Coretronic Corp. v. Cozen O'Connor

• Decision Date: 24 February 2011
• Docket Number: No. B216607.,B216607.
• Citation: 192 Cal.App.4th 1381,121 Cal.Rptr.3d 254,2011 Daily Journal D.A.R. 3,11 Cal. Daily Op. Serv. 2498
• Court: California Court of Appeals Court of Appeals
• Parties: CORETRONIC CORPORATION et al., Plaintiffs and Respondents, v. COZEN O'CONNOR et al., Defendants and Appellants.

192 Cal.App.4th 1381

121 Cal.Rptr.3d 254

11 Cal. Daily Op. Serv. 2498

2011 Daily Journal D.A.R. 3001

CORETRONIC CORPORATION et al., Plaintiffs and Respondents,

v.COZEN O'CONNOR et al., Defendants and Appellants.

No. B216607.

Court of Appeal, Second District, Division 8.

Feb. 24, 2011.

**255 Hindshaw & Culbertson, Ronald E. Mallen, San Francisco, and Wendy Wen Yun Chang, Los Angeles, for Defendants and Appellants.

Girardi & Keese, Thomas V. Girardi and Graham B. LippSmith, Los Angeles, for Plaintiffs and Respondents.

GRIMES, J.

*1384 SUMMARY

Coretronic Corporation, Optoma Technology, Inc., and Technical Service Corporation**256 (plaintiffs) were sued in another action by E & S International Enterprises, Inc. (E & S), in connection with plaintiffs' manufacture and distribution of plasma televisions. Plaintiffs submitted a claim to Coretronic Corporation's liability insurer, Insurance Company of North America (INA), demanding that INA provide coverage and a defense of the underlying action. *1385 INA retained the Cozen O'Connor law firm (Cozen) as coverage counsel to advise whether plaintiffs' claims were covered. Plaintiffs provided Cozen with confidential information to aid in the coverage evaluation. At the same time Cozen was representing INA in evaluating plaintiffs' tender of the underlying action, Cozen undertook representation of E & S in another lawsuit, unrelated to plaintiffs.

After discovering Cozen's representation of E & S, plaintiffs moved for terminating sanctions in the underlying action, claiming collusion and misconduct. The trial court denied the motion, reasoning that E & S should not suffer terminating sanctions because of the allegedly unethical conduct of its counsel, about which E & S had no knowledge. Plaintiffs then filed this lawsuit, alleging several claims arising from Cozen having improperly obtained confidential information from plaintiffs that would benefit its client, E & S, plaintiffs' adversary.

Defendants INA, Cozen and individual Cozen Attorneys Michael J. Partos and Richard J. Bortnick now appeal from the trial court's order denying their special motion to strike the complaint in this action under Code of Civil Procedure section 425.16.¹ They contend the trial court erred in finding the complaint was not a SLAPP action.² Defendants also contend the claims lack substantive merit. We affirm the order, finding the complaint does not arise from protected activity, and any protected activity is merely incidental to plaintiffs' claims.

FACTS

Plaintiffs manufacture and distribute plasma televisions. In October 2007, they tendered the defense of a trade dispute brought by E & S (the underlying action) to Coretronic Corporation's insurer, INA. INA retained Cozen as coverage counsel to investigate plaintiffs' demand for coverage and a defense. The Cozen attorneys assigned to represent INA were defendants Bortnick and Partos. INA denied the claim in late February 2008. Despite INA's denial of coverage, Attorney Partos appeared on behalf of INA at a mediation between plaintiffs and E & S in March 2008.

Plaintiffs and Cozen continued to correspond, ostensibly for the purpose of having INA reconsider its denial of coverage. Plaintiffs' counsel had several communications with Cozen lawyers by mail, email and telephone in June *1386 2008, in which plaintiffs' counsel described plaintiffs' analysis of liability and damages in the underlying action and their settlement posture. In mid-June 2008, plaintiffs sent Cozen copies of E & S's statutory offers to compromise, together with information disclosing plaintiffs' counsel's evaluation of E & S's settlement demand and how much plaintiffs would be willing to contribute to settle the case. Also in June 2008, plaintiffs sent Cozen a copy of the confidential mediation brief they had prepared for the March **257 2008 mediation. In late June 2008, Attorney Partos went to the office of plaintiffs' counsel to review the file. Plaintiffs' counsel later emailed copies of the documents to Partos that he requested after his review of the file, with the subject heading "E & S v. Coretronic," and in other communications plaintiffs' counsel disclosed plaintiffs' strategy for the defense of the underlying action.

