Gulsvig v. Philipson & Simon

Filed 2/24/10 Gulsvig v. Philipson & Simon CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from an order of the Superior Court of Orange County, Kirk H. Nakamura, Judge. Affirmed.

Grannan Law Office and Patrick J. Grannan for Cross-defendant and Appellant.

Law Offices of Briggs & Alexander and Brian Charles Ostler, Sr., for Cross-Complainant and Respondent.

The law firm of Philipson and Simon (Philipson) appeals from the denial of its special motion to strike Lori Gulsvigs second amended cross-complaint as a strategic lawsuit against public participation or SLAPP suit.^[1] Philipson argues Gulsvigs second amended complaint, which alleges that Philipson breached its fiduciary duty of loyalty to her its former client when it encouraged a third party to challenge her entitlement to the proceeds of the very case in which Philipson had been representing her (allegedly for the purpose of gaining an advantage in its own fee dispute with Gulsvig), necessarily arises out of petitioning activity as defined by the anti-SLAPP law. We disagree, and thus need not address Philipsons contention that Gulsvig also failed to demonstrate a probability of prevailing on her claim.

A clients claim against her attorney for breach of loyalty does not necessarily arise out of petitioning activity for purposes of the anti-SLAPP law, just because the breach results in the initiation of additional litigation. The claim arises out of the disloyalty itself, which is wrongful without regard to whether it results in further litigation. And such litigation, if it occurs, is merely a consequence rather than the gravamen of that breach.

The order is affirmed.^[2]

FACTS

This is the second appeal arising from pleading disputes in this case. In our prior opinion, we summarized the rather complicated background facts from the various pleadings, and we repeat that summary here: Gulsvig was a shareholder, officer and employee of California Shirt Sales, Inc., a California Corporation (CSS California.) In March of 1997, CSS California entered into an agreement with Tultex, Inc., pursuant to which CSS California sold assets to Tultex. Tultex formed a Virginia corporation, also called California Shirt Sales, Inc. (CSS Virginia) for the purpose of owning those assets.

Prior to the asset sale, CSS California had an account receivable, owed by a company called Color Spot, and hired . . . the law firm of Philipson & Simon, to collect it. Although Philipson was able to obtain a judgment against Color Spot on behalf of CSS California, that judgment was later determined to be uncollectible. According to Gulsvig, CSS California receivables which had been charged off (including the Color Spot judgment) at the time of the sale to Tultex were not included in the sale, and remained the property of CSS California.

After the sale, Gulsvig became an employee of Tultex for a period of time. Similarly, Philipson was engaged to collect accounts on behalf of Tultex.[^[3]] In late 1999 or early 2000, Gulsvig left her employment with Tultex, and formed a new business, Sundog, International, Inc. She retained Philipson to perform legal services on behalf of herself and Sundog. Among those services were renewed efforts to collect the Color Spot judgment.

Approximately two years later, in October of 2001, Philipson obtained a settlement of the Color Spot judgment. The total amount to be paid by Color Spot was $85,000, of which $15,000 was designated as attorney fees. Philipson remitted $70,000 of the funds to Gulsvig, and made clear its intention to keep the remaining $15,000 for itself. Gulsvig contested Philipsons right to the $15,000, and filed a request for fee arbitration with the Orange County Bar Association.

After Gulsvig filed her arbitration request, Philipson informed her that it questioned her right to retain any part of the settlement funds, and further that Campbell Advisors, P.C. (the plaintiff in this case) had asserted its own claim to the funds as successor in interest to Tultex. In January of 2003, Philipson requested that Gulsvig remit back to it the $70,000 she had already received from the Color Spot settlement, and offered to retain those funds in its trust account pending a determination of which party was entitled to them.

[] . . . [] When Gulsvig did not accede to Philipsons request that she return the settlement funds she had already received, it threatened her with a lawsuit [on behalf of Campbell], and even provided her with a proposed complaint purportedly drafted and signed by one Patrick J. Grannan, Esq. of the Grannan Law Office. The complaint accused Gulsvig of breach of contract, conversion and fraud, and sought damages stemming from her retention of settlement funds which allegedly belonged to Campbell. . . .

Approximately three months later, Philipson itself (through Jeffrey Simon), then acting as counsel for Campbell, filed what appears to be a word-for-word copy of the Grannan complaint against Gulsvig.

