Retirement Housing
Foundation v. Cain Brothers

 

 

 

 

 

Filed 1/29/14  Retirement
Housing Foundation v. Cain Brothers CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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  This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115.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

 

SECOND
APPELLATE DISTRICT

 

DIVISION
SEVEN

 

 
>

RETIREMENT HOUSING FOUNDATION, et al.,               Plaintiffs and Appellants,               v.   CAIN BROTHERS & CO.,               Defendant and Respondent.

B239439         (Los Angeles County       Super. Ct. No. BC404726)   ORDER MODIFYING OPINION; NO CHANGE IN JUDGMENT

 

THE COURT:

 

            It is ordered that the opinion filed
herein on December
30, 2013, and not href="http://www.fearnotlaw.com/">certified for publication, be modified as
follows:

 

 

On page 12, line
1 of the first paragraph, the opinion incorrectly refers to section 10(b); it
should be section 10(a).

 

 

 

          Appellants’ petition for rehearing is
denied.  The foregoing does not change
the judgment.

 

 

WOODS,
Acting P. J.                                             SEGAL,
J. (Assigned)

Filed 12/30/13
(unmodified version)

NOT TO BE PUBLISHED
IN THE OFFICIAL REPORTS

 


 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

SECOND APPELLATE DISTRICT

 

DIVISION SEVEN

 

 
>

RETIREMENT HOUSING FOUNDATION, et al.,               Plaintiffs and Appellants,               v.   CAIN BROTHERS & CO.,               Defendant and Respondent.

B239439         (Los Angeles County       Super. Ct. No. BC404726)

 

 

                        APPEAL
from an order of the Superior Court of Los Angeles County.   William F. Highberger, Judge.  Affirmed. 


 

                        Reuben
Raucher & Blum, Timothy D. Reuben, Stephen L. Raucher and Gregory P.
Barchie for Plaintiffs and Appellants.

 

                        Caldwell
Leslie & Proctor, David K. Willingham and Aron Ketchel; Kaplan Rice, Howard
J. Kaplan (pro hac vice) and Justin
M. Garbaccio (pro hac vice)> for Defendant and Respondent.

 

_____________________________

INTRODUCTION

            This
is an appeal from the trial court’s denial of a special motion to strike a
cross-complaint pursuant to Code of
Civil Procedure section 425.16.  Leaving
to one side the issue of whether the express href="http://www.fearnotlaw.com/">indemnity claim alleged in the
cross-complaint “arises from” constitutionally protected activity within the
meaning of the “anti-SLAPP” statute
(but assuming arguendo that it does), the cross-complainant satisfied its
burden to make a prima facie showing of facts sufficient to support a judgment
in its favor if the evidence supporting its claim is credited.href="#_ftn1" name="_ftnref1" title="">^[1] 
Accordingly, we affirm. 

FACTUAL AND PROCEDURAL SUMMARY

Retirement
Housing’s Fourth Amended Complaint

            In
its fourth amended complaint, Retirement
Housing Group Foundation and related entities (Retirement Housing) alleged
three breach of contract claims against Cain Brothers & Company, LLC (Cain
Brothers) based on an alleged “Financial Advisory Agreement,” which, according
to Retirement Housing, was comprised of Exhibits A through C attached to its
pleading.href="#_ftn2" name="_ftnref2"
title="">^[2]  Cain Brothers filed a demurrer to these
causes of action, and the trial court sustained the demurrer without leave to
amend, noting in its ruling that Retirement Housing’s prior pleadings and
attached exhibits demonstrated that “the only binding contract made was for
Cain [Brothers] to act as an underwriter to [Retirement Housing] to buy [its]
debt obligations for portfolio
and/or resale to others and that Cain [Brothers], as an underwriter to
[Retirement Housing], was in an adversarial relationship . . . and not a
financial adviser, as such, to [Retirement Housing]. . . .” 

