Wall v. Dillard

Filed 3/3/08 Wall v. Dillard CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County,
James A. Kaddo, Judge. Affirmed.

Kellman Hoffer, Barry D. Kellman and Daniel P. Hoffer for Plaintiffs and Appellants.

Picker, Chow & Freisleben, Chow & Freisleben and Kyle Kubisch; Fellers, Snider, Blankenship, Bailey & Tippens, Mark K. Stonecipher, Brent M. Johnson and Jay P. Walters for Defendants and Respondents.

___________________________

INTRODUCTION

In this case, the trial court found that an allegedly defamatory email was privileged pursuant to Civil Code section 47(b) (section 47(b)). We agree and affirm the judgment in favor of defendants and respondents.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Parties and Non-Parties

Plaintiff and appellant Bob Wall (Wall) is the president and CEO of World Black Belt, Inc. (WBB). WBB is involved with the martial arts business.

Defendant and respondent Mike Dillard (Dillard) is the CEO of defendant and respondent Century Martial Art Supply, Inc. (Century). Century is in the business of marketing and selling goods in the martial arts industry.

Non-party National Association of Professional Martial Artists (NAPMA) is a competitor of Century in the martial arts industry. International IKON, Inc. (IKON) is affiliated with NAPMA and is also a competitor of Century. Non-party John Graden (Graden) is the CEO of NAPMA and IKON.

2. The Trademark Dispute Between WBB and Century

WBB applied to the United States Patent and Trademark Office to register Blackbelt as a trademark in relation to providing credit services. Century opposed the trademark application. This shall be referred to as the trademark dispute.

In October 2001, WBB and Century entered into a written settlement agreement of the trademark dispute. WBB agreed to pay Century $18,000 in consideration for Century dismissing its opposition to the trademark registration and transferring its interest in the trademark to WBB. Dillard executed the agreement in behalf of Century.

The settlement agreement contained a confidentiality provision, which provided: The terms of this settlement agreement are and will remain confidential, except that the parties may disclose the terms of this agreement pursuant to a valid subpoena or court order for accounting purposes, but in all such instances the parties shall make the recipient of the information aware of its confidential nature and take all reasonable steps to prevent any further disclosure. Other than as provided in the previous sentence, the parties agree that neither will disclose the terms hereof or make any public statement or otherwise publicize this agreement, except that either party may indicate in substance that the matter has been settled and that it is satisfied by virtue of the settlement.

3. The Oklahoma Litigation Between Century and NAPMA

In 2001, Century sued NAPMA in Oklahoma alleging that NAPMA disparaged Century and its products (the Oklahoma litigation). In 2002, Century added IKON as a party.

In February 2003, Graden, the CEO of NAPMA and IKON, sent an email to defendant Dillard, the CEO of Century. There, Graden proposed settling the Oklahoma litigation. Graden wrote in part: Not long ago, Bob Wall was suing me and very angry with me. Every single communication between us was between attorneys or third parties. In one short meeting, we resolved everything and are now working together on different projects. You and I have invested a tremendous amount of resources to do everything but talk. [] . . . [] If we can sit down together, man-to-man, maybe there is a scenario that could be better than the current situation. [] . . . [] I have some very specific ideas that I think you would find interesting and well worth considering. If you prefer[,] no one has to know we are meeting.

On February 26, 2003, Dillard responded to Graden by email as follows: Funny thing about Bob Wall, last time he and I communicated thru an attorney (settling a lawsuit), he wrote me a check for six figures and started telling people he won the lawsuit. I guess he has a different definition of winning than most of the rest of us. Anyway thats an aside from your e-mail I thought Id share with you. Also, maybe the old saying no one wins but the attorneys is accurate. Im open to hearing what your specific ideas are. Perhaps a non-committal outline would be a good idea. Not to show up in court by prior agreement.

On July 30, 2003, following a jury trial, the Oklahoma court entered judgment in favor of Century in the approximate amount of $1.9 million.

