraph 8 of the contract
granted Paragon “sole, exclusive and complete control of the exploitation of
the rights in the [film], including, but not limited to, provisions of all
contracts (including the right to make, cancel and adjust, as well as to settle
disputes and give rebates, allowances and credits), the persons with whom to
contract or negotiate, and all rights incidental to marketing [the film].†Paragraph 3 gave Paragon this right for “the
entire universe,†excluding the United States
and Canada. In Paragraph 7, entitled “NO WARRANTY OR
REPRESENTATION OF LEVEL OF GROSS RECEIPTS,†Confidential acknowledged that
the marketing of the film would be “speculative†and that Paragon “has not made
any warranty, representation, or agreement, express or implied, regarding the
exploitation, promotion or exhibition of the [film], or the level of Gross
Receipts, or [Confidential’s] Share of Gross Receipts.†Paragraph 7 further provided that “[a]ny and
all estimates or projections as to sales of [the film] by [Paragon] shall be
deemed statements of opinion only and shall not be binding on [Paragon].â€
Paragraph
20 of the contract contained a standard integration clause in which the parties
acknowledged that the written contract contained all of the terms, conditions
and understandings between them.
name="_ftnref2" title="">[2]
Paragraph 5
of the contract provided that gross receipts from marketing the film were to be
divided between Confidential and Paragon as follows: First, Paragon shall deduct and retain a
sales agent fee of 15 percent of gross receipts; second, Paragon shall deduct a
flat fee of $10,000 per market to cover general out-of-pocket expenses; third,
Paragon shall deduct direct, actual out-of-pocket third party costs for
promotional materials, with such expenses to be capped at $25,000; fourth,
Paragon may deduct direct, actual third party costs for any materials required
to complete delivery of the film in an appropriate form to Paragon; and,
finally, the balance remaining of the gross receipts shall be remitted to
Confidential.
Paragon’s distribution of the film
Paragon began to distribute the
film internationally, with only limited success. Paragon negotiated and finalized seven
international flat-fee licenses for the film, securing gross receipts totaling
$74,000. Paragon sold film rights in the
following markets, generating license fees as follows: United Kingdom,
$10,000; Japan,
$20,000; Brazil,
$8,000; Mexico,
$5,000; Thailand,
$6,000; Germany,
$15,000; and Indonesia,
$10,000. Each of the licenses Paragon
granted was for a “flat fee†in which a lump sum was paid by the licensee with
no continuing royalties owed. Paragon
asserted that no payment was due Confidential from the gross receipts after
allowable deductions were taken under the contract.
Paragon
provided Confidential with quarterly account statements under the contract that
purported to reflect Paragon’s licensing activity. After Confidential raised an issue over
payment, Paragon provided Confidential with bank records verifying the account
statements previously furnished.
Confidential notified Paragon it was in default under the contract.
Procedural history of the underlying action
Confidential filed a complaint
against Paragon and McCombs, asserting a single claim for accounting and
alleging that Paragon had failed to provide the accountings called for under
the contract. The operative second
amended complaint (SAC) added additional claims for breach of contract, fraud,
negligent misrepresentation, and conversion.
Confidential alleged that Paragon
and McCombs breached the contract by failing to provide detailed periodic
accounting statements, by continuing to sell rights to the film after the
contract expired in July 2006 and by failing to return all “films, negatives,
masters†and other materials relating to the film. The fraud cause of action in the SAC alleged that Paragon and McCombs committed
fraud by falsely representing, or negligently representing, in order to induce
Confidential to enter into the contract, that they would do the following: comply with the terms and conditions of the
contract; furnish Confidential with detailed accounting statements; cease and
desist from selling any rights in the film “once the contract expired on July
1, 2006â€; and return the film to Confidential.
But Paragon and McCombs allegedly failed to furnish Confidential with
detailed accounting statements; failed to cease and desist from selling any
rights in the film “since the contract expired on July 1, 2006, despite
demand being made by [Confidential]â€; and failed to return the film. The SAC alleged that Confidential entered
into the contract in justifiable reliance on Paragon’s and McCombs’s
representations and suffered damages in the sum of $10 million.
