Navellier v. Sletten

• Decision Date: 29 August 2002
• Docket Number: No. S095000.,S095000.
• Court: California Supreme Court
• Parties: Louis G. NAVELLIER et al., Plaintiffs and Respondents, v. Kenneth G. SLETTEN, Defendant and Appellant.

124 Cal.Rptr.2d 530

29 Cal.4th 82

52 P.3d 703

Louis G. NAVELLIER et al., Plaintiffs and Respondents, v. Kenneth G. SLETTEN, Defendant and Appellant.

No. S095000.

Supreme Court of California.

August 29, 2002.

Legal Strategies Group, Ralph C. Alldredge, Emeryvile, and William M. Quinn, Jr., San Francisco, for Defendant and Appellant.

Levy, Ram, Olson & Rossi, Karl Olson; Karlene W. Goller, Los Angeles; Gray Cary Ware & Freidenrich, Edward P. Davis, Jr., San Jose, James Chadwick; Thomas W. Newton, Sacramento; Levine Sullivan & Koch, James Grossberg; Harold Fuson; Stephen J. Burns, Sacramento; Steinhart & Falconer, Roger R. Myers and Rachel E. Boehm, San Francisco, for California Newspaper Publishers Association, Los Angeles Times, Copley Press, Inc., McClatchy Newspapers, San Jose Mercury, Freedom Communications, Inc., The Hearst Corporation, Media News Group and The Recorder as Amici Curiae on behalf of Defendant and Appellant.

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

WERDEGAR, J.

The question presented is whether this action based on the defendant's having filed counterclaims in a prior, unrelated proceeding in federal court, is one "arising from" activity protected by Code of Civil Procedure section 425.16 (section 425.16; the anti-SLAPP statute), which provides for early dismissal of certain actions known as "strategic lawsuits against public participation." ¹ We conclude that this action arises from statutorily protected activity, but does not for that reason alone necessarily constitute a SLAPP or become subject to dismissal under the statute.²

BACKGROUND

Louis G. Navellier (Navellier) and Navellier Management, Inc. (NMI) (plaintiffs) allege that they organized the Navellier Series Fund (Fund), an investment company. Defendant Kenneth G. Sletten was elected to serve as an independent trustee of the Fund. NMI contracted with the Fund to provide investment advice and administrative services. Some years later, Sletten and the other independent trustees terminated NMI's contract.

Thereafter, plaintiffs sued Sletten and two other independent trustees in federal district court, asserting claims under the Investment Company Act³ and additional claims (the federal action). (See McLachlan v. Simon (N.D. Cal.1998) 31 F.Supp.2d 731.) The gist of plaintiffs' federal action was that the independent trustees had breached fiduciary duties they owed to the Fund and its shareholders in not renewing NMI's investment advisory contract, in rejecting a certain merger proposal advanced by Navellier, and in failing reasonably to evaluate the consequences these decisions might have on the shareholders. In defending, the independent trustees invoked the business judgment rule.

A few months after plaintiffs filed the federal action, Sletten concluded an agreement with Navellier and NMI regarding the conditions upon which NMI would return as investment adviser to the Fund. As part of that agreement, Sletten signed a general "Release of Claims" (Release).⁴ Relying on the Release, Navellier became portfolio manager and NMI became investment advisor to the Fund.

Plaintiffs subsequently filed an amended complaint in the federal action. Sletten filed counterclaims for breach of contract, breach of the covenant of good faith and fair dealing, and contribution and equitable indemnity. (See Fed. Rules Civ.Proc., rule 13, 28 U.S.C.) Sletten's counterclaims were grounded, generally, in allegations that plaintiffs had been contractually obligated to provide him a trustees' errors and omissions insurance policy, which would have covered his defense in the federal lawsuit. According to Sletten, a policy was purchased but allowed to lapse and, as a result, he was forced to incur substantial costs to defend the federal lawsuit and to seek indemnification from the Fund.