4. WBB Attempts to Purchase NAPMA/IKON

In August 2003, plaintiffs Wall and WBB attempted to negotiate a purchase of NAPMA and IKON. On September 9, 2003, NAPMA and IKON filed for Chapter 11 bankruptcy.

On February 19, 2004, the bankruptcy court conducted an auction of the assets of NAPMA and IKON. Century and WBB bid at the auction. Century won the auction with a $1.66 million bid.

5. The Present Litigation

On February 25, 2004, Wall and WBB sued Dillard and Century for libel, unfair business practices and breach of contract. Plaintiffs alleged that Dillards February 26, 2003, email to Graden stated untrue facts that there was a lawsuit between WBB and Century; that Wall wrote a check to Dillard; that the check was a six figure amount and that Wall had told people he won the lawsuit. Plaintiffs alleged that the true facts were that WBB paid Century $18,000 (not by check) to settle the trademark dispute (not a lawsuit), and that Wall never paid Dillard or Century a six figure amount, but instead only $18,000.

Plaintiffs also alleged that the purpose of Dillards email to Graden was to prevent plaintiffs from entering into a contractual or business relationship with Graden. Plaintiffs also alleged that Dillard breached the settlement agreement in the trademark dispute by disclosing confidential terms of the settlement in violation of the confidentiality provision quoted above.

Defendants filed an answer. There, defendants alleged that Dillards statements to Graden were privileged and that the action was barred pursuant to section 47(b).

6. Defendants Motion for Summary Adjudication/Summary Judgment

Defendants filed a motion for summary judgment/summary adjudication. Defendants asserted that Dillards February 26, 2003, email was a privileged litigation communication pursuant to section 47(b) because it was made during settlement negotiations of the Oklahoma litigation.

7. Trial Court Grants Defendants Motion for Summary Adjudication

On February 23, 2006, the trial court granted defendants motion for summary adjudication as to plaintiffs causes of action for libel and unfair business practice. The trial court ruled that the February 26, 2003 email from Dillard to Graden was privileged pursuant to section 47(b). The trial court denied defendants motion as to plaintiffs third cause of action for breach of contract.

8. Trial Court Grants Defendants Motion In Limine and Enters Judgment

On June 20, 2006, the trial court granted defendants motion in limine to exclude from trial the February 26, 2003 email from Dillard to Graden on the basis that it was protected by the section 47(b) litigation privilege.

The court noted that plaintiffs could proceed on the breach of contract cause of action if plaintiffs could establish a breach independent of the privileged email. Plaintiffs counsel advised the court that plaintiffs did not have any other evidence to support the third cause of action for breach of contract. The court then dismissed plaintiffs breach of contract action and entered judgment for defendants. The court also dismissed Dillard on the basis that Dillard was not a party to the settlement agreement of the trademark dispute. Plaintiffs timely filed a notice of appeal.

CONTENTIONS

Plaintiffs contend that the trial court erred as a matter of law by concluding that Dillards February 26, 2003, email was a privileged communication pursuant to section 47(b). Plaintiffs further assert that the trial court erred by granting summary adjudication of the causes of action for libel and unfair business practices. Plaintiffs also assert that the trial court erred by granting defendants motion in limine to exclude the February 26, 2003, email from trial.

STANDARD OF REVIEW

This court reviews de novo a trial courts grant of summary judgment. (Carlton v. Quint (2000) 77 Cal.App.4th 690, 698-699.) A defendant moving for summary judgment must show that either one or more elements of the plaintiffs cause of action cannot be established, or that there is a complete defense to that cause of action. (Code Civ. Proc., 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826.)

DISCUSSION

Plaintiffs claim the trial court erred by ruling that Dillards statements in the February 26, 2003, email were privileged pursuant to section 47(b). We disagree and affirm the judgment.

Civil Code section 47 provides in pertinent part: A privileged publication or broadcast is one made: [] . . . [] (b) In any . . . (2) judicial proceeding.