After a year of discovery, McCombs
moved for summary judgment or, alternatively, summary adjudication of issues
(motion for summary judgment). Paragon
asserted it was undisputed that: no
provision in the contract prohibited flat-fee licenses, and Confidential had no
right to approve licenses; Paragon had the right to deduct and retain from
gross receipts a sales agency fee of 15 percent, a flat fee of $10,000 per
market for marketing expenses and actual out-of-pocket, third party costs for
creation of promotional materials, subject to a cap of $25,000; Paragon
complied with the terms of the contract; Confidential cannot establish that Paragon
breached any express term of the contract and had no admissible evidence that
Paragon failed to perform under the contract; and, even if Confidential could
produce evidence of any breach of a term of the contract, Confidential had no
admissible evidence of damages.
Paragon provided the declaration of
McCombs in support of the motion for summary judgment. McCombs declared that Paragon spent
significant time and money to market and sell the film overseas. Those efforts included creating a trailer for
the film, showing the film at international film markets, and creating printed
marketing materials. Paragon entered
into seven flat-fee licenses to sell the film, and the film garnered gross
receipts of less than $74,000 from these territories. McCombs attached copies of the licenses as
exhibits to his declaration.
Based
on his nearly 10 years’ experience as an international sales agent, McCombs
declared there are certain terms and conditions that are “customarilyâ€
negotiated between producers and sales agents, including, in certain
circumstances, specific prohibitions against flat-fee license agreements. A flat-fee license agreement is one in which
the licensee pays a single lump sum for the rights to a film in the
territory. In the present case, McCombs stated, Confidential and
its attorney did not request such a prohibition and McCombs would not have
agreed to such a term because he believed a low-budget horror film such
as the one at issue could not be sold internationally in a majority of
territories without flat-fee licenses.
McCombs also stated that, based on
his experience, the license fees Paragon charged the licensees were reasonable
given (1) the DVD market was in decline, (2) the film was produced
and directed by unknown novice filmmakers, and (3) low-budget horror films
were not in high demand overseas.
McCombs attested that, after Paragon made the deductions from gross
revenues allowed under the contract, no additional royalties were due or owing
to Confidential from the international licensing of the film.
McCombs further declared that
Paragon mailed Confidential or its attorneys quarterly account statements on July 30,
2005, and January 30,
2006, and a term and
account summary on April 24, 2006.
Paragon also furnished Confidential’s counsel with additional copies in
June 2006. On June 11, 2008,
Paragon provided Confidential with unredacted copies of Paragon’s banking
records for the relevant period. McCombs
declared that Confidential thus had in its possession copies of all account
statements, summaries and bank records that Paragon possessed.
McCombs admitted that Paragon and
its licensees had copies of the film in their possession, but he stated that
the contract did not provide for Paragon to return the film. Confidential did not request such a
provision, the contract did not include such a provision, and McCombs stated he
would have not agreed to such a term for a low-budget horror film such as the
one in issue. Confidential did bargain
for certain conditions contained in the contract, including the right to audit
the books and records with direct respect to the film. Under paragraph 6, Paragon was to furnish
Confidential with quarterly account statements, which were to include, per
period and cumulatively: gross receipts,
sales agent fee, distribution, marketing and material expenses, as well as the
producer’s share of gross receipts.
In opposition to the motion for
summary judgment, Confidential contended an implied term of the contract
prohibited Paragon from entering into flat-fee licenses for the film. It also contended that Paragon’s performance
under the contract fell below the industry “standard of care†and that Paragon
was obligated to return copies of the film to Confidential. Confidential further claimed that before the
contract was signed McCombs had estimated to the attorney who negotiated the
contract on behalf of Confidential that the film would achieve gross receipts
of $1.5 million to $2 million.
Confidential stated it suffered $300,000 to $500,000 in damages.
In opposition to the motion for
summary judgment, Confidential relied on the declaration of an entertainment
attorney who had negotiated the contract on Confidential’s behalf. The attorney stated that an implied term prohibiting
Paragon from entering into flat-fee licenses for the film should be read into
the contract, and that prior to signing the contract McCombs had estimated
Paragon would receive gross receipts of $1.5 million to $2 million in
licensing fees for the film.
