MMM Holdings, Inc. v. Reich ( 2018 )

Filed 3/12/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
MMM HOLDINGS, INC., et al.,
Plaintiffs and Appellants, G053739
v. (Super. Ct. No. 30-2015-00822123)
MARC REICH, OPINION
Defendant and Respondent.
Appeal from an order of the Superior Court of Orange County, Martha K.
Gooding, Judge. Affirmed.
Ervin Cohen & Jessup, Michael C. Lieb, Patrick A. Fraioli, and Leemore L.
Kushner for Plaintiffs and Appellants.
Spach, Capaldi & Waggaman, Madison S. Spach, Jr., and Thomas E.
Walling for Defendant and Respondent.
* * *
Plaintiffs, MMM Holdings, Inc. (MMM), and MSO of Puerto Rico, Inc.
(MSO), sued defendant Marc Reich, the attorney who represented their adversary in a
1
whistleblower qui tam action filed against plaintiffs in the United States District Court.
Alleging causes of action for claim and delivery, conversion, civil theft, unjust
enrichment, and unfair competition, plaintiffs contend Reich received, wrongfully
possessed, and refused to turn over, some 26,000 electronically stored documents his
client, Jose “Josh” Valdez, took with him in 2010 when he was terminated by MSO for
his allegedly “vocal opposition to what he perceived as Plaintiffs’ fraudulent practices.”
Reich filed a special motion to strike the complaint under Code of Civil
Procedure section 425.16, the anti-SLAPP (strategic lawsuit against public participation)
2
statute. The court granted the motion, concluding the claims asserted by plaintiffs
against Reich involved Reich’s petitioning activity protected by the anti-SLAPP statute,
and that plaintiffs had not shown, and could not show, a probability they would prevail
on any of their claims. We conclude the court did not err and affirm the order.
1
“A qui tam action has been defined as follows, ‘An action brought under a
statute that allows a private person to sue for a penalty, part of which the government or
some specified public institution will receive.’ [Citations.] The term ‘qui tam’ comes
from the Latin expression ‘qui tam pro domino rege quam pro se ipso in hac parte
sequitur,’ which means, “‘who pursues this action on our Lord the King’s behalf as well
as his own”.’” (People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534,
538.)
2
All further statutory references are to the Code of Civil Procedure unless
otherwise stated.
2
FACTS
The following facts are taken from the complaint, declarations, and
3
evidence submitted in connection with the special motion to strike. (§ 425.16, subd.
(b)(2) [“In making its determination, the court shall consider the pleadings, and
supporting and opposing affidavits stating the facts upon which the liability or defense is
based.”].)
The Earlier Lawsuits
MMM and its subsidiary, MSO, are Puerto Rico corporations. MMM
Healthcare, LLC and PMC Medicare Choice, LLC (collectively, the plans) are wholly
owned subsidiaries of MMM that operate Medicare Advantage plans in Puerto Rico
through a broad network of more than 5,000 contracted providers. MSO manages the
physician network under which the plans provide services to their members, and in that
regard, acts as an agent for the plans. The plans are health maintenance organizations
4
that contract with the Centers for Medicare and Medicaid Services.
Valdez served as president of MSO from April 2010 until his termination in
December 2010. According to Reich, Valdez contends he was terminated in retaliation
for his vocal opposition to plaintiffs’ fraudulent practices. Plaintiffs contend Valdez was
terminated because he was incompetent and failed to perform his job duties.
3
We limit our recitation to facts we deem legally significant.
4
“The Centers for Medicare & Medicaid Services, CMS, is part of the
Department of Health and Human Services.” ( [as of Jan. 22, 2018].) It administers programs including
Medicare, Medicaid, the Children’s Health Insurance Program, and the Health Insurance
marketplace.
3
While employed by MSO, Valdez possessed a company laptop and two
personal laptops that contained electronic data including emails and attachments he had
sent or received in the course of his employment; he also had a personal computer tablet
that contained notes he had taken during the course of his employment (collectively the
computers). When he was terminated, Valdez kept the computers and the electronic files
and notes they contained.
Reich has represented Valdez and his family since approximately 1997.
After he was terminated, Valdez provided the computers to Reich’s law firm. According
to Reich, he and his firm segregated all the files potentially subject to the attorney-client
privilege. Reich’s handling and later dissemination of the documents is the subject of
alleged wrongdoing in this case.
Following Valdez’s termination in December 2010, plaintiffs sought return
of all company documents and property. MSO contends a clause in Valdez’s
employment agreement required Valdez to immediately deliver the notes and all other
documents, information, and data to MSO upon his termination of employment. Reich
contends the clause is unenforceable because the documents contain evidence of fraud
against the United States government.
