Haight Ashbury Free Clinics, Inc. v. Happening House Ventures

• Decision Date: 01 September 2010
• Docket Number: No. A125264.,A125264.
• Citation: 184 Cal.App.4th 1539,110 Cal.Rptr.3d 129
• Court: California Court of Appeals Court of Appeals
• Parties: HAIGHT ASHBURY FREE CLINICS, INC., Plaintiff and Respondent, v. HAPPENING HOUSE VENTURES, et al., Defendants and Appellants.

184 Cal.App.4th 1539

110 Cal.Rptr.3d 129

HAIGHT ASHBURY FREE CLINICS, INC., Plaintiff and Respondent,

v.HAPPENING HOUSE VENTURES, et al., Defendants and Appellants.

No. A125264.

Court of Appeal, First District, Division 5, California.

May 26, 2010.

Rehearing Denied June 22, 2010.^*

Review Denied Sept. 1, 2010.^*

Orrick, Herrington & Sutcliffe LLP, William F. Alderman, San Francisco, and Susan D. Resley, Menlo Park, for Plaintiff and Respondent.

Shartsis Friese LLP, Frank A. Cialone and Felicia A. Draper, San Francisco, for Defendants and Appellants.

JONES, P.J.

Respondent Haight Ashbury Free Clinics, Inc., (HAFCI) filed a complaint against appellants Happening House Ventures (HHV) and David E. Smith alleging Smith had violated his fiduciary duties to HAFCI. HHV and Smith filed a motion to strike under the SLAPP statute (Code Civ. Proc., § 425.16 ¹), ARGUING THAT TWO OF THE CAUSES OF ACTION HAFCI ALLEGED MUST BE dismissed because they were based in part on constitutionally protected activity. The trial court disagreed and denied the motion. HHV and Smith now appeal arguing the trial court erred when it denied their motion. We agree and will hold that acts that are protected under the SLAPP statute are not "merely incidental" to a causeof action simply because they represent a relatively small number of many alleged wrongful acts.

I. FACTS AND PROCEDURAL HISTORY

In 1967, appellant David E. Smith founded HAFCI, a nonprofit corporation that provides free medical services in San Francisco. Also in 1967, Smith founded appellant HHV, which became a limited partnership by 1977. HHV was formed to assist HAFCI by acquiring San Francisco real estate, which would serve as a home for HAFCI's services and ultimately be acquired by HAFCI at HHV's cost less the mortgage balance. Smith was the general partner of HHV, and HAFCI became a limited partner in 1977.

HHV acquired three buildings in San Francisco for HAFCI's use (the Buildings) and leased them to HAFCI, which used them in its operations.

In 2005, a dispute arose between HAFCI and HHV, and the HAFCI board of directors removed Smith from his position as HAFCI's president.

A. The Partnership Case

In August 2005, HAFCI filed a lawsuit against HHV, Smith, and HHV's administrator David Newlin (Newlin), entitled Haight Ashbury Free Clinics, Inc. v. Happening House Ventures, et al., San Francisco County Superior Court, No. CGC-05-444472 (the Partnership Case). HAFCI sought an accounting of limited partnership interests in HHV and a judicial declaration of the amount of HAFCI's proper partnership interest in HHV.

After a trial, the court determined in July 2008 that HAFCI's proper percentage of interest in HHV was 30.68 percent.

B. The Lease Case

Meanwhile, in March 2006, HHV filed a lawsuit against HAFCI, entitled Happening House Ventures v. Haight Ashbury Free Clinics, Inc., in San Francisco County Superior Court, No. CGC-06-450040 (the Lease Case). HHV alleged that HAFCI had breached its lease with HHV (the Lease), which obligated HAFCI to repair, keep and maintain the Buildings in good condition, return them to HHV in the same condition as when received (reasonable wear and tear excepted), and comply with governmental requirements regarding the Buildings.²

In March 2008, HHV accepted HAFCI's offer to settle the Lease Case pursuant to section 998. The court entered judgment in HHV's favor and awarded HHV prejudgment interest, attorney fees, and costs, for a total judgment of $594,237.95. HAFCI appealed the awards of prejudgment interest, attorney fees and costs. We affirmed the award of prejudgment interest in case No. A122792, and HAFCI abandoned its appeal of the fees and costs award in case No. A124121.

HHV obtained a writ of execution on the Lease Case judgment and began to levy on HAFCI's property.

C. This Proceeding

In January 2009, HAFCI filed the instant lawsuit against HHV and Smith (the Dissolution Case). The first and second causes of action seek a declaratory judgment that theHHV limited partnership has been dissolved or, in the alternative, ajudicial decree dissolving HHV. The third cause of action, against Smith in his individual capacity, alleges that Smith breached fiduciary duties he owed to HAFCI as general partner of HHV and as a director, officer, and key employee of HAFCI. A fourth cause of action incorporates the allegations of the third cause of action and seeks an accounting based on Smith's purported breaches of his fiduciary duties.

