People ex rel. Gallegos v. Pacific Lumber

• Decision Date: 10 January 2008
• Docket Number: No. A112028.,A112028.
• Citation: 158 Cal.App.4th 950,70 Cal.Rptr.3d 501
• Parties: The PEOPLE ex rel. Paul GALLEGOS, as District Attorney, etc., et al., Plaintiffs and Appellants, v. The PACIFIC LUMBER COMPANY et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

70 Cal.Rptr.3d 501

158 Cal.App.4th 950

The PEOPLE ex rel. Paul GALLEGOS, as District Attorney, etc., et al., Plaintiffs and Appellants, v. The PACIFIC LUMBER COMPANY et al., Defendants and Respondents.

No. A112028.

Court of Appeal, First District, Division 3.

January 10, 2008.

As Modified February 1, 2008.

Paul V. Gallegos, District Attorney Humboldt County, Christa K. McKimmy, Deputy District Attorney, Humboldt County, for Appellant.

Edgar B. Washburn, Christopher J. Carr, William M. Sloan, Shaye Diveley, Morrison & Foerster LLP, San Francisco, for Respondent.

Dennis J. Herrera, City Attorney, Danny Chou, Chief of Appellate Litigation, for Amicus Curiae.

HORNER, J.^*

This is an appeal from a judgment in a lawsuit brought by the District Attorney for Humboldt County on behalf of the People of California (the State) under California's Unfair Competition Law, Business and Professions Code sections 17200 et seq. (UCL), for alleged fraudulent business practices. Judgment was entered against the State following the sustaining of a demurrer to the second amended complaint. In reaching the judgment, the trial court ruled that respondents The Pacific Lumber Company, Scotia Pacific Company LLC, and Salmon Creek LLC (collectively, Pacific Lumber) were immune from UCL liability under both California Civil Code section 47, subdivision (b) and under federal law pursuant to the so-called Noerr-Pennington doctrine, and that the State had failed to state a cause of action based on Pacific Lumber's alleged fraudulent business practices. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

On February 24, 2003, the State filed a complaint against Pacific Lumber asserting causes of action arising under the UCL. The allegations in the complaint stemmed from a 1996 agreement between Pacific Lumber, the State of California and the United States known as the Headwaters Agreement. Pursuant to the Headwaters Agreement, Pacific Lumber agreed to sell the Headwaters Forest, an ancient redwood forest, and other land to the state and federal governments for over $300 million and other consideration. In return, Pacific Lumber received assurances from those governments that it would be permitted to harvest certain of its remaining timberlands in accordance with, among other things, a sustained yield plan and habitat conservation plan approved by relevant state and federal agencies.¹

An exhaustive 3-year administrative review process ensued pursuant to the California Environmental Quality Act, Public Resources Code sections 21000 et seq. (CEQA), after which the appointed state agency, the California Department of Forestry and Fire Protection (CDF), certified the State's environmental impact report and, on or about March 1, 1999, approved Pacific Lumber's sustained yield plan and habitat conservation plan (referred to herein collectively as the Sustained Yield Plan). Following the issuance of all necessary federal and state permits, the Headwaters Forest purchase was thus completed.²

In its original complaint, the State alleged Pacific Lumber intentionally misrepresented and concealed crucial facts during the CEQA administrative proceedings held in connection with the Headwaters Agreement. Pacific Lumber demurred.

Before a hearing was held on Pacific Lumber's demurrer to the original complaint, the State filed a first amended complaint on May 27, 2003, raising essentially the same allegations. The trial court thereafter sustained Pacific Lumber's demurrer to the first amended complaint with leave to amend. The second amended complaint, the subject of this appeal, was then filed May 27, 2004.

In the second amended complaint, the State again alleged Pacific Lumber intentionally misrepresented and concealed crucial facts during the CEQA administrative proceedings held in connection with the Headwaters Agreement. In particular, the State alleged Pacific Lumber submitted a report containing false data in order to obtain approval from the CDF for an increased rate of timber harvesting and to ensure decreased environmental mitigation requirements. According to the second amended complaint, the false data was submitted to conceal a finding by a consultant hired by Pacific Lumber that new timber harvesting could trigger increased landslide frequency in the Bear Creek and Elk River watersheds. Worried such finding would result in issuance of permits for lower rates of harvesting, and thus would hinder its ability to meet certain of its financial obligations, Pacific Lumber allegedly devised a scheme to submit false data for Jordan Creek, a watershed adjacent to Bear Creek, which indicated, contrary to the Bear Creek and Elk River finding, that new harvesting would not likely trigger increased landslide frequency.