In pretrial proceedings, the federal district court denied plaintiffs' motion to dismiss Sletten's counterclaims as failing to state a claim for relief. (Fed. Rules Civ. Proc., rule 12(b)(6), 28 U.S.C.) Subsequently, however, plaintiffs were successful in using the Release to obtain dismissal of two of the counterclaims. Relying on the Release, plaintiffs moved for summary judgment. In opposing the motion, Sletten argued the Release was unconscionable and that he had been economically "coerced" into signing it. Rejecting these arguments, the court granted summary judgment for plaintiffs on Sletten's counterclaims for breach of contract and breach of the covenant of good faith and fair dealing. The court also granted in part and denied in part a defense motion for summary judgment. The case proceeded to trial on plaintiffs' surviving claims (for breach of fiduciary duty and waste of corporate assets), within which, the court ruled, Sletten's remaining counterclaim (for contribution and equitable indemnity) was "subsumed." The jury returned a defense verdict, and judgment was entered accordingly. Sletten appealed from the summary judgment order on his counterclaims and another interlocutory order respecting certain discovery sanctions; plaintiffs appealed from the final judgment.

A consolidated appeal was heard by the Ninth Circuit Court of Appeals. (Navellier v. Sletten (9th Cir.2001) 262 F.3d 923.)⁵ That court affirmed the judgment entered against plaintiffs by the district court. (262 F.3d at p. 949.) The appellate court also affirmed dismissal of Sletten's counterclaims, concluding "there were no material issues of fact as to the validity or enforceability of the [R]elease" (id. at p. 941).

A few days before plaintiffs noticed their federal appeal, they filed this state action, alleging that Sletten had committed fraud in misrepresenting his intention to be bound by the Release, so as to induce plaintiffs to incur various litigation costs in the federal action that they would not have incurred had they known Sletten's true intentions. Plaintiffs also alleged that Sletten had committed breach of contract by filing counterclaims in the federal action. Sletten thereupon filed a special motion, pursuant to section 425.16, to strike this action as a SLAPP. The trial court denied the motion, and the Court of Appeal affirmed. The Court of Appeal opined that this action falls outside the scope of the "arising from" prong of the anti-SLAPP statute because it was not brought primarily to chill the exercise of constitutional free speech or petition rights and is not an abuse of the judicial process. Sletten's petition for rehearing was denied. We granted his petition for review.

DISCUSSION

Section 425.16 provides, inter alia, 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 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).) "As used in this section, `act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue' includes: (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; (2) 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...." (Id., subd. (e).)

As is discussed at length in the companion case, Equilon, supra, 29 Cal.4th 53, 124 Cal.Rptr.2d 507, 52 P.3d 685, the Court of Appeal erred in assuming that whether this action arises from protected activity depends on whether plaintiffs subjectively intended to chill Sletten's speech or petitioning. (See id. at pp. 58-66, 124 Cal.Rptr.2d 507, 52 P.3d 685.) When moving to strike a cause of action under the anti-SLAPP statute, a defendant that satisfies its initial burden of demonstrating the targeted action is one arising from protected activity faces no additional requirement of proving the plaintiffs subjective intent. (Id. at p. 67, 124 Cal. Rptr.2d 507, 52 P.3d 685.) Nor need a moving defendant demonstrate that the action actually has had a chilling effect on the exercise of such rights. (See Cotati, supra, 29 Cal.4th at pp. 74-76, 124 Cal. Rptr.2d 519, 52 P.3d 695.)

Section 425.16 posits instead a two-step process for determining whether an action is a SLAPP. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. (§ 425.16, subd. (b)(1).) "A defendant meets this burden by demonstrating that the act underlying the plaintiffs cause fits one of the categories spelled out in section 425.16, subdivision (e)" (Braun v. Chronicle Publishing Co. (1997) 52 Cal.App.4th 1036, 1043, 61 Cal. Rptr.2d 58). If the court finds that such a showing has been made, it must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim. (§ 425.16, subd. (b)(1); see generally Equilon, supra, 29 Cal.4th at p. 67, 124 Cal.Rptr.2d 507, 52 P.3d 685.)

As we previously have observed, in order to establish the requisite probability of prevailing (§ 425.16, subd. (b)(1)), the plaintiff need only have "`stated and substantiated a legally sufficient claim.'" (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1123, 81 Cal.Rptr.2d 471,969 P.2d 564 (Briggs), quoting Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 412, 58 Cal.Rptr.2d 875, 926 P.2d 1061 (Rosenthal)) "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...