            Retirement
Housing’s remaining claims against Cain Brothers were for negligence, negligent
misrepresentation, breach of fiduciary duty and constructive fraud.   Retirement Housing alleged Cain Brothers’
negligence in misrepresenting or failing to disclose information regarding the
purported misconduct of co-defendants ACA (mismanagement and underwriting of
risky, subprime mortgage-backed securities) and Lehman Brothers (bid-rigging,
price-fixing and related misconduct).href="#_ftn3" name="_ftnref3" title="">^[3]  The trial court directed Cain Brothers to
file an answer to these remaining claims. 
Cain Brothers answered and filed a cross-complaint for express
indemnity. 

Cain Brothers’
Cross-complaint for Express Indemnity

            In its
cross-complaint for express indemnity, Cain Brothers alleges:  “At their core, [Retirement Housing’s] claims
against Cain Brothers are based on the allegation that, until 2007, [it was]
kept in the dark about certain risks relating to ACA in connection with the
1998 ‘plan of refinancing.’  However,
numerous documents reveal that [Retirement Housing was] aware of precisely these
risks at all times—both at the time [it] entered the refinancing plan, and in
the years following.”  

            “Indeed,
[Retirement Housing] expressly discussed these risks in [its] Official
Statement for the 1998 refinancing, and agreed to indemnify Cain Brothers for
any expenses incurred if those representations were, or were alleged to be,
untrue or misleading. 

            “Specifically,
in connection with the issuance of the 1998 SAVRS, [Retirement Housing]
authorized an ‘Official Statement’ that included a detailed description of
precisely these risks.  Among other
things, the Official Statement represented that a downward revision or
withdrawal of the bond insurer’s ratings could adversely affect the market
price of the 1998 SAVRS; that the bond insurer ‘does not guaranty’ the ratings
on the 1998 SAVRS; that the Obligated Group’s costs [the “Obligated Group” was
defined in the Official Statement] could ‘increase significantly’ due to an ACA
downgrade; and that there was ‘no assurance’ that ACA’s credit rating (and thus
the SAVRS’ credit rating) would continue for any period of time.  A true and correct copy of the Official
Statement is attached hereto as Exhibit 1. 


            “The
Official Statement further provided that the Cain Brothers had no
responsibility to notify the holders of the SAVRS of any proposed changes in
such ratings.  ‘The Issuers, the
Obligated Group and the Underwriters have undertaken no responsibility either
to bring to the attention of Holders any proposed change in or withdrawal of
such rating or to oppose any such proposed revision or withdrawal.’  The Official Statement further reiterated
that ‘[a]ny such downward change in or withdrawal of the rating may have an
adverse effect on the market price of the 1998 SAVRS.’ (Ex. 1 at 90-91.)

            “In
the Certificate Purchase Agreement, which was executed in 1998, [Retirement
Housing] expressly agreed to indemnify Cain Brothers against ‘all losses,
claims, damages, liabilities or expenses,’ including legal expenses, caused by
any alleged untrue or misleading statement or material fact contained in the
Official Statement.  (F[ourth] A[mended]
C[omplaint,] Exhibit D § 10.)  

            “However,
[Retirement Housing’s] claims against Cain Brothers are based on the
proposition that, in fact, representations made in the Official Statement were
untrue.  That is, [Retirement Housing
has] taken the position that Cain Brothers was
required to obtain a guaranty of ACA’s credit rating; that ACA >was required to guaranty its rating;
that [it] did not know of risks
relating to ACA’s credit rating; and that [it] did not know of the consequences of an ACA ratings downgrade.  These propositions directly contradict the
express language of the Official Statement.

            “Whether
or not [Retirement Housing] ultimately prevail[s] on these claims, all cost
incurred by Cain Brothers in defending this action (and any damages for which
it may ultimately be held liable) are therefore attributable to ‘untrue
statements or misleading statements or alleged untrue statements or alleged
misleading statements’ of material fact in the Official Statement.

            “Consequently,
[Retirement Housing is] required by the C[ertificate ]P[urchase ]A[greement] to
indemnify Cain Brothers for all ‘losses, claims, damages, liabilities or
expenses’ incurred in defending this action, including all legal
expenses.” 