Confidential also proffered the declaration of the president of an
entertainment company to support its contentions. Both opined that Paragon’s performance under
the contract fell below the industry “standard of care†and that, pursuant to
industry custom, Paragon was obligated to return the film to Confidential.
Paragon filed objections to both
declarations, which the trial court sustained.
The trial court granted the motion
for summary judgment. In its order
granting the motion, the court stated that “[Confidential’s] evidence proffered
in opposition to [the] motion is not sufficient to raise a triable issue of
fact, in that it constitutes inadmissible expert testimony, to which objection
at the hearing was duly made and sustained.â€
The court found numerous respects in which Confidential’s showing was
inadequate, stating: “[Confidential’s]
allegations of negligence are not relevant to [its] claim for breach of
contract. Moreover, pursuant to the
Agreement’s terms, the Agreement’s express, unambiguous terms constitute the
parties’ complete agreement.
[Confidential] also failed to submit any admissible evidence that it
incurred damages. Therefore,
[Confidential] failed to meet its burden of establishing by admissible evidence
that a triable issue of fact exists.â€
The trial court entered a judgment
in favor of Paragon. Confidential
appealed.
On
April 16, 2010, Division Eight of this district affirmed the judgment of
the trial court. In a footnote, Division
Eight stated, “As Paragon notes, Confidential failed to raise any issue regarding
its cause of action for fraud in its opening brief or to discuss its claim of
fraud in any meaningful way. In its
reply, Confidential asserts that the order for summary judgment must be
reversed if any cause of action is
viable, so its abandonment of the fraud claim has ‘no legal significance.’ We treat the claim of fraud as abandoned and
do not address its merits. (
149 Cal.App.4th 836, 852.)†(
Group, LLC, et al., supra,
B215101.)
BACKGROUND OF McCOMBS’S COMPLAINT FOR MALICIOUS PROSECUTION
On
March 21, 2011, McCombs filed a
complaint for damages for malicious prosecution against Confidential and
Ruben. McCombs alleged as follows. The
SAC in the underlying fraud action claimed that McCombs “committed fraud by
falsely representing that he would comply with the terms and conditions of the
contract.†Confidential and Ruben failed
to produce any evidentiary support for the allegations of the SAC or “identify
a single fact, witness or document in support of their fraud claim.†Confidential and Ruben did not have
reasonable grounds to file a complaint against McCombs as to the cause of
action for fraud and “even admitted that the cause of action for fraud against
McCombs was brought solely for an improper motive, i.e., to ‘teach Hollywood a
lesson.’†The trial court granted
McCombs’s motion for summary judgment on the SAC, which was affirmed by the
Court of Appeal.
In
response, Confidential and Ruben filed a special motion to strike McCombs’s
complaint pursuant to section 425.16, arguing that McCombs’s lawsuit was a
strategic lawsuit against public participation (SLAPP). Confidential and Ruben urged that the
underlying fraud action was brought with probable cause because McCombs
admitted he had no ownership interest in the film, yet refused to return it;
McCombs had represented that “Paragon would receive gross receipts of between
$1,500,000 to $2,000,000â€; and McCombs did not produce a detailed accounting as
called for by the contract. In addition,
Confidential and Ruben argued that McCombs did not establish malice because
“[n]either Charles E. Ruben, nor Confidential, nor any agent, representative,
employee, or member of Confidential has ever said that filing a lawsuit against
McCombs or Paragon was brought to teach Hollywood a lesson.â€
Attached
in support of the special motion to strike were, among other things, the
declaration of Elyse Roberts (“a Member of Confidentialâ€); Ruben’s declaration;
and the pleadings and evidence offered in opposition to the motion for summary
judgment on the SAC, including the declarations of the entertainment attorney
and the president of an entertainment company, excerpts of Roberts’s deposition
testimony, and excerpts of McCombs’s deposition testimony. In her declaration, Roberts stated that she
signed the agreement on behalf of Confidential; denied that she ever said that
the lawsuit against McCombs “‘was brought to teach Hollywood a lesson’â€; and stated
that Keith Fleer, the attorney hired by Confidential to negotiate the contract,
had stated that McCombs “represented to [him] that he estimated that Paragon
would receive gross receipts of between $1,500,000 and $2,000,000 for the
licensing fees for the [film].â€
In his opposition to the special
motion to strike, McCombs argued that, as determined in the underlying action
and on appeal from that action, Confidential’s expert witness declarations
provided no support for a fraud claim; McCombs was under no contractual
obligation to return the film to Confidential; and McCombs offered evidence
that “Roberts was motivated by open hostility, ill-will and malice.â€
In support of McCombs’s opposition
to the special motion to strike, McCombs attached, among other things, the
declaration of his counsel, Kenneth S. Ingber, and the pleadings and evidence
offered in support of the motion for summary judgment on the SAC, including a
letter dated April 15, 2008, from Ingber to Confidential and an excerpt
from the deposition transcript of the director of the film, Christopher
Coppola.