Gulsvig responded with a demurrer and a motion to disqualify Philipson from further representing Campbell. [Philipson voluntarily withdrew from the representation prior to the hearing on Gulsvigs motion.] Gulsvig also filed a cross-complaint against Philipson, alleging causes of action for breach of fiduciary duty, negligence, breach of contract and conversion. In substance, Gulsvig alleged that Philipson had breached its fiduciary duty to her, and acted negligently, by failing to ascertain who owned the Color Spot judgment prior to collecting it on her behalf, and then acting on behalf of Campbell in attempting to retrieve it from her. Gulsvig also alleged that Philipson breached its contract with her, and committed a conversion, by retaining $15,000 of the proceeds of the Color Spot judgment.

Philipson represented by the same Patrick Grannan who purportedly drafted (but did not file) the complaint against Gulsvig for Campbell then filed its own cross-complaint against Gulsvig. [^[4]] (Philipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 352-354.)

In the prior appeal, we determined that the second amended version of Philipsons cross-complaint against Gulsvig fell within the purview of the anti-SLAPP law, and directed that two of the causes of action stated therein be stricken. In the meantime, Gulsvig filed amended versions of her own cross-complaint, including the second amended cross-complaint at issue in this appeal.

In that second amended cross-complaint, Gulsvig alleged that in retaliation for [her] disputing [Philipsons] claim for the $15,000 fee, Philipson breached its fiduciary duty to her by disclosing confidential information to Tultex and/or its subsidiary and/or its purported assignee Campbell Advisors, P.C. (CAMPBELL), the plaintiff in this action, and by acting as counsel for Tultex and/or its subsidiary and/or its purported assignee CAMPBELL, in connection with the Color Spot Judgment. She further alleged that Philipson had breached its duty of loyalty to her by act[ing] as the attorneys for CAMPBELL against [Gulsvig], their former client on that same transaction and legal matter, seeking repayment of the $70,000 paid to [Gulsvig.]

Gulsvig asserted that as a result of Philipsons breaches, she had been forced to incur fees and expenses defending Campbells claim for the Color Spot settlement funds; and that absent Philipsons misconduct, Campbell would never have asserted such a claim.

Gulsvigs factual allegations concerning Philipsons retaliation and breach of loyalty are incorporated into and form the basis of her causes of action for breach of fiduciary duty, negligence, and breach of contract.^[5]

Philipson filed various challenges to Gulsvigs second amended cross-complaint, including a special motion to strike pursuant to the anti-SLAPP law. In its motion, Philipson argued the gravamen of Gulsvigs second amended cross-complaint was that [Philipson] filed a lawsuit on behalf of [Campbell] against [her], and that her claims [were] based upon an alleged disclosure of confidential communications, representation of multiple parties, and failing to determine who owned the [Color Spot] Judgment, which allegedly caused [Campbell] to file a Complaint against [her]. Philipson argued that all of these alleged acts were in furtherance of its right of petition, as they each related to its filing and prosecution of a lawsuit.

The court denied the special motion to strike. The court analyzed Philipsons alleged communication with Campbell, informing it of its potential claim to the settlement money obtained by Philipson on behalf of Gulsvig, as a communication in anticipation of litigation. The court concluded that such pre-litigation communications are protected by the anti-SLAPP law only if the defendant establishes the relevant litigation was contemplated in good faith, and Philipson had made no such showing in this case. Moreover, even if the burden were on Gulsvig, she had made an appropriate showing that Philipsons alleged communication had not been made in good faith.

Philipson appealed the denial of its special motion to strike.

DISCUSSION

The anti-SLAPP law provides a summary mechanism to test the merits of any claim arising out of the defendants protected communicative activities, allowing the court to strike any cause of action which falls within the statutes purview and on which the plaintiff can show no probability of succeeding. Section 425.16, subdivision (b)(1), requires a two-step process for determining whether a defendants motion to strike should be granted. First, 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 defendants 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. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.)

Then, only if the court finds that such a showing has been made, the burden shifts to plaintiff to demonstrate there is a probability that the plaintiff will prevail on the claim. ( 425.16, subd. (b)(1); DuPont Merck Pharmaceutical Co. v. Superior Court (2000) 78 Cal.App.4th 562, 567-568.)

Our review of an order denying a motion to strike a complaint as a SLAPP suit is de novo. (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 999, [Whether section 425.16 applies and whether the plaintiff has shown a probability of prevailing are both reviewed independently on appeal.]; Jespersen v. Zubiate-Beauchamp (2003) 114 Cal.App.4th 624, 629.)

Consequently, in this case, Philipson had the initial burden of establishing that Gulsvigs causes of action against it arose out of an act . . . in furtherance of [its] right of petition or free speech under the United States or California Constitution in connection with a public issue . . . . ( 425.16, subd. (b)(1).)