            Thereafter
in its cross-complaint, Cain Brothers recounted the chronology of events
following execution of the Certificate Purchase Agreement.  In December 1998, Cain Brothers alleged,
Retirement Housing entered into a “Swap Contract” with Lehman Brothers in order
to obtain a fixed rate on the SAVRS, and Lehman, as counterparty, accepted the
risk of fluctuations in the floating interest rate attached to the SAVRS as set
forth in the Official Statement. 
According to documents it produced, Retirement Housing discussed the
risks and possible consequences of a possible ACA downgrade with its board of
directors in 1998. 

            In
early 2001, Cain Brothers alleged, both Standard & Poors and Fitch placed
ACA on negative credit watch, indicating ACA’s capital levels were near or
below regulatory minimums and if it did not raise necessary capital, its credit
rating would be downgraded.  Retirement
Housing was aware of ACA’s ratings issues, its insufficient capital and its
plans to replace much of its municipal bond business with policies involving
mortgage-backed securities which carried higher default expectations.  At that time, Retirement Housing explored the
possibility of seeking a replacement or additional insurer in light of ACA’s
problems.

            In
2004, ACA was again placed on negative credit watch and Fitch downgraded ACA’s
credit rating.  Retirement Housing
experienced at least one failed auction and increased interest rate costs, held
extensive discussions regarding the consequences of ACA’s credit rating issues
in 2004 and 2005 and also expressed concerns about Lehman’s proprietary swap
valuation methodology, particularly in light of ACA’s rating difficulties and
the likely cost of terminating the swaps. 
In mid-2005, Cain Brothers alleged, Lehman informed Retirement Housing
the swaps had a negative valuation of $15.8 million, representing the cost to
terminate the swaps.  In late 2007 and
2008, Retirement Housing then sought to restructure the transaction and to
refinance the SAVRS.  Retirement Housing
then entered into a “New Swap Contract” with Lehman and in or about July 2008
completed the refinancing of the SAVRS. 
Two weeks later, Lehman declared bankruptcy and failed to make payments
under the New Swap Contract. 

            Cain
Brothers then summarized the procedural history of Retirement Housing’s action,
beginning with the filing of its original complaint in December 2008.  Initially, Cain Brothers was not named as a
defendant.  In its first amended
complaint, however, Retirement Housing added Cain Brothers, ACA and several
individuals associated with Lehman as defendants, alleging (among other things)
a “Proposal” Cain Brothers and two other firms submitted constituted a “written
Refinancing Agreement” between Retirement Housing and Cain Brothers.  By the time of its third amended complaint,

the trial court had ruled the “Proposal” created no
contract duties and did not give rise to a financial advisory relationship and
that the Certificate Purchase Agreement set forth only an underwriting
relationship and had not been breached. 
The court granted Retirement Housing’s request for leave to amend to
allege breach of an oral agreement giving rise to a financial advisory
relationship, but by June 2011, the trial court had sustained without leave to
amend all of Retirement Housing’s contract claims against Cain Brothers. 

            It
its cross-complaint, Cain Brothers denied it had caused or contributed to the
damages Retirement Housing alleged in its Fourth Amended Complaint, but if
found responsible for any part of Retirement Housing’s claimed damages, Cain
Brothers alleged it was entitled to indemnity, based on the express indemnity
provision set forth in the Certificate Purchase Agreement. 

            Retirement
Housing filed a special motion to strike, arguing Cain Brothers’
cross-complaint arose out of protected activity (Retirement Housing’s filing of
its fourth amended complaint) and Cain Brothers could not establish a
probability of prevailing on its claim for express indemnity.  (§ 425.16)

            Cain
Brothers filed a motion to conduct discovery (seeking to depose Dr. Laverne
Joseph, Retirement Housing’s CEO) pursuant to subsection (g) of section 425.16,
and the trial court granted the motion. 
Thereafter, Cain Brothers filed its opposition to Retirement Housing’s
special motion to strike. 