Ingber declared that “[f]ollowing
the deposition of Elyse Roberts . . . my client and I asked Ms.
Roberts why she was pursuing the lawsuit and her response was, ‘because you
gave away my movie!’†In answer to the
question, “What have you been told, if anything, by Ms. Roberts about what this
case is about,†Coppola stated in his deposition testimony, “Well, the only
thing that she told me was she doesn’t like the way Hollywood does
business. That’s the extent of it.â€
Ingber declared that he sent the
April 15, 2008 letter to Ruben. The
letter stated that Confidential “failed to identify any material breach by
Paragon of the [agreement] which would create any underlying liability to [Confidential].†The letter stated that “[a]s to the fraud and
misrepresentation claims that you have recklessly asserted against my client,
you may have hoped that asserting such causes of action would have motivated
Mr. McCombs to somehow compensate your client for her frivolous and otherwise
meritless claims. To the contrary, I
assure you that Mr. McCombs is resolved to defending his name and reputation
against your client’s baseless allegations.
Indeed your fraud and misrepresentation claims appear to be little more
than an improper effort to ‘tortify’ a simple breach of contract claim (which
is, itself, meritless).†The letter
stated, “Moreover, your recent decision to unilaterally cancel the mediation
simply underscores your client’s malicious intentions underlying this
case. Although it is regrettable that
your client does not have a serious desire to resolve this dispute, we do not
believe that your client appreciates the risk of asserting legal theories that
cannot be proven, and which lack evidentiary support. As the attorney advancing such theories, we
would ordinarily presume that you conducted a reasonable and appropriate
inquiry and investigation prior to commencing suit. Unfortunately, to date, your responses to
written discovery reinforce our suspicion that you may not have conducted such
an inquiry and do not have any probable basis for your causes of action. [¶]
Based upon the foregoing, this letter shall constitute our formal notice
to you that my client intends to hold you and your client’s principal, Elyse
Roberts, personally responsible for any and all direct, proximate and
consequential damages (including emotional distress and the attorney’s fees
incurred herein) resulting from the initiation and continued pursuit of this
frivolous lawsuit. [¶] If you persist in the malicious prosecution
of these claims, Mr. McCombs will have no alternative but to vigorously defend
himself through a final judgment on the merits.
We will then pursue your law firm and clients for the recovery of damages
arising from your wrongful pursuit of these claims.â€
Characterizing
Confidential’s responses to a first set of form interrogatories as “inadequate,
non-responsive, and evasive,†the letter requested supplemental responses. The letter stated that Confidential’s response
that Confidential “cannot respond without [McCombs] producing documents (which
are either already in your possession, have been lost, or do not exist), is bad
faith and simply reveals that which we have suspected: at the time you filed this lawsuit (through
the present) you are not in possession of a single shred of evidence to support
your vacuous claims.†The letter also
stated that Confidential failed to respond to the “vast majority†of Paragon’s
request for admissions.
At
the hearing on the special motion to strike, the trial court concluded that
McCombs had made a showing that Confidential and Ruben lacked probable cause to
bring the fraud action because there was no evidence supporting the claim that
the accounting was insufficient; there was no provision in the contract
requiring the return of the film; and the fraud claim had been abandoned on
appeal. The court also determined that
“an inference of malice†can be drawn based on Coppola’s deposition testimony
that Roberts had told him that she did not like “the way Hollywood does
businessâ€; Ingber’s declaration that Roberts had stated that McCombs was
“giving away the movieâ€; and Confidential’s “continuing with the lawsuit after
letters specifically to counsel citing to the lack of evidence, and saying that
it would likely result in a further action.â€
The
court denied Confidential’s and Ruben’s motion to strike. This appeal followed.
