Navellier v. Sletten

Decision Date28 February 2003
Docket NumberNo. A090058.,A090058.
Citation106 Cal.App.4th 763,131 Cal.Rptr.2d 201
CourtCalifornia Court of Appeals Court of Appeals
PartiesLouis G. NAVELLIER et al. Plaintiffs and Respondents, v. Kenneth G. SLETTEN, Defendant and Appellant.

Legal Strategies Group, Ralph C. Alldredge, Emeryville, William J. Quinn, Jr., San Francisco, for Appellant.

Law Offices of Samuel Kornhauser, Samuel Kornhauser, San Francisco, for Respondents.

KAY, P.J.

This appeal arises in an action for fraud and breach of contract brought by Louis Navellier (Navellier) and Navellier Management, Inc. (NMI; collectively, plaintiffs) against Kenneth Sletten (defendant). Defendant moved to strike the complaint under the anti-SLAPP statute (Code Civ. Proc., § 425.16; hereafter § 425.16), the motion was denied, and we affirmed (Navellier v. Sletten, 2000 WL 33311962 (December 27, 2000, A090058) [nonpub. opn.]). The Supreme Court reversed and remanded with instructions to reconsider our decision in light of its opinion. (Navellier v. Sletten (2002) 29 Cal.4th 82, 96, 124 Cal. Rptr.2d 530, 52 P.3d 703.)

Ruling on an anti-SLAPP motion is "a two-step process. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. . . . 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." (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67, 124 Cal. Rptr.2d 507, 52 P.3d 685.) We previously concluded that defendant's motion did not satisfy the first prong of the test, and thus did not reach the second prong. The Supreme Court found that the first prong was satisfied, and has directed us to address the second prong. (Navellier v. Sletten, supra, 29 Cal.4th at pp. 95-96, 124 Cal.Rptr.2d 530, 52 P.3d 703.) We hold that plaintiffs have not established a probability of prevailing on their fraud or breach of contract claims as required by the second prong, and therefore reverse the order denying the motion to strike.

I. BACKGROUND

Defendant served as an independent trustee of a mutual fund plaintiffs established in 1993. Plaintiff NMI acted as the fund's investment adviser until defendant and the other independent trustees voted to terminate its contract in March of 1997. That decision precipitated the filing of a federal lawsuit in April 1997 by plaintiffs and others against defendant and the other independent trustees, seeking injunctive relief. In May 1997 the fund's shareholders voted against the new investment adviser selected by the independent trustees, causing the latter to negotiate for NMI's return as investment adviser. As a condition to NMI's return, plaintiffs required that the independent trustees release them from liability, and defendant and the other independent trustees executed a release of plaintiffs in July 1997. The release discharged all claims against plaintiffs other than for contribution or indemnity in the event the independent trustees were held liable to third parties.

In February 1998 plaintiffs and others filed a first amended class action complaint in the federal case, charging defendant and the other independent trustees with breach of fiduciary duty, and waste and intentional interference with prospective economic advantage. In September 1998, defendant counterclaimed against plaintiffs in the federal action seeking indemnity, and recovery for breach of contract and bad faith. Defendant's counterclaims for breach of contract and bad faith alleged that plaintiffs breached an agreement to provide him with insurance that would have covered his defense in the federal action. Plaintiffs moved for summary judgment on the breach of contract and bad faith counterclaims on the ground that they were barred by the release defendant had executed. Defendant argued that the release was unconscionable and had been given under duress. The court rejected defendant's arguments, found that the counterclaims were barred by the release, and granted plaintiffs' motion for summary judgment on the counterclaims. The case went to trial on plaintiffs' causes of action, the jury returned a defense verdict, and judgment was entered in the federal case in August 1999. The judgment against plaintiffs and dismissal of defendant's counterclaims were eventually affirmed on appeal. (Navellier v. Sletten (9th Cir. 2001) 262 F.3d 923.)

In September 1999, shortly after entry of the federal judgment, plaintiffs filed this fraud and breach of contract case, alleging that defendant misrepresented his intention to be bound by the release he executed, and that he breached the release by pursuing his federal counterclaims. Defendant interposed his anti-SLAPP motion, the merits of which are once again before us.