Philipson argues that Gulsvigs claims arose out of its petitioning activity in that [T]he nature of her claim is that [Philipson] disclosed to Campbell the Color Spot settlement proceeds in order to obtain a collateral advantage in the fee dispute. In Philipsons view, because this communication was related to both an existing dispute (the fee dispute) and a contemplated one (Campbells current claim for ownership of the settlement proceeds), it necessarily constitutes protected activity. (See  425.16, subd. (e), which defines an act in furtherance of a persons right of petition or free speech under the United States or California Constitution in connection with a public issue as including any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law . . . or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest..)

However, it is not enough that some protected activity be merely implicated or triggered by the wrongdoing alleged in the complaint. [A] defendant in an ordinary private dispute cannot take advantage of the anti-SLAPP statute simply because the complaint contains some references to speech or petitioning activity by the defendant. (See Paul v. Friedman [(2002)] 95 Cal.App.4th [853,] 866, [[t]he statute does not accord anti-SLAPP protection to suits arising from any act having any connection, however remote, with an official proceeding].) We conclude it is the principal thrust or gravamen of the plaintiffs cause of action that determines whether the anti-SLAPP statute applies ([City of] Cotati [v. Cashman (2002)] 29 Cal.4th [69,] 79), and when the allegations referring to arguably protected activity are only incidental to a cause of action based essentially on nonprotected activity, collateral allusions to protected activity should not subject the cause of action to the anti-SLAPP statute. (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 188.)

In this case, the wrongful conduct alleged by Gulsvig is considerably broader than Philipson acknowledges. She is not merely alleging that Philipson made an unlawful disclosure of confidential information, or initiated a lawsuit against her on its behalf. Instead, she contends Philipson retaliated against her for her refusal to acquiesce in its $15,000 fee demand, by affirmatively rounding up a third party Campbell which had no prior knowledge of the Color Spot settlement, and then encouraging Campbell to challenge her right to retain the very funds which Philipson had represented her in obtaining.

An attorneys duty of loyalty to a client is broader than attorney-client privilege, and its breach does not depend upon the disclosure of confidential information or a violation of attorney-client privilege. What Gulsvig alleges is that Philipson changed allegiances, and decided to work against her and in favor of a third party in connection with the very matter in which it had agreed to advocate her interests. Such conduct is wrongful, even in the absence of any disclosure of confidential information, and without regard to whether litigation actually results. (Benasra v. Mitchell, Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179.)

Although litigation itself is inherently petitioning activity, not every breach of duty which occurs in connection with litigation falls within the protection of the anti-SLAPP law. Instead, courts will look at whether the petitioning acts alleged were wrongful in and of themselves as in the case of malicious prosecutions, abuses of process, and the like or were wrongful only because they evidenced the breach of some other pre-existing duty. The former are subject to the anti-SLAPP law, while the latter may not be. (See Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532.) Thus, in Benasra v. Mitchell, Silberberg & Knupp LLP, supra, 123 Cal.App.4th 1179, the court concluded section 425.16 did not apply to a former clients suit against a law firm for breach of its duty of loyalty. That breach occurred when the law firm, which had previously represented the plaintiff, chose to represent the plaintiffs opponent in an arbitration proceeding.

Despite the fact that pursuit of arbitration proceedings does qualify as petitioning activity under the anti-SLAPP law, the Benasra court nonetheless rejected the defendants argument that the claims against it arose out of that petitioning activity. (Benasra v. Mitchell, Silberberg & Knupp LLP, supra, 123 Cal.App.4th at pp. 1186-1187.) Instead, the court concluded the claims were actually based on the duties imposed by rule 3-310(C) of the State Bar Rules of Professional Conduct and that a breach of a duty of loyalty based on violation of these rules occurs whether or not confidences are actually revealed in the adverse action. (Benasra v. Mitchell, Silberberg & Knupp LLC, supra, 123 Cal.App.4th at p. 1187.) As the court explained: The breach occurs not when the attorney steps into court to represent the new client, but when he or she abandons the old client. . . . In other words, once the attorney accepts a representation in which confidences disclosed by a former client may benefit the new client due to the relationship between the new matter and the old, he or she has breached a duty of loyalty. The breach of fiduciary duty lawsuit may follow litigation pursued against the former client, but does not arise from it. Evidence that confidential information was actually used against the former client in litigation would help support damages, but is not the basis for the claim. . . . [Plaintiffs] claim is not based on filing a petition for arbitration on behalf of one client against another, but rather, for failing to maintain loyalty to, and the confidences of, a client. (Id. at p. 1189; see also United States Fire Ins. Co. v. Sheppard, Mullin, Richter & Hampton (2009) 171 Cal.App.4th 1617; Freeman v. Schack (2007) 154 Cal.App.4th 719, 732 [In our view, plaintiffs allegations concerning Schacks filing and settlement of the Hemphill litigation are incidental to the allegations of breach of contract, negligence in failing to properly represent their interests, and breach of fiduciary duty arising from his representation of clients with adverse interests.].)

In Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton (2005) 133 Cal.App.4th 658, however, the court question[ed] the Benasra decisions focus on the theoretical time that a breach of duty occurs, as opposed to the specific allegations of wrongdoing in the operative complaint. (Id. at p. 674.) The court noted that a cause of action requires proof of causation and damages in addition to liability, and thus when a cause of action alleges the plaintiff was damaged by specific acts of the defendant that constitute protected activity under the statute, it defeats the letter and spirit of section 425.16 to hold it inapplicable because the liability element of the plaintiffs claim may be proven without reference to the protected activity. (Ibid.)

In this case, we need not resolve the tension between the general rule stated in Benasra, and the Peregrine Funding courts questioning of that rule as applied to the facts before it, as we conclude this case is factually distinguishable from Peregrine Funding. In Peregrine, unlike either Benasra or this case, the attorneys already represented multiple clients at the point when an alleged conflict of interest developed between them. Thus, there was no allegation the attorneys had violated their duty of loyalty to an existing client by communicating with a new client whose interests were adverse.

In Peregrine, the defendant attorneys were sued by investors in a Ponzi scheme, based upon allegations that they had: (1) facilitated the scheme through negligent misrepresentations made in opinion letters which they understood would be relied upon by investors; (2) further facilitated it by advising the schemes perpetrator as to how he could circumvent laws designed to regulate investment companies; and (3) engaged in conflicts of interest after the Securities and Exchange Commission (SEC) began investigating the scheme, by representing both the perpetrator and the related investment entities in attempts to fend off both that investigation and the SECs subsequent prosecution of the case.

The Peregrine Funding court reasoned that all of these alleged wrongs were implicated in both causes of action asserted by plaintiffs in the case, and that the alleged petitioning activity in which the defendant law firm was alleged to have utilized the court process in its efforts to thwart the SECs attempt to contain the Ponzi scheme and preserve assets for the investors was a specific, and non-incidental cause of the investors alleged damages.

However, to the extent the claims alleged in Peregrine Funding were based upon an alleged conflict of interest due to the attorneys continued representation of both the schemes perpetrator and the investment entities after the scheme was uncovered that claim is distinct from the breach of loyalty alleged in this case (as well as in Benasra), in that the attorneys in Peregrine Funding had always represented both the perpetrator of the Ponzi scheme as well as the investment entities he had created, and thus their fiduciary duties were owed to both. The Peregrine attorneys had an equal duty to communicate with both the perpetrator and the investment entities, and could not keep secrets among them. Thus, the attorneys did not breach any duty by merely engaging in communications with either client. However, when the Ponzi scheme began to unravel, and it became apparent that funds belonging to the investment entities had not been properly handled, the attorneys were ethically precluded from acting in a manner that favored one clients interests over anothers, and thus its proper course should have been to simply withdraw from further representing any party. Consequently, the Peregrine attorneys alleged breach actually occurred when they affirmatively undertook a litigation strategy which benefited one client at the expense of others. In other words, the breach of loyalty in Peregrine Funding was embodied in the attorneys petitioning activity, rather than in their communication. (See Freeman v. Schack, supra, 154 Cal.App.4th 719, 733 [We need not decide whether we agree with Peregrine Fundings characterization of Benasra; we prefer to apply the analysis set out by the California Supreme Court requiring us to focus upon the activity that gives rise to [Schacks] asserted liability.].)

In this case, by contrast to Peregrine Funding, Philipsons alleged breach of loyalty is independent of the subsequent petitioning activity: According to Gulsvigs second amended cross-complaint, after Philipson represented her in obtaining a settlement from Color Spot, it elected to inform Campbell an entity it had never previously represented that the Color Spot settlement might actually belong to it, rather than to Gulsvig. Gulsvig specifically alleged that absent Philipsons misconduct, Campbell would never have asserted such a claim, and the trial court noted Philipson had offered no evidence that Campbell would have sued for the settlement proceeds if not for the attorneys actions. It is that specific breach of loyalty Philipsons act of informing a third party of its potential claim against Philipsons own client which is the gravamen of Gulsvigs second amended cross-complaint. That breach, which allegedly caused Campbell to pursue a claim against Gulsvig, would have been actionable whether or not Philipson itself had ever become involved in the ensuing litigation.