            After
hearing argument, the trial court denied Retirement Housing’s special motion to
strike, concluding not only that Retirement Housing had failed to carry its
initial burden to demonstrate that Cain Brothers’ indemnity cause of action
alleged in its cross-complaint arose from Retirement Housing’s protected
activity, but also determined Cain Brothers had demonstrated a probability of
prevailing on the merits of its indemnity claim.

            Retirement
Housing appeals. 

>DISCUSSION

Standard of Review and Applicable Law

            The anti-SLAPP statute is aimed at
curbing “lawsuits brought primarily to chill the valid exercise of the
constitutional rights of freedom of speech and petition for the redress of
grievances.”  (§ 425.16, subd. (a); >Jarrow Formulas, Inc. v. LaMarche (2003)
31 Cal.4th 728, 738-739 (Jarrow).)  The statute provides in relevant part:  “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 or 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).)  An act
“in furtherance of” the right to petition includes “any written or oral
statement or writing made before a . . . judicial proceeding”; “any written or
oral statement or writing made in connection with an issue under consideration
or review by a . . . judicial body . . .”; and any “conduct in furtherance of
the exercise of the constitutional right of petition . . . .”  (§ 425.16, subd. (e)(1), (2), (4).)  The anti-SLAPP statute applies to
cross-complaints as well as to complaints. 
(§ 425.16, subd. (h); Jarrow,
supra, 31 Cal.4th at p. 735, fn. 2.)

            There are two components to a motion
to strike brought under section 425.16. 
Initially, the party challenging the lawsuit has the threshold burden to
show that the cause of action arises from an act in furtherance of the right of
petition or free speech.  (>Zamos v. Stroud (2004) 32 Cal.4th 958,
965; Equilon Enterprises v. Consumer
Cause, Inc. (2002) 29 Cal.4th 53, 67.) 
Once that burden is met, the burden shifts to the complaining party to
demonstrate a probability of prevailing on the claim.  (Zamos
v. Stroud, supra, 32 Cal.4th at p. 965; City
of Cotati v. Cashman (2002) 29 Cal.4th 69, 76 (City of Cotati).)  To satisfy
the latter prong, 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; see also DuPont Merck Pharmaceutical Co. v. Superior Court (2000) 78
Cal.App.4th 562, 568 [to establish a probability of prevailing, a plaintiff
must substantiate each element of the alleged cause of action through
competent, admissible evidence].)  “Only
a cause of action that satisfies both prongs of the anti-SLAPP statute--i.e.,
that arises from protected speech or petitioning and lacks even minimal
merit--is a SLAPP, subject to being stricken under the statute.”  (Navellier
v. Sletten (2002) 29 Cal.4th 82, 89.)

            We independently review the record
to determine both whether the asserted causes of action arise from the
defendant’s (or cross-defendant’s) free speech or petition activity, and, if
so, whether the plaintiff (or cross-complainant) has shown a probability of
prevailing.  (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269,
fn. 3; HMS Capital, Inc. v. Lawyers Title
Co. (2004) 118 Cal.App.4th 204, 212.) 


 

 

            Retirement Housing appeals from the
trial court’s denial of its motion to strike Cain Brothers’ cross-complaint for
indemnity, noting the trial court initially concluded the indemnity claim
involved protected activity.  In deciding
to grant Cain Brothers’ request to conduct discovery (the deposition of Dr.
Laverne Joseph, Retirement Housing’s CEO) as to the second prong of section
425.16, the trial court observed the indemnity claim followed closely in time
after the filing of Retirement Housing’s complaint and, presented with no
authority to the contrary, concluded the first prong of section 425.16 had been
met.  In ruling on the merits of the
special motion to strike, however, the trial court determined (1) Retirement
Housing had failed to meet its initial burden to demonstrate that the
cross-complaint’s indemnity claim arose from activity protected by section
425.16 and also concluded (2) Cain Brothers had carried its burden to establish
a probability of prevailing on the merits of its express indemnity claim such
that the special motion to strike was properly granted on either independent
ground.