II. DISCUSSION
A. Plaintiffs' Burden

Since defendant has shown that plaintiffs' causes of action arose from activities — negotiation and execution of a release agreement, and pursuit of counterclaims in litigation — that were protected by the anti-SLAPP statute (Navellier v Sletten, supra, 29 Cal.4th at p. 95, 124 Cal.Rptr.2d 530, 52 P.3d 703), plaintiffs must demonstrate a probability of prevailing on their claims in order to defeat the motion to strike (§ 425.16, subd. (b)(1)); (Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th at p. 67, 124 Cal. Rptr.2d 507, 52 P.3d 685). This means that plaintiffs must "`"state[ ] and substantiate[ ] a legally sufficient claim."' [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.' [Citations.] In deciding the question of potential merit, the trial court considers the pleadings and evidentiary submissions of both the plaintiff and the defendant (§ 425.16, subd. (b)(2)); though the court does not weigh the credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendant's evidence supporting the motion defeats the plaintiffs attempt to establish evidentiary support for the claim." (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821, 123 Cal.Rptr.2d 19, 50 P.3d 733.) Thus, plaintiffs' burden as to the second prong of the anti-SLAPP test is akin to that of a party opposing a motion for summary judgment. (Kyle v. Carmon (1999) 71 Cal.App.4th 901, 907-908, 84 Cal. Rptr.2d 303.) We determine de novo whether that burden has been met. (See Paul for Council v. Hanyecz (2001) 85 Cal.App.4th 1356, 1364, 102 Cal.Rptr.2d 864, disapproved on another point in Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th at pp. 53, 68, 124 Cal. Rptr.2d 507, 52 P.3d 685).

B. Evidence Presented

Defendant's evidence in support of the motion to strike recounted the federal litigation outlined above. As of the time the motion was filed, the parties had appealed from the judgment in the federal case, but the appeal had not been decided. Plaintiffs' evidence in opposition to the motion consisted of the executed release, defendant's federal breach of contract and bad faith counterclaims, and brief excerpts from depositions in the federal suit.

In his deposition, defendant answered a series of questions about his intent in signing the release as follows: "Q. Did you intend to abide by this release when you signed it? [¶] A. If I signed it, then I don't think I — I wasn't sure if I had any choice. But I did sign it. [¶] Q. Well, I know you signed it. And my question is: Did you intend to abide by the terms of the release when you signed it? [¶] A. I don't remember any such thought. [¶] Q. Were you thinking you were not going to abide by the terms of the release when you signed it? [¶] A. I don't know what I thought at that time." Defendant indicated that he was represented by attorney Roy Adams when he signed the release.

Adams testified in his deposition that he regarded the release plaintiffs required of defendant and the other independent trustees as an unreasonable demand on plaintiffs' part. Adams said that he advised Lawrence Bianchi, one of the trustees who executed the release along with defendant, that he would be giving up claims by signing the release, "subject to possible defenses of unconscionability."

C. Summary of Analysis

Plaintiffs' claims do not have the "minimal merit" required to survive the motion to strike. (Navellier v. Sletten, supra, 29 Cal.4th at p. 95, 124 Cal.Rptr.2d 530, 52 P.3d 703.) The fraud cause of action is untenable because it is predicated on counterclaims protected by the litigation privilege. Plaintiffs cannot amend their complaint at this point to assert a malicious prosecution claim that would not be barred by the privilege. Since the privilege is controlling as to the fraud cause of action, it is immaterial whether plaintiffs presented evidence sufficient to support a finding that defendant did not intend to abide by the release when he signed it. We will assume without deciding that the litigation privilege does not preclude the breach of contract cause of action. However, that cause of action fails because plaintiffs presented no evidence of damages from the breach. Entirely apart from the lack of proof, plaintiffs cannot recover damages for the legal fees and costs they incurred in connection with defendant's counterclaims because there is no statutory or contractual authorization for payment of those expenses. Nor can plaintiffs properly raise new damage theories for the first time on appeal.

D. Tort Liability

Defendant's principal argument is that he is entitled as a matter of law to judgment on plaintiffs' causes of action because they are based on counterclaims he filed in the federal action that were protected by the Civil Code section 47...

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