DISCUSSION
The trial court did
not err in denying the special motion to strike
Confidential and Ruben argue that
the trial court erred in denying the special motion to strike, contending
McCombs failed to establish a probability of prevailing on his claim that
Confidential lacked probable cause and acted with malice in pursuing the
underlying fraud action. We disagree and
affirm the order.
Section 425.16, the 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
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.†(§ 425.16, subd. (b)(1).)
In ruling on a special motion to
strike, a trial court “engage[s] in a two-
the court decides whether the defendant has made a threshold showing that the
challenged cause of action is one arising from protected activity. The moving defendant’s burden is to
demonstrate that the act or acts of which the plaintiff complains were taken
‘in furtherance of the [defendant]’s right of petition or free speech under the
United States or California Constitution in connection with a public issue,’ as
defined in the statute. (§ 425.16,
subd. (b)(1).) If the court finds
such a showing has been made, it then determines whether the plaintiff has
demonstrated a probability of prevailing on the claim. Under section 425.16,
subdivision (b)(2), the trial court in making these determinations
considers ‘the pleadings, and supporting and opposing affidavits stating the
facts upon which the liability or defense is based.’†(Equilon Enterprises v. Consumer Cause,
Inc. (2002) 29 Cal.4th 53, 67.)
“The term ‘probability [of prevailing]’ is synonymous with ‘reasonable
probability.’†(Schoendorf v.
U.D. Registry, Inc. (2002) 97 Cal.App.4th 227, 238.) “In order to establish a probability of
prevailing on the claim . . . , a plaintiff responding to an
anti-SLAPP motion must ‘“state[] and substantiate[] a
legally sufficient claim.â€â€™
[Citations.] Put another way, the
plaintiff ‘must demonstrate that the complaint is both legally sufficient and
supported by a sufficient prima facie showing of facts to sustain a favorable
judgment if the evidence submitted by the plaintiff is credited.’†(Wilson v. Parker, Covert &
Chidester (2002) 28 Cal.4th 811, 821.)
“‘Review of an
order granting or denying a motion to strike under section 425.16 is de
novo.’†(Flatley v. Mauro (2006) 39 Cal.4th 299, 325–326.)
The parties
agree that McCombs’s malicious prosecution action arises from acts in
furtherance of Confidential’s and Ruben’s right of petition or free speech.
the words of the statute — “[to] establish[ ] that there is
a probability that the plaintiff will prevail on the claim.†(§ 425.16, subd. (b)(1).) “The plaintiff’s showing of facts must consist
of evidence that would be admissible at trial.
[Citation.] The court cannot
weigh the evidence, but must determine whether the evidence is sufficient to
support a judgment in the plaintiff’s favor as a matter of law, as on a motion
for summary judgment. [Citations.] If the plaintiff presents a sufficient prima
facie showing of facts, the moving defendant can defeat the plaintiff’s
evidentiary showing only if the defendant’s evidence establishes as a matter of
law that the plaintiff cannot prevail.â€
(Hall v. Time Warner, Inc.
(2007) 153 Cal.App.4th 1337, 1346.)
“[T]he court’s responsibility is to accept as true the evidence
favorable to the plaintiff.†(HMS
Capital, Inc. v. Lawyers Title Co.
(2004) 118 Cal.App.4th 204, 212.)
To prevail on his cause
of action for malicious prosecution,
McCombs must prove he was sued previously on a claim brought without probable
cause, initiated with malice, and pursued to a termination in his favor. (See Slaney v. Ranger Ins. Co. (2004)
115 Cal.App.4th 306, 318.) In order
to defeat a special motion to strike, McCombs “‘must demonstrate that the
complaint is both legally sufficient and supported by a sufficient prima facie
showing of facts to sustain a favorable judgment if the evidence submitted by
the plaintiff is credited.’†(Wilson
v. Parker, Covert & Chidester, supra, 28 Cal.4th at p. 821.) As there is no dispute here that the prior
action terminated in McCombs’s favor, we turn to the issue of probable cause.