Within five months of Valdez’s termination, Valdez’s attorneys, including
Reich, filed under seal a qui tam action in the United States District Court for the Central
District of California entitled United States of America ex rel. Jose R. Valdez v. Aveta,
5
Inc., et al., case No. CV11-03343 GAF(JCx) (the qui tam action). Reich declared he and
his co-counsel used unprivileged documents found in the electronic files from the
computers to prepare the pleadings in the qui tam action.
The qui tam action alleges plaintiffs overcharged Medicare by more than
$1 billion dollars between 2007 and 2010 by manipulating Medicare Part C. The
5
In February 2015, the district court granted a motion to transfer the qui tam
action to the District of Puerto Rico.
4
operative first amended complaint alleges a violation of the False Claims Act (31 U.S.C.,
§ 3729 et seq.) and Valdez’s retaliatory discharge. The gist of the qui tam action is that
plaintiffs knowingly submitted inaccurate, incomplete, and misleading data to the
government in order to increase payments made to the plans and that plaintiffs retaliated
against Valdez for his speaking out about plaintiffs’ overbilling practices.
It appears not much occurred between April 2011 and January 2014.
Plaintiffs apparently stopped demanding documents and were unaware of the qui tam
action. In January 2014, the United States declined to intervene in the qui tam action.
The complaint was unsealed and served. Plaintiffs first became aware of the qui tam
action at that time.
With the qui tam action now underway, in August 2014 plaintiffs’ counsel
sent a letter to Valdez’s attorney, Thomas H. Bienert, Jr., (with a copy to Reich) inquiring
as to whether Valdez or his counsel had any company documents. In September 2014,
Bienert responded yes, and in October 2014, another attorney from Reich’s firm sent
plaintiffs an external hard drive that contained over 26,000 emails and other documents
6
of plaintiffs and/or their affiliates.
Plaintiffs allege that in or about December 2014, MMM first learned that in
October 2014 Reich converted for his own use and then e-mailed a digital copy of some
of the documents to another attorney, Freddie Perez of Puerto Rico. Plaintiffs’ attorney,
Christopher Joyce, declared this revelation occurred during the deposition of plaintiffs’
CEO Richard Shinto in an action filed by plaintiffs and their affiliates against a
terminated medical provider seeking recoupment of improper payments (the Marini
action). Perez represented the Marini defendants, who filed counterclaims against
plaintiffs herein alleging improper contract termination and inappropriate claim denials.
During the deposition, Perez asked Shinto to review four emails provided to him by
6
Plaintiffs characterize the drive as a thumb drive.
5
Reich. Plaintiffs’ attorney, Patrick A. Fraioli, declared the four emails are confidential
and proprietary.
Plaintiffs allege Reich intentionally sought out Perez for his own purposes
and without direction from Valdez (whom plaintiffs allege was incapacitated) in violation
of Reich’s “ethical duties and California law” and that he provided Perez with copies of
plaintiffs’ documents having no connection or relation to the qui tam action for Perez’s
potential use in unrelated litigation. Reich declared the documents are related to both the
qui tam action and the Marini action “because both actions involve [p]laintiffs’ retaliation
against providers for providing expensive, but necessary, care and the failure to pay non-
network providers for emergency services.” Thus, Reich contends he provided
documents to Perez to help prove the common issue of plaintiffs’ failure to pay non-plan
providers for emergency services provided to plaintiffs’ insureds.
Aside from Perez, plaintiffs also allege Reich provided documents to
“numerous other individuals throughout the United States” including attorneys not
associated with Valdez or the qui tam action. Based on evidence submitted in connection
with the anti-SLAPP motion, this allegation appears to relate in part to a 2012 class
arbitration filed by medical health service providers alleging plaintiffs and their affiliates
underpaid medical specialists under the terms of their contracts in 2010 (the Vazquez
arbitration). Attorney Alan Plutzik represented the claimants. According to Attorney
Joyce, all the claims in the Vazquez arbitration relate to alleged breach of provider
7
contracts, not fraud.
7
The demand for arbitration alleges counts for breach of contract, breach of
implied duty and covenants to exercise good faith and fair dealing, and restitution/unjust
enrichment.