In Silberg v. Anderson (1990) 50 Cal.3d 205 (Silberg), the California Supreme Court explained the following: [T]he privilege prescribed by section [47(b)] has been given broad application. Although originally enacted with reference to defamation [citation], the privilege is now held applicable to any communication, whether or not it amounts to a publication [citations], and all torts except malicious prosecution. [Citations.] Further, it applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved. [Citation.] [] The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action. (Silberg, at pp. 211-212.)

The Silberg court stated that section 47(b) was  the backbone to an effective and smoothly operating judicial system.  (Silberg, supra, 50 Cal.3d at p. 215.) The court explained that [t]he principal purpose of section [47(b)] is to afford litigants and witnesses [citation] the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. (Silberg, at p. 214.) The court also noted that section 47(b) promotes effective judicial proceedings because it encourages open channels of communication and ensures freedom of communication between citizens and public authorities. (Silberg, at p. 213.)

Thus, according to the Silberg court, [t]o effectuate its vital purposes, the litigation privilege is held to be absolute in nature. (Silberg, supra, 50 Cal.3d at p. 215.) Moreover, in light of the absolute nature of the privilege, [a]ny doubt as to whether the privilege applies is resolved in favor of applying it. (Adams v. Superior Court (1992) 2 Cal.App.4th 521, 529.) In Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232 (Action Apartment), the Supreme Court explained: In order to achieve this purpose of curtailing derivative lawsuits, we have given the litigation privilege a broad interpretation. (Id. at p. 1241.)

In this case, the trial court did not err by concluding that Dillards February 26, 2003, email to non-party Graden was privileged under section 47(b). In reaching this conclusion, we apply the four-part test enunciated in Silberg.

First, Dillards email to Graden was made in a judicial proceeding during the Oklahoma litigation between Century and NAPMA and IKON. Second, the email was authored by Dillard, a litigant in that proceeding. Third, the email shows that it was made to achieve the objects of the litigation and to assist Dillard with achieving a favorable settlement of the claims at issue in that litigation. Fourth, the email had some connection or logical relation to the Oklahoma action. It was directly related to settling the action and procuring a favorable settlement.

Plaintiffs respond that the litigation privilege does not apply because plaintiffs were not parties to the Oklahoma litigation. We reject this argument. In Action Apartment, the court stated: While the Legislature remains free to create exceptions to the litigation privilege, for parties to the underlying litigation and others, we decline to recognize a broad exception to the litigation privilege for any party who did not participate in the underlyinglitigation. An exception to the litigation privilege for all suits brought by parties who were not involved in the underlying litigation would be antithetical to the privileges purposes. We have observed that an external threat of liability is destructive of [the] fundamental right [of access to judicial and quasi-judicial proceedings] and inconsistent with the effective administration of justice. [Citation.] The litigation privilege is meant to protect more than the parties to a lawsuit from derivative suits that they might later bring against each other. Derivative litigation brought by parties who did not participate in the underlying litigation, like litigation brought by parties who did participate, would pose an external threat of liability that would deter potential litigants, witnesses, and others from participating in judicial proceedings. (Action Apartment, supra, 41 Cal.4th at pp. 1247-1248, italics added.)^[1]

Thus, based on Action Apartment, we reject plaintiffs assertion that they may sue Dillard and Century for an otherwise privileged communication because plaintiffs were not parties to the Oklahoma litigation.

Plaintiffs also assert that the February 26, 2003, email is not privileged because it had no logical relationship to the Oklahoma litigation under the fourth prong of the Silberg test. Plaintiffs assert that the email does not have a logical relationship to the Oklahoma litigation because it contains gratuitous (and false) observations about an unrelated topic [the trademark dispute] involving an unrelated individual [plaintiff Wall]. We reject plaintiffs assertion.

The section 47(b) privilege is not limited to communications made during a trial or other proceeding, but also extends to communications made prior to trial or during other proceedings. (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057.) If the questioned communication has a reasonable relation to the action and is permitted by law, the privilege applies. (Albertson v. Raboff (1956) 46 Cal.2d 375, 381.)