“[T]the existence or absence of probable cause has traditionally been viewed
as a question of law to be determined by the court . . . .â€
47 Cal.3d 863, 875.) “The probable
cause element calls on the trial court to make an objective determination of
the ‘reasonableness’ of the defendant’s conduct, i.e., to determine whether, on
the basis of the facts known to the defendant, the institution of the prior
action was legally tenable. The
resolution of that question of law calls for the application of an objective
standard to the facts on which the defendant acted.†(Id.
at p. 878.) “‘Only those actions that
“‘any reasonable attorney would agree [are] totally and completely without
merit’†may form the basis for a malicious
v. Mockett (2008) 164 Cal.App.4th 1031, 1048.) “‘A litigant will lack probable cause for his
action either if he relies upon facts which he has no reasonable cause to
believe to be true, or if he seeks recovery upon a legal theory which is
untenable under the facts known to him.’â€
(Sierra Club Foundation v. Graham
(1999) 72 Cal.App.4th 1135, 1154.) “
includes continuing to prosecute a lawsuit discovered to lack probable
cause.†(Zamos v. Stroud (2004)
32 Cal.4th 958, 973 [trial court improperly granted special motion to
strike on plaintiff attorney’s malicious prosecution lawsuit where defendant
failed to dismiss underlying fraud lawsuit against plaintiff attorney after
plaintiff attorney produced evidence in form of reporter’s transcripts of
nonmeritorious nature of fraud cause of action].)
Crediting his evidence, we conclude McCombs made a
sufficient prima facie showing that Confidential and Ruben lacked
probable cause in suing McCombs for fraud.
“The
elements of fraud are ‘“(a) misrepresentation (false representation,
concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c)
intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e)
resulting damage.â€â€™ (Lazar v. Superior Court
(1996) 12 Cal.4th 631, 638 . . . .)†(Charnay
v. Cobert (2006) 145 Cal.App.4th 170, 184.)
The fraud cause of action in the SAC alleged that Paragon and McCombs committed
fraud by falsely representing that they would comply with the terms and
conditions of the contract; furnish Confidential with detailed accounting
statements; cease and desist from selling any rights in the film “once the
contract expired on July 1, 2006â€; and return the film to Confidential, all in
order to induce Confidential to enter into the contract.
Sierra
Club Foundation v. Graham, supra,
instructive. There, the Court of Appeal
determined that the trial court’s entry of summary judgment in the underlying
action for fraud and other counts against the Sierra Club Foundation “reflects
on the Foundation’s innocence of the alleged fraud and negligent
misrepresentation claims.†(Id. at p. 1149.) The court noted that the plaintiff in the
underlying fraud action “did not produce any evidence to support the
[fraud] contention that at the time he made the gift [of stock] the Foundation
did not intend to purchase land. Thus,
there could be no fraudulent inducement.â€
(Ibid.) Accordingly, the court affirmed the judgment
in favor of the foundation for damages for malicious prosecution. Here, the trial court granted summary
judgment in favor of McCombs, holding that Confidential did not raise a triable
issue of fact as to whether McCombs defrauded Confidential. And, as we explain, on appeal Confidential
fails to demonstrate any fraud on the part of McCombs.
Paragon provided Confidential with quarterly account
statements under the contract and after Confidential raised an issue
over payment, provided Confidential with bank records verifying the account
statements previously furnished. (
Group, LLC, et al., supra,
B215101.) Yet Confidential notified
Paragon it was in default under the contract and eventually filed the SAC,
alleging a fraud claim against Paragon.
But there simply was no evidence consistent with the theory set forth in
the SAC that McCombs acted fraudulently concerning his performance under the
contract. And the evidence showed that
McCombs furnished detailed accounting statements as required under the
contract.
