Brill Media Co., LLC v. Tcw Group, Inc.

• Decision Date: 30 August 2005
• Docket Number: No. B175827.,B175827.
• Citation: 33 Cal.Rptr.3d 371,132 Cal.App.4th 324
• Court: California Court of Appeals Court of Appeals
• Parties: BRILL MEDIA COMPANY, LLC et al., Plaintiffs and Appellants, v. TCW GROUP, INC. et al., Defendants and Respondents.

33 Cal.Rptr.3d 371

132 Cal.App.4th 324

BRILL MEDIA COMPANY, LLC et al., Plaintiffs and Appellants, v. TCW GROUP, INC. et al., Defendants and Respondents.

No. B175827.

Court of Appeal, Second District, Division 5.

August 30, 2005.

Certified for Partial Publication.^*

As Modified September 7, 2005.

Blecher & Collins, Maxwell M. Blecher, James Robert Noblin, Los Angeles; Hennefer & Wood, James A. Hennefer, San Francisco, for Plaintiffs and Appellants.

Sidley Austin Brown & Wood, James M. Harris, Thomas P. Hanrahan, Joel G. Samuels, Amy P. Lally, Los Angeles, for Defendants and Respondents AIG Retirement Services, Inc., and Shannon Ward.

Quinn Emanuel Urquhart Oliver & Hedges, John B. Quinn, John K. Hart, Los Angeles, and Marc R. Rosner, for Defendants and Respondents TCW Group, Inc. et al.

TURNER, P.J.

I. INTRODUCTION

Plaintiffs, 74 media related companies operated by Alan Brill,¹ appeal from an order granting a Code of Civil Procedure section 425.16 special motion to strike brought by 16 defendants.² Effective January 1, 2004, Code of Civil Procedure section 425.17 was enacted which created two exceptions to Code of Civil Procedure section 425.16, the special motion to strike statute. This case involves alleged efforts by some bondholders and their related entities to take control of the issuer's assets as well as those of others. In the published portion of this opinion, we examine the second exception to the special motion to strike remedy, which is found in Code of Civil Procedure section 425.17, subdivision (c). We conclude that Code of Civil Procedure section 425.17, subdivision (c) prevents the use of the special motion to strike procedure in this case. All of plaintiffs' claims arise from speech or conduct described in Code of Civil Procedure section 425.17, subdivision (c). Therefore, we reverse the order granting the Code of Civil Procedure section 425.16 special motion to strike.

II. THE BASIS OF DEFENDANTS' ATTACKS ON THE AMENDED COMPLAINT

A. Introduction

Defendants' Code of Civil Procedure section 425.16 special motion to strike was based on: the original complaint; the amended complaint; and bankruptcy court records. Plaintiffs relied on the two complaints and three declarations. Defendants presented no counter declarations.

The upshot of defendants' theory is that plaintiffs' claims all arise from the filing of an involuntary bankruptcy petition. Defendants assert therefore pursuant to Code of Civil Procedure section 425.16, subdivision (b)(1) that the burden shifted to plaintiffs to demonstrate the allegations of the amended complaint had the "requisite minimal merit" to allow the lawsuit to proceed. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 741, 3 Cal. Rptr.3d 636, 74 P.3d 737; Navellier v. Sletten (2002) 29 Cal.4th 82, 94, 124 Cal. Rptr.2d 530, 52 P.3d 703.) As will be noted, we ultimately conclude defendants have failed to sustain their burden of proving plaintiffs' causes of action are outside the scope of Code of Civil Procedure section 425.17, subdivision (c). As a result, the burden of proof never shifted to plaintiffs. But in the initial portion of this opinion, we discuss what documents a trial court may rely on in determining whether one of the exceptions in Code of Civil Procedure section 425.17 is present.

B. Code of Civil Procedure Sections 425.16 And 425.17 Burdens

When a special motion to strike is filed, the initial burden rests with the defendant to demonstrate that the challenged cause of action arises from protected activity. (Zamos v. Stroud (2004) 32 Cal.4th 958, 965, 12 Cal.Rptr.3d 54, 87 P.3d 802; Moore v. Shaw (2004) 116 Cal.App.4th 182, 194, 10 Cal.Rptr.3d 154.) As a practical as well as legal matter, the defendant's initial burden is in part to demonstrate that the challenged cause of action is subject to the special motion to strike procedure. The Courts of Appeal have held: "[I]t is the defendant's burden in an anti-SLAPP motion to initially show the suit is within the class of suits subject to a motion to strike under section 425.16. (Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 304.)" (Brenton v. Metabolife Intern., Inc. (2004) 116 Cal.App.4th 679, 685, 10 Cal.Rptr.3d 702 [holding that cause of action is subject to Code Civ. Proc., § 425.17 exception to special motion to strike procedure]; Martinez v. Metabolife Intern., Inc. (2003) 113 Cal.App.4th 181, 186, 6 Cal.Rptr.3d 494 [defendant did not meet its initial burden in ephedrine liability litigation].) In determining whether a defendant sustained its initial burden of proof, the court relies on the pleadings and declarations or affidavits. Code of Civil Procedure section 425.16, subdivision (b) states: "(1) 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. [¶] (2) In making its determination, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based." (Italics added.)