6
Plaintiffs’ evidence includes a so-called “Dissemination Chart” identifying
certain of plaintiffs’ documents that Reich admits he provided to Plutzik in 2011, 2013,
8
and 2014. Plaintiffs’ attorneys, Joyce and Paul Klausner, declare the “CMS Fee
Schedule Rationale,” one of the documents provided to Plutzik, is protected by the
attorney-client privilege and work product doctrine. Reich disputes this characterization
because the document discusses economic benefits and drawbacks of various options in
making a business decision and does not contain legal advice or reference any lawyer’s
9
name.
Joyce also declared another document that lists the names, specialties, and
2010 bonus payments of specialist medical providers was also disseminated to Plutzik,
and he states this document contains highly confidential and proprietary information akin
to a customer list. Klausner also declared another document, an October 27, 2010 e-mail
from Shinto to Valdez was privileged. Reich denied any documents he provided Plutzik
were privileged.
Reich justified providing documents to Plutzik by declaring Plutzik was
one of the attorneys who considered representing Valdez in the qui tam action. Further,
Reich declared Plutzik was attempting to prove in the Vazquez arbitration that plaintiffs
underpaid fee-for-service medical providers, and that was one of the facts Valdez was
trying to prove in the qui tam action. Reich reasoned the documents could assist Plutzik
in his proof, which would collaterally estop plaintiffs from denying the fact in the qui tam
8
Reich also provided documents to Richard Graffam, Gary Lincenberg, Matt
Smith, Kyle Eisenmann, Scott Bursor, Justin Berger, Jim Spertus, Robert Nelson, Kevin
Budner, Carlos A. Del Valle Cruz, and Armando Lamourt. He declares these individuals
are attorneys, each of whom (except Graffam) he contacted to consider whether to
represent Valdez in the qui tam action. Plaintiffs do not elaborate on any of these
individuals.
9
Reich offered to provide the document to the trial court for an in camera
review. Apparently, the trial court declined, as we have not seen the document.
7
action, and therefore sharing of documents served their common interest. Reich pointed
out that in both the Vazquez arbitration and the qui tam action, it was alleged plaintiffs
underpaid providers by failing to pass on Medicare fee increases. According to Reich,
this was the basis for liability under the False Claims Act.
Plaintiffs allege the computers have not been provided to them, and, to their
dismay, Reich has not retrieved or attempted to retrieve documents that remain in the
hands of others. Even so, Reich points out in addition to the hard drive given to plaintiffs
in October 2014, in October 2015, Reich’s counsel provided plaintiffs’ counsel with all
the electronic handwritten notes Valdez provided to Reich’s firm. Therefore, according
to Reich, plaintiffs have had a complete set of all disputed documents since October
2015.
The Current Case
Plaintiffs filed their complaint in November 2015. They alleged causes of
action for claim and delivery, conversion, civil theft (receipt of stolen property —
violation of Pen. Code, § 496), restitution/unjust enrichment, and unfair competition
(violation of Bus. & Prof. Code, § 17200 et seq.). All the causes of action revolve around
plaintiffs’ basic contention Reich wrongfully took possession of documents, wrongfully
disclosed the documents to third parties, and wrongfully refuses to return them. Plaintiffs
request, inter alia, damages of at least $100,000, punitive and exemplary damages,
disgorgement of all “improper benefits, profits and/or gains, and restitution,” an order
enjoining Reich from continuing to violate his ethical obligations as an attorney an order
enjoining Reich from using the documents and an order for immediate disclosure and
return of the documents.
In January 2016, Reich moved to strike the complaint on grounds the case
is a SLAPP. The court granted the motion and found the claims asserted by plaintiffs
against Reich involve Reich’s petitioning activity protected by the anti-SLAPP statute,
8
because the principal thrust or gravamen of each of plaintiffs’ causes of action is that
Reich, while acting as Valdez’s attorney, received purportedly stolen, confidential and/or
privileged documents from his client who was or was about to be and still is embroiled in
litigation with plaintiffs and that he refuses to return them to plaintiffs despite their
demand. The court also found plaintiffs had not shown, and could not show, a
probability they would prevail on any of their claims, because all of plaintiffs’ claims are
directed at activity protected by the litigation privilege.
Plaintiffs timely appealed. The order granting the special motion to strike
is appealable. (§ 425.16, subd. (i).)
DISCUSSION
General Principles of Applicable Law
“A SLAPP suit — a strategic lawsuit against public participation—seeks to
chill or punish a party's exercise of constitutional rights to free speech and to petition the
government for redress of grievances.” (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1055
(Rusheen).) The Legislature has made SLAPP suits subject to a special motion to strike.
(Id. at pp. 1055-1056.)