On appeal, Confidential and Ruben
rely on expert witness declarations –– which the trial court and Division
Eight determined were inadmissible in the underlying action — that they
claim show McCombs made misrepresentations regarding precontract sales
estimates. But as both the trial court
in the underlying action and Division Eight of this appellate district
determined, the contract contains a clear integration clause which superseded
any previous agreements and constituted the entire contract. And because the contract provided that any
sales estimates are statements of opinion only and are not binding on Paragon,
any alleged precontract sales estimates were contrary to the terms of the
integrated contract which expressly disclaimed reliance on any precontract
sales estimates. For the same reason,
Confidential’s argument that McCombs committed fraud by failing to return the
film is unsupported by the terms of the contract, which did not impose any
obligation on McCombs to return the film.
Finally, Confidential did not support its fraud claim with evidence of
damages. Accordingly, there was no
evidence of actionable fraud by McCombs, and we conclude that, as a matter of
law, Confidential and Ruben lacked probable cause in suing McCombs for fraud.
Next, we
determine that McCombs presented evidence that, if credited, would make a prima
facie showing that Confidential and Ruben initiated the fraud action with
malice. “As an element of the tort of malicious prosecution,
malice at its core refers to an improper motive for bringing the prior
action.†(Drummond v. Desmarais (2009) 176 Cal.App.4th 439, 451.) “As an element of liability it reflects the
core function of the tort, which is to secure compensation for harm inflicted
by misusing the judicial system, i.e., using it for something other than
to enforce legitimate rights and secure remedies to which the claimant may tenably
claim an entitlement. Thus the cases
speak of malice as being present when a suit is actuated by hostility or ill
will, or for some purpose other than to secure relief. [Citations.]
It is also said that a plaintiff acts with malice when he asserts a
claim with knowledge of its falsity, because one who seeks to establish such a claim ‘can only be
motivated by an improper purpose.’
[Citation.] A lack of probable
cause will therefore support an inference of malice.†(Id.
at p. 452.) “[I]f the trial court
determines that the prior action was not objectively tenable, the extent of a
defendant attorney’s investigation and research may be relevant to the further
question of whether or not the attorney acted with malice.†(Sheldon
Appel Co. v. Albert & Oliker, supra,
47 Cal.3d at p. 883.)
First, Confidential’s and Ruben’s
lack of probable cause in initiating and maintaining a lawsuit for fraud
against McCombs supports an inference of malice. (See Drummond v.
Desmarais, supra, 176 Cal.App.4th
at p. 451.) Second, the
April 15, 2008 letter, the deposition testimony of Coppola, and the
declaration of Ingber regarding Roberts’s statements also support an inference
of malice. Although Confidential and
Ruben contend on appeal that the letter, the deposition testimony, and the
declaration were inadmissible hearsay, they did not make evidentiary objections
to the trial court and have forfeited that argument on appeal. (See In re S.B.
(2004) 32 Cal.4th 1287, 1293, superseded by statute on other grounds as stated
in In re M.R. (2005) 132 Cal.App.4th
269, 273–274 [failure to object to errors committed at trial is forfeiture of
claim of error on appeal].)
The April 15, 2008 letter
stated that Confidential’s responses to interrogatories were made in bad faith
and show Confidential had no evidence to support its claims. The letter also put Confidential and Ruben on notice that the fraud action
was meritless and that McCombs intended to hold Ruben and Roberts responsible
for any damages resulting from the initiation and continued prosecution of the
lawsuit. Thus, Confidential was warned
by McCombs that it had no basis for threatening McCombs with punitive
damages. Yet Confidential continued with
the prosecution of the lawsuit even after Paragon provided Confidential with unredacted copies of
Paragon’s banking records on June 11, 2008.
Nevertheless, Confidential and
Ruben cite Daniels v. Robbins (2010) 182 Cal.App.4th 204 for the proposition that
“a letter from a litigation adversary merely suggesting it disagrees with the
verity of the allegations in the lawsuit is not sufficient to put the lawyer on
notice of the falsity of the client’s allegations.†(Id.
at p. 223.) But Ingber’s letter
clearly explained that Confidential had shown no evidence of fraud and the
fraud claim was an attempt to convert a breach of contract action into a
tort. And Confidential’s and Ruben’s
argument that the letter falsely stated that McCombs offered to return the film
is irrelevant; the return of the film was not a condition of the contract.
Further, Ingber declared that in response to his
question to Roberts why she was pursuing the lawsuit, Roberts answered,
“‘because you gave away my movie!’†And
in answer to the question, “What have you been told, if anything, by Ms.