Meanwhile, also in June 2008, while plaintiffs were disclosing to the Cozen lawyers confidential information about the defense of the underlying action, without plaintiffs' knowledge, the Cozen firm—specifically Attorney Partos—undertook the representation of E & S in an unrelated lawsuit that E & S brought against another company in Los Angeles Superior Court. In early July 2008, Partos disclosed to plaintiffs for the first time that Cozen "had dropped the ball" and was concurrently representing E & S in another Los Angeles Superior Court action at the same time Cozen was gathering confidential information regarding plaintiffs' defense of the underlying action E & S had brought against them. Partos denied knowing that the E & S entity that sued plaintiffs in the underlying action was the same E & S his firm was representing, until he attended a July 2, 2008 status conference in the other action. Cozen thereafter withdrew its representation of E & S in that action, but continued to represent INA.

Plaintiffs moved for terminating sanctions against E & S in the underlying action, arguing that plaintiffs were required, under their contractual duty to cooperate with their insurer, INA, to open their litigation files to Cozen. Plaintiffs contended that due to Cozen's representation of E & S, Cozen owed conflicting duties of loyalty to E & S and INA, and that Cozen's conduct irreparably compromised and "tainted" plaintiffs' defense of the E & S litigation. Plaintiffs maintained that the trial court had the inherent authority to dismiss the action because Cozen's conduct " 'threatened the integrity of the judicial process.' [Citation.]" The trial court denied the motion, reasoning that "[w]hen Partos reviewed [Coretronic's] files, it was acting as INA's coverage counsel, not E & S's counsel. There is no evidence that E & S ever authorized Cozen to act as INA's coverage counsel, as only INA could have done that ... E & S did not know that Cozen had been engaged by INA or what Cozen did or was going to do for INA. [¶] ... Coretronic has not shown any wrongdoing by E & S in this action, nor any disclosure of any confidential information relevant to this suit, to justify the nuclear remedy of dismissal."

*1387 Coretronic Corporation then filed this action against Cozen, Bortnick, Partos, INA, and E & S, claiming fraud, misrepresentation, concealment, abuse of process, conversion, conspiracy, breach of implied covenant of good faith and fair dealing, negligence, and injunctive relief. The complaint alleges the Cozen lawyers concealed their concurrent status as E & S's counsel in the other action as a means to gain access to plaintiffs' sensitive information that would benefit E & S in its lawsuit against plaintiffs.

Defendants Cozen, Bortnick, and Partos filed a special motion to strike the complaint in this action. INA joined in the motion. The trial court denied the motion, finding plaintiffs' claims did not fall within the ambit of the SLAPP statute. Specifically, the trial court found, "Coretronic is not suing Cozen because of their advice to INA to deny coverage; rather, Coretronic is suing Cozen for alleged ethical transgressions (intentional or not) of representation of parties in which a conflict may or **258 may not exist." This timely appeal followed.

DISCUSSION

1. Standard of Review

A defendant opposing a SLAPP claim may bring a special motion to strike any cause of action "arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or California Constitution in connection with a public issue." (§ 425.16, subd. (b)(1).) A special motion to strike may be addressed to individual causes of action and need not be directed to the complaint as a whole. ( Shekhter v. Financial Indemnity Co. (2001) 89 Cal.App.4th 141, 150, 106 Cal.Rptr.2d 843.)

An anti-SLAPP motion involves a two-step process. First, the defendant must make a threshold showing that the challenged causes of action arise from protected activity. Then, the burden shifts to the plaintiff to demonstrate a probability of prevailing on the claims. ( Taus v. Loftus (2007) 40 Cal.4th 683, 712, 54 Cal.Rptr.3d 775, 151 P.3d 1185.) In ruling on an anti-SLAPP motion, the trial court considers "the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based." (§ 425.16, subd. (b)(2).) Our review on appeal is de novo. ( Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3, 46 Cal.Rptr.3d 638, 139 P.3d 30.)

*1388 2. Protected Activity

a. Legal standards

The defendant has the burden of making a prima facie showing that one or more causes of action arise from an act in furtherance of the constitutional right of petition or free speech in connection with a public issue. ( Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67, 124 Cal.Rptr.2d 507, 52 P.3d 685.) The defendant need not prove that the challenged conduct is protected by the First Amendment as a matter of law; only a prima facie showing is required. ( Wilcox v. Superior Court (1994) 27 Cal.App.4th 809, 820, 33 Cal.Rptr.2d 446, disapproved on other grounds by Equilon Enterprises, supra, at p. 68, fn. 5, 124 Cal.Rptr.2d 507, 52 P.3d 685.) Arguments about the merits of the claims are irrelevant to the first step of the anti-SLAPP analysis. ( Freeman v. Schack (2007) 154 Cal.App.4th 719, 733, 64 Cal.Rptr.3d 867 ( Freeman ) [it is irrelevant that defendant might prevail on the merits of the claims where defendant cannot meet the first prong of the analysis]; Birkner v. Lam (2007) 156 Cal.App.4th 275, 284, 67 Cal.Rptr.3d 190 [affirmative defenses, such as the litigation privilege, are not relevant to...