Freeman v. Schack

• Citation: 64 Cal.Rptr.3d 867,154 Cal.App.4th 719
• Decision Date: 27 August 2007
• Docket Number: No. D048583.,D048583.
• Court: California Court of Appeals
• Parties: Arleen FREEMAN et al., Plaintiffs and Appellants, v. Alexander SCHACK, Defendant and Respondent.

64 Cal.Rptr.3d 867

154 Cal.App.4th 719

Arleen FREEMAN et al., Plaintiffs and Appellants, v. Alexander SCHACK, Defendant and Respondent.

No. D048583.

Court of Appeal, Fourth District, Division 1.

August 27, 2007.

Barry & Associates and David Barry, for Plaintiffs and Appellants.

Law Offices of Anthony A. Ferrigno, Anthony A. Ferrigno; and Alexander M. Schack, for Defendant and Respondent.

O'ROURKE, J.

Plaintiffs Arleen Freeman and James Alexander appeal from a judgment entered after the trial court granted defendant Alexander Schack's special motion to strike their complaint under Code of Civil Procedure section 425.16.¹ Plaintiffs sued Schack for breach of contract, professional negligence and breach of fiduciary duty based on allegations that he had entered into a contract by which he assumed attorney-client duties toward plaintiffs but abandoned them in order to represent adverse interests in the same and different litigation, thus breaching the contract as well as the fiduciary duties owed them. The trial court granted Schack's special motion to strike as to all causes of action on grounds plaintiffs' causes of action stemmed from petitioning activity and plaintiffs did not demonstrate a probability of prevailing on their causes of action because the Noerr-Pennington doctrine² provided a complete defense.

Plaintiffs contend the trial court erred in granting the special motion to strike because (1) Schack did not meet his burden of proving his actions—which constitute violations of State Bar Rules of Professional Conduct—were constitutionally protected; (2) plaintiffs satisfied their burden of showing a likelihood of prevailing on the merits; and (3) the Noerr-Pennington doctrine does not apply and cannot provide Schack with a defense. We conclude section 425.16 does not apply to plaintiffs' causes of action and on that basis reverse the judgment with directions that the trial court deny the special motion to strike.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs are real estate agents in San Diego County who were represented by attorney David Barry in filing lawsuits against Sandicor and other entities for alleged violations of California's antitrust laws and other assertedly unlawful acts. (See Freeman v. San Diego Ass'n of Realtors (1999) 77 Cal.App.4th 171, 177-178, 91 Cal.Rptr.2d 534; California Ass'n of Realtors v. Barry (D048441, May 22, 2007), 2007 WL 1475652 [nonpub. opn.].)³ Sandicor operated a real estate sales multiple listing service in San Diego County. (Freeman, 77 Cal.App.4th at p. 177, 91 Cal.Rptr.2d 534.) In March 2003, plaintiffs succeeded in reversing a summary judgment on appeal in the Ninth Circuit in a federal district court case, Freeman et al. v. San Diego County Board of Realtors et al, United States District Court, Case No. 98-CV-0139 TW (JAH) (hereafter Freeman II).⁴ On the day the Ninth Circuit filed its decision, Schack telephoned Barry and asked if Barry could use his help in prosecuting the case. Schack described himself as a class action attorney who did antitrust litigation and explained his credentials in detail. Barry accepted Schack's offer, telling Schack about the arrangement he had with other attorneys and explaining the division of contingent fees in the event of success. During the course of several conversations that day, Barry and Schack discussed the overall strategy of plaintiffs' case, including matters such as getting plaintiffs certified as class representatives and an early trial on damages.

The next week, Barry drafted a fee agreement for the attorneys who would represent plaintiffs in what he referred to as "phase 2" of the case: the legal proceedings following the Ninth Circuit's decision. Those attorneys were Barry, Schack, attorney Richard Johnson and occasionally Ken Frost. Barry sent Schack a copy of an earlier fee agreement and, over several revisions, Barry, Johnson and Schack negotiated over the language for the phase 2 fee agreement. The versions of that fee agreement confirmed that the phase 2 attorneys had attorney-client duties to plaintiffs.