            Because a claim is subject to being
stricken pursuant to section 425.16 if and only if both prongs of the
anti-SLAPP statute are satisfied—meaning the claim: (1) arises from protected
speech or petitioning and (2) lacks
even minimal merit (Navellier v. Sletten,
supra, 29 Cal.4th at p. 89), we assume for the sake of Retirement Housing’s
argument on appeal that it satisfied its burden of proof as to this first prong
of the statute and address the issue of whether Cain Brothers satisfied its
burden on the second prong. 

            If a challenged cause of
action arises from protected petitioning activity, a court ruling on an
anti-SLAPP motion then “‘determines whether the plaintiff [or
cross-complainant] has demonstrated a probability of prevailing on the
claim.’”  (Jarrow, supra, 31 Cal.4th at p. 741, citation omitted; >Navellier v. Sletten, supra, 29 Cal.4th
at p. 93 [to withstand a special motion to strike, a plaintiff must demonstrate
that the claims are legally sufficient]; Grewal
v. Jammu (2011) 191 Cal.App.4th 977, 989 [same].)  The plaintiff must also present competent
admissible evidence sufficient to overcome any privilege or defense to the
claim asserted by the defendant.  (>Flatley v. Mauro (2006) 39 Cal.4th 299,
323 (litigation privilege Civil Code § 47, subd. (b)).)  The plaintiff must show there is admissible
evidence that, if credited, would be sufficient to sustain a favorable
judgment, similar to but not identical to the burden in opposing a summary
judgment motion.  (McGarry v. University> of San
Diego (2007) 154
Cal.App.4th 97, 108; and see Weil & Brown, Cal. Prac. Guide: Civ. Proc.
Before Trial, supra, ¶ 7:1021.5, pp.
7(II)-56 to 7(II)-57.)  The court does
not weigh credibility or compare relative strength of the evidence.  The court considers defendant’s evidence only
to determine if it defeats plaintiff’s showing as a matter of law.  (Soukup
v. Law Offices of Herbert Hafif, supra, 39 Cal.4th at p. 291; >Integrated Healthcare Holdings, Inc. v.
Fitzgibbons (2006) 140 Cal.App.4th 515, 522; Overstock.com, Inc. v. Gradient Analytics, Inc. (2007) 151
Cal.App.4th 688, 699-700.) 

            In this case, the basis for Cain
Brothers’ indemnity cause of action was Retirement Housing’s alleged refusal to
honor its contractual obligations.  Cain Brothers’
burden was to make a prima facie showing of facts supporting its claim for
express indemnity, a cause of action which has three elements: (1) the
existence of a valid contract for indemnity; (2) Cain Brothers’ performance of
the contract’s provisions giving rise to the indemnity claim and (3) a loss for
which Cain Brothers is entitled to indemnification.  (Four
Star Elec., Inc. v. F & H Constr. (1992) 7 Cal.App.4th 1375,
1380.) 

            In its cross-complaint, Cain
Brothers sought indemnity from Retirement Housing pursuant to the express
indemnity provision set forth in the Certificate Purchase Agreement.  According the allegations of Cain Brothers’
cross-complaint, Retirement Housing’s claims against Cain Brothers are based on
allegations Cain Brothers was required to obtain a guaranty of ACA’s credit
rating; ACA was required to guaranty its rating; Retirement Housing did not
know of risks relating to ACA’s credit rating; and Retirement Housing did not
know the consequences of an ACA ratings downgrade.  According to Cain Brothers’ allegations in
its cross-complaint, these allegations in Retirement Housing’s fourth amended
complaint directly contradict the express language of the Official Statement
and therefore Retirement Housing’s entire case is premised on the allegation
that representations in the Official Statement are false.  Quoting the Certificate Purchase Agreement,
Cain Brothers says Retirement Housing agreed to “‘indemnify and hold harmless’
Cain Brothers ‘against any and all losses, claims, damages, liabilities or
expenses (including legal or other expenses incurred by it in connection with
investigating any claims against it and defending any actions) whatsoever
caused by any untrue statement or misleading statement or alleged untrue statement or
alleged misleading statement of material fact contained in the Official
Statement  . . . .’  ([Fourth ]A[mended C[omplaint,] Exhibit D §
10 (emphasis added).)”  According to Cain Brothers, it follows that
Retirement Housing must indemnify Cain Brothers for all costs relating to its
defense against these allegations that representations of material fact in the
Official Statement were untrue or misleading, and, in fact, “Cain Brothers’
defense relies largely on the very facts set forth in the Official Statement
regarding the risks and consequence of an ACA downgrade, and [Retirement
Housing’s] knowledge of these facts.” 
Cain Brothers presented evidence of considerable attorney fees and other
expenses incurred in defending against Retirement Housing’s claims. 