1. The Third Cause of Action

Of particular relevance to this appeal is HAFCI's third cause of action, which alleges that Smith breached his fiduciary duties to HAFCI in several ways. In part, the cause of action is based on the allegation that Smith allowed Newlin to manage key aspects of HAFCI's and HHV's business (including granting Newlin power of attorney to perform Smith's duties as general partner of HHV) without adequate supervision, resulting in Newlin's commission of a number of wrongful and improper acts. In addition, paragraph 31 in the third cause of action asserts that Smith breached his fiduciary duties to HAFCI by committing numerous other acts, two of which would become the subject of the motion at issue in this appeal (and which we set forth in italics): "(a) purporting to consent on behalf of all HHV limited partners, including HAFCI, to waive their right to purchase HHV interests that other limited partners wished to sell; [¶] (b) engaging in the conduct found to be improper in the Decision in the Partnership Case; [¶] (c) engaging in conduct designed to enhance Smith's personal tax position in ways that were of no benefit to HAFCI as a nonprofit corporation; [¶] (d) failing to give HAFCI the opportunity promised by HHV and Smith to acquire the three HHV Buildings at HHV's cost less the mortgage balance; [¶] (e) using rent paid by HAFCI under the Lease to build Smith's personal wealth through the acquisition of real estate partnerships, other securities and tax benefits; [¶] (f) diverting HAFCI opportunities to himself; [¶] (g) using HAFCI resources for his personal use; [¶] (h) causing HHV to pay the legal expense of defending him against his own breaches of fiduciary duties to HAFCI; [¶] (i) causing HHV to enter into a settlement agreement with Newlin under which HHV recovered far less than the damage caused by Newlin's conduct as described above and released all claims against Newlin; [¶] (j) causing HAFCI to consent to a Lease that imposed on HAFCI all of the burdens of ownership of the Buildings without receiving any of the benefits of ownership; [¶] (k) causing HHV to pay personal expenses; [¶] ( l ) saddling HAFCI with the obligation to repay a 1985 'loan' from HHV at a time when HAFCI's rent payments to HHV exceeded the combined amount of the loan and HHV's expenses for the Buildings, in effect 'loaning' back to HAFCI a portion of HAFCI's own excessive rent payments; [¶] (m) using HHV's securities accounts for the benefit of SFREIC and other Smith-related entities; [¶] (n) causing HHV to enter into a settlement with its former attorney Arthur Brunwasser thatinsufficiently compensated HHV for Brunwasser's conflicts of interest in representing HHV, Smith and Newlin at the same time; [¶] (o) willfully conspiring with Newlin to have both of them testify falsely in depositions in the Partnership Case in what Smith described as a 'legal compromise;' and [¶] (p) willfully misrepresenting facts surrounding the claims in the Partnership Case in a letter to the San Francisco Bay Guardian." (Italics added.)

The complaint alleges that "Smith's breaches of fiduciary duty alleged above proximately caused injury to HAFCI and/or HHV and entitle them to recoverdamages from Smith." (Italics added.) ³

2. Motion to Strike

Appellants' counsel informed HAFCI's counsel that appellants intended to file a SLAPP motion based on the allegations in paragraphs 31( o ) and 31(p), explaining that the allegations regarding the discussion of deposition testimony and the letter to the newspaper "need to be dropped." Early in a string of e-mail messages, HAFCI's attorney proposed that they try to resolve the issue "without a motion," disagreed with appellants' position, but asked to postpone further discussion until after HAFCI's attorney returned to town.

While HAFCI's counsel was still away, HHV and Smith filed their special motion to strike the third and fourth causes of action of HAFCI's complaint pursuant to section 425.16, on the grounds that those causes of action were based on activity protected by the SLAPP statute. In particular, HHV and Smith urged that the allegations of a conspiracy to testify in deposition, and the allegations of false statements in a letter to a newspaper about the Partnership Case, targeted activity in furtherance of Smith's constitutional right to free speech and petition.⁴

In support of the motion to strike, Smith submitted a declaration explaining the activity alleged in paragraphs 31( o ) and 31(p). As to the alleged conspiracy to testify falsely in deposition, Smith averred that at a meeting with Newlin and their attorney in the Partnership Case, he proposed that he and Newlin testify to events surrounding a transfer of partnership units from HAFCI to Newlin as they each remembered them, but that they also note that the other person had a different recollection. As to the letter to the newspaper, Smith averred that his attorney in the Partnership Case demanded that hesend a letter affirming Newlin's version of the events surrounding the transfer of the partnership units, his attorney prepared the letter and the letter was sent to the newspaper, which published it in April 2006. Appellants also submitted a copy of the decision in the Partnership Case, in which the judge stated there was no evidence that HHV authorized or ratified Newlin's misconduct in converting HHV units owned by HAFCI, and there was no finding that Smith had not acted in good faith or in a manner he reasonably believed to be...