In April 2004, Barry, Johnson and Schack signed an "Attorney Association and Fee Sharing Agreement" (the Fee Sharing Agreement) relating to the pending Freeman II litigation. The Fee Sharing Agreement contains provisions addressing the legal relationship between and respective responsibilities of Barry and the other phase 2 attorneys. In particular, the Fee Sharing Agreement stated that the phase 2 attorneys were not parties to the existing attorney-client relationships between Barry and plaintiffs, but "agree they will take no action which would breach any obligation owed to any client(s)" and "acknowledge that, in undertaking the services covered by this agreement, they are subject to all responsibilities and obligations owed by attorneys to their clients under applicable law ... as to each and every client who is or hereafter becomes a plaintiff in [Freeman II], and for whom a signed written agreement is provided by Barry, to the extent each respective phase 2 attorney provides services hereunder."

At various times during March, April and May 2003, Barry and Schack communicated by telephone, e-mail and letter about various matters concerning the case, including class certification, damages proof and a proposed damages expert, pending motions and settlement strategies.⁵ On June 3, 2003, Schack emailed Barry and Johnson concerning his involvement in the cases. He wrote: "In signing the agreement to split fees, it was intended that all clients would give their written consent before the agreement was effective. Before that consent was obtained, I deemed it necessary to withdraw from the agreement based on certain confidential circumstances. I will continue to assist you in any way necessary to benefit my client and the class, and look for a successful resolution of these matters."

Barry and Schack continued their communications through April 2004. In April 2004, Schack and attorney Dan Mogin, with whom Schack frequently worked, filed a motion on behalf of "proposed plaintiff in-intervention" Alan Hemphill to have Hemphill intervene as a representative of the proposed class in Freeman II. In part, Schack and Mogin argued Hemphill, a purchaser and end-user of multiple listing services in San Diego who was "acting independently of the Freeman Plaintiffs," satisfied typicality and other requirements to represent the class unlike plaintiffs, who were inadequate representatives.

In May 2004, Freeman, Schack, Barry, and Mogin participated in a mediation planning session in Los Angeles. At the mediation, Schack and Mogin began proposing that Freeman II should be settled for coupons to the class members valued at approximately $30 or less. The settlement would not provide for real estate agents who had dropped out of the industry since 1994. It would provide for a $1 million payment to Schack and Mogin. Freeman and Barry expressed their opposition to the idea. After the mediation, Barry ceased conveying privileged or confidential information and work product to Schack because Barry believed Schack was representing interests adverse to plaintiffs.

In June 2004, Barry attended a judicial settlement conference at which Mogin and Schack appeared representing Hemphill. Before they addressed the court, Mogin and Schack told Barry and Freeman that an agreement in principle had been worked out by which the defendants would provide class members free use of Sandicor services for four consecutive Januarys, but members who left real estate without using that opportunity would forfeit those usage rights. The settlement did not provide for members who left the real estate business. Mogin and Schack stated they expected attorney fees to be about $1 million to be paid in cash. Moments later, the magistrate judge presiding over the settlement conference confirmed that an agreement in principle had been reached with the Freeman II defendants. Barry and Freeman advised the court they were strongly against such a settlement; Barry described the assets available to the Freemart II defendants with which they could fund a fair settlement.

Several days after the settlement conference, Barry wrote to Schack demanding that he and his client immediately withdraw from Freeman II or Barry would move to disqualify them from the lawsuit based on current conflicts of interest in their representation of Hemphill, Freeman and Alexander. Barry eventually unsuccessfully brought a disqualification motion. Schack and Mogin filed a new federal court action on Hemphill's behalf and obtained preliminary approval of a settlement class that excluded Freeman and Alexander. Freeman and Alexander settled and dismissed their action in November 2004.

In January 2005, plaintiffs, on behalf of themselves and a putative class, sued Schack, Mogin and other entities for breach of contract, professional negligence and breach of fiduciary duty. They alleged Schack had assumed attorney-client duties to plaintiffs in March 2003, executed a written agreement in April 2003 reflecting his assumption of such duties and pledging, among other things, to use his best efforts to obtain a full recovery of damages to the class, but breached the agreement by representing Hemphill, filing a new lawsuit on Hemphill's behalf, and concluding the Hemphill litigation.

Schack moved to strike the complaint under section 425.16 and joined in Mogin's own section 425.16 motion. He argued plaintiffs' causes of action were based on written or oral statements or writings made before a judicial proceeding, written or oral statements or writings made in connection with an issue under consideration or review by a judicial body, or other conduct in furtherance of the exercise of the constitutional right of petition. (§ 425.16 subds. (e)(1), (e)(2) & (e)(4)). On this prong, Schack argued that "all of the conduct alleged in the Complaint arose out of petitioning activity,...