We acknowledge Philipsons contention this case actually is analogous to Peregrine Funding, because, like the law firm in that case, it had represented both Gulsvig and Tultex in connection with collecting the Color Spot judgment at various times (a contention Gulsvig disputes), and thus it allegedly owed a duty of loyalty to both Gulsvig and Campbell (as Tultexs successor in interest) in connection with the claim. However, we find the contention unpersuasive. Setting aside the inherent difficulty of accepting Philipsons claim that it had actually intended to collect the same judgment on behalf of two separate clients with conflicting ownership claims, Philipson offers no authority for the proposition its fiduciary duty of loyalty would extend to any third party (in this case, Campbell) which then apparently purchased the assets of one of those clients (Tultex) in bankruptcy.

Despite Philipsons insistence that Campbell is the admitted and undisputed successor in interest to Tultex, Gulsvig correctly points out the title means little here. The question is: What interest did Campbell succeed to? Simply purchasing assets in a bankruptcy proceeding, as Campbell apparently did, and thus succeeding to the sellers ownership interest therein, does not mean the purchaser also succeeds to any attorney-client relationships entered into by the prior owner with any law firm which performed services in connection with those assets. Because Philipson never represented Campbell in connection with the Color Spot judgment, it had no preexisting duty to communicate with Campbell concerning its potential interest in that claim, and thus Philipsons act of doing so breached its duty of loyalty to Gulsvig.

Consequently, we conclude the trial court correctly determined Gulsvigs second amended cross-complaint against Philipson did not arise out of its petitioning activity for purposes of the anti-SLAPP law.

The order denying Philipsons special motion to strike is affirmed, and Gulsvig is to recover her costs on appeal.

BEDSWORTH, J.

WE CONCUR:

SILLS, P. J.

RYLAARSDAM, J.

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[1] Code of Civil Procedure section 425.16 (section 425.16) reflects the Legislatures determination that there has been a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances. The Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process. ( 425.16, subd. (a).) In order to address the proliferation of lawsuits designed to chill the valid exercise of freedom of speech and petition referred to as strategic lawsuits against public participation or SLAPP suits, section 425.16 establishes an expedited procedure to test the merits of such lawsuits, and authorizes the court to strike any claims arising out of speech or petitioning activity which are shown to have no merit at that early stage.

[2] Philipsons motion to augment the record on appeal is denied. In its motion, Philipson sought to add three documents which it claims should have been attached to a declaration it filed in the trial court, but were not attached to the copy contained in the courts file. Philipson frankly acknowledged its uncertainty concerning whether those documents had originally been attached to the declaration, but were subsequently lost by the trial court; or were inadvertently omitted from the trial court filing in the first place. Under those circumstances, Philipson has shown no entitlement to relief.

Absent a satisfactory showing the documents actually were submitted to the trial court, we cannot augment the trial court record to include them. The rules authorizing settlement, augmentation, and correction of the record on appeal concern documents file[d] or lodged in the superior court and transcripts of oral proceedings that occurred therein. [Citation] These provisions much like the entire network of rules governing matter properly included in the appellate record are intended to ensure that the record transmitted to the reviewing court preserves and conforms to the proceedings actually undertaken in the trial court. . . . [] . . . Defendant is entitled to an appellate record that accurately reflects what was done and said in the trial court not what he wishes had been done or said. (People v. Tuilaepa (1992) 4 Cal.4th 569, 585.)

[3] Philipson contends that Gulsvig, during her employment with Tultex, relied upon Philipson to collect the Color Spot judgment on behalf of Tultex, thus undermining her claim that the judgment had, at all times, remained the property of CSS California, which in turn assigned the judgment to her.

[4] Grannan continues to represent Philipson in this case.

[5] These allegations are also incorporated into Gulsvigs causes of action for money had and received and declaratory relief, but do not form the basis of those claims. Instead, those claims address the propriety of Philipsons retention of $15,000 from the Color Spot settlement, and whether it could properly claim those funds as its fee for representing Gulsvig in connection with that settlement. However, because we conclude the retaliation and breach of loyalty allegations do not qualify as speech or petitioning activity for purposes of the anti-SLAPP law and thus that none of Gulsvigs causes of action fall within the purview of that law we need not address the differing significance of those allegations in Gulsvigs money had and received and declaratory relief claims.