Pacific Lumber allegedly submitted this false data shortly after the end of the 90day period allowed under CEQA for public review and comment on Pacific Lumber's harvesting plan and on the State of California's environmental impact report.³ Pacific Lumber then allegedly delayed submitting corrected data for two months, and deliberately delivered the corrected data to the wrong place—to the North Coast Regional Water Quality Control Board and a local office of the CDF—rather than to the government offices designated to review public comments and to make final determinations on Pacific Lumber's permits.

According to the State, Pacific Lumber's submission of false data and delayed submission of corrected data undermined the legitimacy of the CEQA process by (1) precluding the preparation of an accurate environmental impact report open to public review and comment; and (2) allowing for the approval of Pacific Lumber's sustained yield plan and the issuance of permits based on incorrect information. The State thus sought civil penalties and other relief under the UCL to prevent Pacific Lumber from realizing profits on timber harvested pursuant to its allegedly fraudulently-obtained Sustained Yield Plan.

The trial court sustained Pacific Lumber's demurrer to the second amended complaint, this time without leave to amend. The trial court reasoned that Pacific Lumber was immune from liability for its conduct in connection with the underlying CEQA administrative proceedings under Civil Code section 47, subdivision (b), the so-called "litigation privilege," and under federal law according to the so-called Noerr-Pennington doctrine. Judgment was thus entered against the State. This appeal followed.

DISCUSSION

The State contends on appeal that the trial court erred by applying the litigation privilege under Civil Code section 47, subdivision (b) and the Noerr-Pennington doctrine under federal law to Pacific Lumber's alleged wrongful conduct in connection with the CEQA administrative process, and by deciding on demurrer as a matter of law that Pacific Lumber's alleged material concealments and misrepresentations did not undermine the legitimacy of that process.

We address the State's arguments in turn. In doing so, we apply well-established rules governing the appellate review of an order sustaining a demurrer. We thus must "give[ ] the complaint a reasonable interpretation, and treat[ ] the demurrer as admitting all material facts properly pleaded." (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317.) Because only factual allegations are considered on demurrer, we must disregard any "contentions, deductions or conclusions of fact or law alleged [in the complaint]." (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713, 63 Cal.Rptr. 724, 433 P.2d 732.) Further, because the demurrer at issue is to an amended complaint, we may properly consider allegations asserted in the prior complaints: "`A plaintiff may not discard factual allegations of a prior complaint, or avoid them by contradictory averments, in a superseding, amended pleading.' [Citation.]" (Continental Ins. Co. v. Lexington Ins. Co. (1997) 55 Cal.App.4th 637, 646, 64 Cal.Rptr.2d 116.)

Where, as here, the trial court has sustained a demurrer, we must determine whether the plaintiff has pleaded facts sufficient to state a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58 [Blank].) "The judgment must be affirmed `if any one of the several grounds of demurrer is well taken.' [Citation.]" (Aubry, supra, 2 Cal.4th at p. 967, 9 Cal. Rptr.2d 92, 831 P.2d 317.)

Finally, where, also as here, the demurrer was sustained without leave to amend, we must determine whether the plaintiff has proven a reasonable possibility that the pleading's defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.) If the plaintiff meets that burden, we must reverse the trial court's order as an abuse of discretion. (Ibid.)

Does the Litigation Privilege Bar the State's UCL Claims?

The trial court rejected the State's UCL action as a matter of law after finding it barred by Civil Code section 47, subdivision (b) (section 47(b)). Section 47(b) renders absolutely privileged communications made as part of a "judicial or quasi-judicial proceeding." (Silberg v. Anderson (1990) 50 Cal.3d 205, 212, 266 Cal.Rptr. 638, 786 P.2d 365 [Silberg]; Civ. Code, § 47, subd. (b); Action Apartment Assoc., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1241, 63 Cal.Rptr.3d 398, 163 P.3d 89 [Action Apartment].) "The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action." (Silberg, supra, at p. 212, 266 Cal.Rptr. 638, 786 P.2d 365.)

"The principal purpose of [the litigation privilege] is to afford litigants and witnesses [citation] the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. [Citations.]" (Action...