Roberts about what this case is about,†Coppola stated in his deposition
testimony, “Well, the only thing that she told me was she doesn’t like the way
Hollywood does business. That’s the extent of it.†A trier of fact could conclude from the above
that the fraud cause of action was motivated by Roberts’s hostility or ill
will, or for some purpose other than to secure relief.
Nor are we convinced by Confidential’s and Ruben’s
argument that the failure of Confidential to pursue the fraud cause of
action on appeal somehow negates malice because Confidential continued to
litigate the fraud action after receiving the April 15, 2008 letter until
summary judgment was entered on
January 21, 2009.
Confidential and Ruben also assert that Roberts’s and
Ruben’s good faith reliance on the advice of counsel established a complete
defense to the malicious prosecution action, contending that Roberts relied in
good faith on Ruben; Roberts and Ruben relied in good faith on Fleer, who
negotiated the contract; and Ruben relied in good faith on the advice of the
president of an entertainment company, a non-attorney. We disagree.
We first note that the defense of good faith reliance on counsel is
available to the client, not the client’s attorney. “‘Reliance upon the advice of counsel,
provided it is given in good faith and is based upon a full and fair statement
of the facts by the client, may
afford the latter a complete defense to an action for malicious
prosecution. [Citation.] But it is an affirmative defense
. . . .’†(
Cal.App.2d 372, 386, italics added.) The
burden of establishing the affirmative defense of reliance on advice of counsel
in good faith is on the defendant. (Ibid.)
“[R]eliance on advice of counsel is not a defense if the
defendant knows . . . that it does not have probable cause to file
suit.†(George F. Hillenbrand, Inc. v. Insurance Co. of North America (2002)
104 Cal.App.4th 784, 814; Baker v.
Gawthorne (1947) 82 Cal.App.2d 496, 501 [trial court was warranted in
inferring malice on the part of appellant where there was “paucity of proof of
violation of her lease by respondentâ€].)
Where, in response to a special motion to strike a malicious prosecution
complaint, a plaintiff has made a prima facie showing of facts which would
support a judgment in his or her favor, the defendant’s advice of counsel
defense must defeat the plaintiff’s showing as
a matter of law in order for the defendant to prevail on a special motion
to strike. (Ross v. Kish (2006) 145 Cal.App.4th 188, 197, 203.)
Confidential and Ruben failed to produce evidence from
which we can conclude as a matter of law that Roberts relied in good faith on
Ruben––or for that matter, Fleer, who was not her litigation counsel–– to bring
the lawsuit. Further, in light of
McCombs’s prima facie showing of lack of probable cause; McCombs’s evidence
supporting the inference of malice; and the absence of evidence that
Confidential provided facts showing actionable fraud by McCombs, we cannot
conclude that the defense of advice of counsel “‘defeats [McCombs’s] showing as
a matter of law.’†(Ross v. Kish, supra, 145
Cal.App.4th at p. 197; id. at
p. 203 [advice of counsel defense did not, as a matter of law, defeat
plaintiff’s prima facie showing that defendant instituted action for legal
malpractice and breach of contract without probable cause, where a trier of
fact “reasonably could conclude [defendant] did not disclose all relevant facts
to [his attorney] and that [defendant] did not seek opinion of either attorney
in good faithâ€].)
Accordingly, we affirm the trial
court’s order denying Confidential’s and Ruben’s special motion to strike.
DISPOSITION
The trial
court’s order denying Confidential’s and Ruben’s special motion to strike is
affirmed. Matthew McCombs is entitled to
costs on appeal.
NOT TO BE PUBLISHED.
MALLANO,
P. J.
We concur:
CHANEY, J.
JOHNSON, J.
Code of Civil Procedure.
understandings, arrangements or agreements heretofore made between the parties
hereto with respect to the rights of the [film] or parts thereof[] and
constitutes the entire agreement between the parties. The Agreement shall not be changed, modified
or discharged in whole or in part except by a writing duly signed by both
parties. Except as expressly provided
herein, neither party has made any promises, representations or warranties to
the other party in connection with negotiation or execution of this Agreement.â€