The second prong of the special to strike procedure looks to what will occur at trial by reference to admissible evidence. Our colleague, Associate Justice Robert Mallano of Division One of this appellate district, has explained this well established aspect of special motion to strike jurisprudence thusly: "`"`An assessment of the probability of prevailing on the claim looks to trial, and the evidence that will be presented at that time. . . . Such evidence must be admissible.'"' (Schoendorf[v. U.D. Registry, Inc. (2002)] 97 Cal.App.4th [227,] 236, 118 Cal.Rptr.2d 313, quoting Church of Scientology v. Wollersheim (1996) 42 Cal.App.4th 628, 654, 656, overruled on another point in Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 68, fn. 5[, 124 Cal.Rptr.2d 507, 52 P.3d 685].)" (Gallant v. City of Carson (2005) 128 Cal.App.4th 705, 710, 27 Cal.Rptr.3d 318; compare Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th at p. 67, 124 Cal.Rptr.2d 507, 52 P.3d 685 [in making both the first and second prong determinations, a court looks to the pleadings and affidavits].) In this case, we are not assessing the possible merits of plaintiffs' causes of action—this is not a second prong case. But in determining whether the challenged cause of action arises from protected conduct, the first prong, the court necessarily looks to the allegations in the operative complaint. This does not preclude a court from examining affidavits in making the first prong assessment; in fact the Legislature explicitly permits a court in making the first prong assessment to rely on affidavits. (Code Civ. Proc., § 425.16, subd. (b)(2) ["In making its determination, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based."].) But a court must look to the operative pleadings in making the first prong assessment.

Plaintiffs contend that their amended complaint is not subject to the special motion to strike procedure because of Code of Civil Procedure section 425.17, subdivision (c). The controlling statutory language relied upon by plaintiffs is as follows: "Section 425.16 does not apply to any cause of action brought against a person primarily engaged in the business of selling ... goods or services, including, but not limited to ... securities, or financial instruments, arising from any statement or conduct by that person if both of the following conditions exist: [¶] (1) The ... statement or conduct was made in the course of delivering the person's goods or services. [¶] (2) The intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer...." (Code Civ. Proc., § 425.17, subd. (c).) The adoption of Code of Civil Procedure section 425.17 exempts certain causes of action from the special motion to strike procedure. (Brenton v. Metabolife Intern., Inc., supra, 116 Cal.App.4th at pp. 685, 689-690, 10 Cal.Rptr.3d 702.)

What is procedurally unclear is how a court rules on the application of the Code of Civil Procedure section 425.17, subdivision (c) exception to the special motion to strike procedure. Is this ruling made as part of the first prong of the Code of Civil Procedure section 425.16, subdivision (b) assessment where the defendant has the burden of proof? Or is the determination made as part of the second prong merits fact finding process where the plaintiff has the burden of proof? Or is the question of the application of the Code of Civil Procedure section 425.17, subdivision (c) exception unrelated to either of the two prongs? Code of Civil Procedure section 425.17 does not directly address this issue.

This is a tough issue. But common sense tells us the better analysis is that the Code of Civil Procedure section 425.17, subdivision (c) finding is a first prong determination. Code of Civil Procedure section 425.17, subdivision (c) begins with the words, "Section 425.16 does not apply . . ." and then specifies an array of circumstances. As noted, some Courts of Appeal have described the Code of Civil Procedure section 425.16, subdivision (b)(1) first prong "arising from" issue as involving a determination that the operative complaint is "within the class of suits subject" to the special motion to strike procedure. (Brenton v. Metabolife Intern., Inc., supra, 116 Cal.App.4th at p. 685, 10 Cal.Rptr.3d 702; Martinez v. Metabolife Intern., Inc., supra, 113 Cal.App.4th at p. 186, 6 Cal. Rptr.3d 494; Fox Searchlight Pictures, Inc. v. Paladino, supra, 89 Cal.App.4th at p. 304, ...