            Retirement Housing’s position is
that the express indemnity provision should not apply under the circumstances
of this case.  Relying on a notice
provision in section 10(b), notwithstanding the apparent breadth of the
indemnity provision of section 10(a) itself (that “to the extent permitted by
law[,]” Retirement Housing agreed to indemnify Cain Brothers in “defending any
actions whatsoever”), Retirement Housing argues the indemnity provision is
limited to third party claims.  California law is to the contrary.  “[T]he California Supreme Court has defined
‘indemnity’ as the obligation resting on one party to make good a loss or
damage another party has incurred.’ 
[Citation.]  This definition is >not limited to third party claims . . .
.  Civil Code section 2772 ‘plainly
states that indemnity may apply to either direct or third party claims.’”  (Zalkind
v. Ceradyne, Inc. (2011) 194 Cal.App.4th 1010, 1024, citing >Rossmoor Sanitation, Inc. v. Pylon Inc.
(1975) 13 Cal.3d 622, 628, italics added, further citations omitted.)

 

            Moreover, to the extent Retirement
Housing cites section 10(b) in furtherance of its argument that that section
constitutes an exception to the indemnity contemplated under section 10(a), it
necessarily identifies a disputed question of fact at best.  When Retirement Housing’s CEO (Joseph) was
deposed, he did not identify any representation in the Official Statement as
one made by Retirement Housing “in reliance upon or in conformity with written
information furnished  . . . by the Underwriters
specifically for use therein” such that any exception should apply; in fact, he
had no recollection of receiving any written information from Cain Brothers or
having any conversations with Cain Brothers in this regard at all.  He actually testified he “[did] not know” if
Retirement Housing’s own counsel (Latham and Watkins) had prepared the Official
Statement he (Joseph) signed and adopted on behalf of Retirement Housing, and
he also testified the documents were “so complicated” he was not sure “>anybody [a]t R[etirement ]H[ousing]”
understood them.  (Italics added.)  Retirement Housing’s arguments that the
indemnity provision should not apply (because it is Cain Brothers’ fault ACA
failed to guaranty its rating, it (Retirement Housing) did not know of the
risks relating to ACA’s credit rating because Cain Brothers should have, but
did not, disclose them and it is Cain Brothers’ fault it (Retirement Housing)
did not know the consequences of a ratings downgrade)) contradict the express
language of the Official Statement.  

            Accordingly, Cain Brothers
demonstrated that its indemnity cause of action (the only cause of action
alleged in the cross-complaint) had at least “minimal merit” and therefore was
not subject to a special motion to strike. 
(Navellier v. Sletten, supra, 29
Cal.4th at p. 89.) 

            Accordingly,
the trial court’s order is properly affirmed. 


 

 

 

 

DISPOSITION

 

            The
order is affirmed.  Cain Brothers is to
recover its costs on appeal.

 

 

 

 

 

                                                                                                                        >WOODS, J.

 

We
concur:

 

 

 

                        PERLUSS, P. J.

 

 

 

                        SEGAL, J.href="#_ftn4" name="_ftnref4" title="">^*