In Silberg, the court stated: The [third] requirement that the communication be in furtherance of the objects of the litigation is, in essence, simply part of the [fourth] requirement that the communication be connected with, or have some logical relation to, the action, i.e., that it not be extraneous to the action. A good example of an application of the principle is found in the cases holding that a statement made in a judicial proceeding is not privileged unless it has some reasonable relevancy to the subject matter of the action. [Citations.] The furtherance requirement was never intended as a test of a participants motives, morals, ethics or intent. (Silberg, supra, 50 Cal.3d at pp. 219-220.)

Plaintiffs assertion that we focus upon the isolated comments in the February 26, 2003, email for determining whether the communication was sufficiently related to the Oklahoma litigation is contrary to California law. In Sacramento Brewing Co. v. Desmond, Miller & Desmond (1999) 75 Cal.App.4th 1082, the court explained: [I]t is the subject matter or context of the misstatement, not the isolated misstatement itself, which must control whether a communication has some connection or logical relation to the action. [Citation.] Otherwise, testimony by a witness could be shorn of its privilege where the witness misnames an unrelated person or business, resulting in defamation. In short, if the misstatement alone had to be logically related to the action, many misstatementswhich are, by definition, falsewould not be so related. In contrast, when it is the subject matter or context of the misstatement made in the judicial proceeding that must be logically related to the action, the existence of a logical relation between the two can be determined without considering the falsity of the communication. And it would be a poor privilege indeed that required the truth of the allegedly defamatory communication to be determined in order to determine the privileges application. By looking at the subject matter or context of the communication, the falsity of the communication need not be considered to invoke the privilege. (Id. at pp. 1089-1090.)

Under this test and the mandate from Silberg that section 47(b) is to be given broad application, we conclude that Dillards February 26, 2003, email to Graden was logically related to the Oklahoma litigation. The email was written in response to an email from Graden seeking to initiate settlement discussions. Gradens email describes the contentious litigation between Wall and Graden and describes how they worked together to resolve the litigation in one short meeting. Gradens email then suggests that Graden and Dillard follow this same course of action in the Oklahoma litigation and suggests that the parties explore a meeting of the minds. In other words, Gradens email was an attempt to convince Dillard to engage in settlement discussions.

Likewise, the subject matter or context of Dillards response was also related to the proposed settlement discussions. Dillard expressed a willingness to have such discussions. Dillard also responded to Gradens mention of Wall by reciting his own involvement with Wall during the trademark dispute.

In addition, California courts have held that factual misstatements made during settlement discussions relating to the settlement negotiations are privileged under section 47(b). (Navarro v. IHOP Properties, Inc. (2005) 134 Cal.App.4th 834, 845 [allegedly fraudulent statements made during settlement negotiations were privileged, thus barring fraud action]; and Home Ins. Co. v. Zurich Ins. Co. (2002) 96 Cal.App.4th 17, 24 [counsels misstatement of policy limit during settlement negotiation was privileged, thus barring fraud action.].)

The cases cited by plaintiffs do not alter the above conclusion that the February 26, 2003, email was sufficiently related to the Oklahoma litigation to invoke the protections of section 47(b). In Nguyen v. Proton Technology Corp. (1999) 69 Cal.App.4th 140 (Nguyen), the court addressed the issue of whether statements made in a pre-civil litigation demand letter were privileged. There, the court held that untrue statements in such a communication that an individual served time in prison for beating his wife were not logically connected to the unfair competition claim in the demand letter. (Id. at p. 151.)

By contrast, in the present case, what Dillard did was engage in settlement puffery during ongoing litigation. He did not accuse defendant Wall of committing a crime. Instead, he overinflated a settlement amount and accused Wall of inappropriately telling people that he (Wall) had won the trademark dispute. Moreover, Dillard was responding to Gradens statements regarding his experience with defendant Wall by relaying his own (Dillards) experience with Wall. Dillards statements to Graden are far more related to the Oklahoma litigation than the statements made in the Nguyen case were to the unfair competition claims at issue in that litigation.

