Zhang v. Jenevein
| Decision Date | 02 January 2019 |
| Docket Number | B280047 |
| Citation | 31 Cal.App.5th 585,242 Cal.Rptr.3d 800 |
| Parties | Sherman XUMING ZHANG, et al., Plaintiffs and Respondents, v. E. Patrick JENEVEIN III, Defendant and Appellant. |
| Court | California Court of Appeals Court of Appeals |
McKool Smith Hennigan, J. Michael Hennigan, Kirk D. Dillman and Robert J. King, Los Angeles, for Defendant and Appellant.
Dentons US and Michael H. Bierman, Los Angeles, for Plaintiffs and Respondents.
E. Patrick Jenevein III, president of Tang Energy Group, Ltd., secretly recorded conversations with a business associate, Sherman Xuming Zhang, president of AVIC International USA, Inc. (AVIC USA), and later introduced the recordings as evidence in contractual arbitration. The arbitrators ultimately issued an award in favor of Tang Energy.
After the arbitration, Zhang and AVIC USA filed this action against Jenevein for invasion of privacy and eavesdropping on or recording confidential communications in violation of Penal Code sections 632 and 637.2. Jenevein filed a special motion to strike under Code of Civil Procedure section 425.16 ( section 425.16 ). The trial court denied the motion, ruling that neither making the recordings nor using them as evidence in the arbitration was protected activity.
The trial court was correct. Because Jenevein's actions in recording the conversations and using the recordings in the arbitration were not in connection with a judicial or official proceeding authorized by law, they were not protected activities under section 425.16. Therefore, we affirm.
In 2008 Tang Energy, Aviation Industry of China (AVIC HQ) through its subsidiary AVIC USA, and others formed Soaring Wind Energy LLC (Soaring Wind) to develop wind farms and promote wind power equipment sales.1 The parties executed a contract titled "Limited Liability Company Agreement of Soaring Wind Energy, LLC" (the Soaring Wind agreement). As part of the contract, the parties agreed that Soaring Wind's "Business" would be "to provide worldwide marketing of wind energy equipment, services, and materials related to wind energy including, but not limited to, marketing wind turbine generator blades and wind turbine generators and developing wind farms." The agreement included an exclusivity provision stating that, "during the term of this Agreement, each [party] shall only conduct activities constituting the Business in and through the Company and its Controlled subsidiaries."
The Soaring Wind agreement included an arbitration provision applying, with exceptions not applicable here, to "any controversy, dispute or claim arising under or related to" the agreement, including "whether any [p]erson is in ... breach of any provision of" the agreement. The agreement also provided:
In 2013 Jenevein learned AVIC HQ had created a number of subsidiaries he thought were competing with Soaring Wind. Jenevein believed that by competing with Soaring Wind AVIC HQ breached the Soaring Wind agreement and that Tang Energy should demand arbitration on that claim. Jenevein also knew the relationship between AVIC HQ and its subsidiaries would be a central issue in an arbitration. Jenevein's theory was that "AVIC USA was in breach of the [Soaring Wind] Agreement if AVIC HQ controlled both AVIC USA and AVIC HQ's other subsidiaries that were engaged in direct competition with Soaring Wind." In anticipation of an arbitration, Jenevein gathered evidence to support Tang Energy's claim against AVIC HQ and AVIC USA by recording at least two conversations with Zhang about the corporate relationships.
First, on March 22, 2014 Jenevein recorded a conversation with Zhang during a meeting at a restaurant. According to Jenevein, Zhang and Jenevein spoke within earshot of other patrons, and neither of them made any effort to keep his voice down or to conceal the conversation. Zhang said he selected a table away from other people at the restaurant, and both men stopped talking when the server approached the table. Zhang intended the conversation to be private and believed that it was.
Second, on June 12, 2014 Jenevein recorded a telephone conference call in which Jenevein, Zhang, and five other people participated. Jenevein said he and Zhang were in a room together when Jenevein dialed into the conference call on a speakerphone and heard a "clearly audible" announcement the call was being recorded. Zhang denied hearing the announcement and recalled that "[n]either Jenevein nor anybody else stated that the call was being recorded."
Tang Energy filed a demand for arbitration against AVIC HQ and AVIC USA and, subsequently, a claim on behalf of Soaring Wind. Although the record does not include any formal rulings by the arbitrators, the parties agree the arbitrators allowed Tang Energy to introduce the recorded conversations as evidence in the arbitration. The arbitrators found affiliates of AVIC USA had marketed wind energy equipment, services, and materials in violation of the exclusivity provision of the Soaring Wind agreement. The arbitrators awarded Tang Energy and Soaring Wind over $65 million in damages, attorneys' fees, and expenses. A federal district court in Texas affirmed the arbitration award, and AVIC USA's appeal from that decision is pending in the United States Court of Appeals for the Fifth Circuit.
Meanwhile, after the arbitrators issued their award, Zhang and AVIC USA filed this action against Jenevein, alleging a cause of action for eavesdropping on or recording confidential communications under Penal Code sections 632 and 637.2.2 Zhang and AVIC USA alleged that Jenevein used the recorded conversations with Zhang as evidence against AVIC USA in the arbitration and that the recorded conversations "were an important part of the evidence the [arbitration] panel relied on and a material factor in the [panel's] decision." Zhang alleged a second cause of action for common law invasion of privacy. Zhang alleged:
Jenevein filed a special motion to strike pursuant to section 425.16. Jenevein argued that this action arose from the exercise of his constitutional right of petition or free speech in connection with an arbitration proceeding and that Zhang and AVIC USA could not establish a probability of prevailing. Zhang and AVIC USA argued in opposition to the motion that their claims did not arise from protected activity because contractual arbitration is not a judicial or official proceeding and because their claims arose from Zhang's acts of recording and not the subsequent use of the recordings in the arbitration. Zhang and AVIC USA also argued they had shown a probability of success on the merits of their claims. The trial court denied the motion, concluding neither recording the conversations nor using them as evidence in a contractual arbitration was protected activity. Jenevein timely appealed.
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