Likewise, the second case cited by plaintiffs, Rothman v. Jackson (1996) 49 Cal.App.4th 1134 (Rothman), does not alter the conclusion that Dillards February 26, 2003, email was sufficiently related to the Oklahoma litigation to be privileged pursuant to section 47(b). In Rothman, a psychological report concerning whether Michael Jackson had committed torts against a boy was released to the press. The defendants, including Michael Jackson and his attorneys, responded to the corresponding negative publicity by accusing the plaintiffs attorney of knowingly making false accusations against Michael Jackson to extort money. (Rothman, at pp. 1138-1139.) The court held that such statements were not privileged pursuant to section 47(b) because the statements were not logically related to the litigation. (Rothman, at p. 1146.)

The Rothman court distinguished such communications accusing a person of felony criminal activity made during a press conference from communications between litigants which are directed towards settlement. The court stated: Public mudslinging, while a less physically destructive form of self-help than a public brawl, is nevertheless one of the kinds of unregulated and harmful feuding that courts and their processes exist to prevent. It would be counterproductive to afford to it the same protections which section 47, subdivision (b) gives to court processes. (Rothman, supra, 49 Cal.App.4th at p. 1146.) About settlements, the Rothman court stated: Stated another way, if Silbergs furtherance test is to serve its purpose, the test can be satisfied only by communications which function intrinsically, and apart from any consideration of the speakers intent, to advance a litigants case. . . .  Likewise, the test is satisfied by demand letters and like communications between litigants or their attorneys which are directed toward settlement of a pending or anticipated lawsuit. (Id. at p. 1148.)

In the present case, Dillard did not conduct a press conference. He did not accuse Wall of committing a crime. His statements were made in a context directed towards pursuing settlement discussions. Thus, pursuant to Rothman, Dillards statements during the email settlement discussions were intended to advance his case, and therefore were sufficiently related to the Oklahoma litigation to invoke the protection of section 47(b).

Finally, plaintiffs assert that a cause of action for breach of contract is not subject to the section 47(b) litigation privilege. We disagree. The February 26, 2003, email was privileged pursuant to section 47(b) and the trial court properly granted defendants motion in limine. This was plaintiffs only evidence supporting the breach of contract cause of action. Thus, because the email was not admissible, plaintiffs cause of action necessarily failed.

Moreover, in Wentland v. Wass (2005) 126 Cal.App.4th 1484, the court explained that whether the litigation privilege applies to an action for breach of contract turns on whether its application furthers the policies underlying the privilege. (Id. at p. 1492.) In this case, application of the privilege furthers the policy underlying the privilege. As explained in Silberg, one of the primary policies underlying the privilege is to avoid an unending roundelay of litigation. (Silberg, supra, 50 Cal.3d at p. 214.)

Plaintiffs complain that Dillards email to Graden contained inaccurate factual statements, including the statements that Wall or WBB paid Dillard a six figure sum by check to settle the trademark litigation and that Wall was representing to persons that he won the lawsuit. Basing a superior court lawsuit on these allegedly defamatory statements is the type of roundelay litigation the privilege was designed to prevent.

In conclusion, Dillards February 26, 2003, email to Graden is privileged pursuant to section 47(b). The trial court did not err by granting summary adjudication of the causes of action for libel and unfair business practice. In addition, the trial court did not abuse its discretion by granting defendants motion in limine to preclude introduction of the email into evidence at trial. Because plaintiffs had no other evidence to support the cause of action for breach of contract, the trial court did not err by entering a dismissal of the breach of contract cause of action.

DISPOSITION

The judgment is affirmed. Defendants Dillard and Century are awarded costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KITCHING, J.

We concur:

CROSKEY, Acting P. J.

ALDRICH, J.

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^[1] Plaintiffs rely upon two cases in making the argument that the litigation privilege does not apply because plaintiffs were not parties to the Oklahoma litigation. (See American Products Co., Inc. v. Law Offices of Geller, Stewart & Foley, LLP (2005) 134 Cal.App.4th 1332, and Kashian v. Harriman (2002) 98 Cal.App.4th 892.) Given the unequivocal holding in Action Apartment, that the privilege does apply, we conclude that the cases cited by plaintiffs are irrelevant.