“Resolution of an anti-SLAPP motion involves two steps. First, the
defendant must establish that the challenged claim arises from activity protected by
section 425.16. [Citation.] If the defendant makes the required showing, the burden
shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of
success. [The Supreme Court has] described this second step as a ‘summary-judgment-
like procedure.’ [Citation.] The court does not weigh evidence or resolve conflicting
factual claims. Its inquiry is limited to whether the plaintiff has stated a legally sufficient
claim and made a prima facie factual showing sufficient to sustain a favorable judgment.
It accepts the plaintiff's evidence as true, and evaluates the defendant's showing only to
9
determine if it defeats the plaintiff's claim as a matter of law. [Citation.] ‘[C]laims with
the requisite minimal merit may proceed.’” (Baral v. Schnitt (2016) 1 Cal.5th 376, 384-
385.) It has become common to refer to the first step as “prong one” of the analysis and
the second step as “prong two.”
We engage in the same analysis in our de novo review. (Oasis West Realty,
LLC v. Goldman (2011) 51 Cal.4th 811, 820.)
Reich’s Conduct Arises from Protected Activity
“At the first step of the anti-SLAPP analysis, a court considers ‘whether the
challenged claims arise from acts in furtherance of the defendants’ right of free speech or
right of petition under one of the categories set forth in section 425.16, subdivision (e).
[Citation.] In doing so, “[w]e examine the principal thrust or gravamen of a plaintiff's
cause of action to determine whether the anti-SLAPP statute applies . . . .” [Citation.]’
[Citation.] The ‘gravamen is defined by the acts on which liability is based, not some
philosophical thrust or legal essence of the cause of action.’” (Contreras v. Dowling
(2016) 5 Cal.App.5th 394, 404-405.)
Section 425.16, subdivision (e), sets forth four categories of protected
activity. Relevant here, section 425.16, subdivision (e)(4), defines protected activity to
include “any . . . conduct in furtherance of the exercise of the constitutional right of
petition or the constitutional right of free speech in connection with a public issue or an
10
issue of public interest.”
10
The trial court relied principally on Finton Construction, Inc. v. Bidna &
Keys (2015) 238 Cal.App.4th 200 and Bergstein v. Stroock & Strook & Lavan LLP
(2015) 236 Cal.App.4th 793. Both of these cases featured claims against a lawyer based
on the use of documents wrongfully obtained from the plaintiffs to pursue litigation on
behalf of the lawyer’s client against the plaintiffs. As we shall explain, plaintiffs’
principal complaint here is that in addition to using plaintiffs’ documents to pursue
litigation against plaintiffs directly on behalf of his client, Valdez, Reich transmitted
some of the documents to other lawyers who used them in pursuing litigation against
10
Plaintiffs allege five causes of action, all of which arise from Reich’s use of
the documents he received from Valdez. The gravamen of plaintiffs’ causes of action is
that Reich improperly distributed documents beyond what was permissible in his position
as Valdez’s counsel in the qui tam action. We begin by recognizing plaintiffs have
conceded, as they must, Reich’s use of documents received from Valdez in connection
11
with the qui tam action constitutes protected activity. To the extent distribution for use
by the qui tam action attorneys can be disentangled from distribution for use by non-qui
tam action attorneys, we are thus called upon to decide only whether Reich’s transmittal
of documents to non-qui tam action attorneys is protected. But as we will explain, it is
difficult to disentangle the two purposes; they significantly overlap.
What is clear, however, is that the distribution of documents for either
purpose was done “in furtherance of the exercise of the constitutional right of petition”
with respect to the Perez documents and “in furtherance of the exercise of the
12
constitutional right . . . of free speech” with respect to the Plutzik documents.
plaintiffs on claims made by their own clients. For this reason, the question whether this
activity is protected as arising from the rights of petition or free speech fits more
comfortably under section 425.16, subdivision (e)(4), rather than subdivision (e)(1) or
(e)(2).
11
In their opposition filed in the trial court, plaintiffs stated they do not
dispute Reich’s initial receipt and “privilege screen,” as well as use of nonprivileged
documents in the qui tam action, are protected activity under prong one. In their reply
brief in this court, plaintiffs state they “did not sue Reich because he received the
[documents]. Nor did they sue him for using them to prosecute a lawsuit on behalf of his
client.” This, of course, is contrary to their pleaded causes of action for conversion and
civil theft based on receiving stolen property.
12
We acknowledge that an arbitrator is not a “judicial body” and an
arbitration proceeding is not an “official proceeding” within the meaning of section
425.16, subdivisions (e)(1) and (e)(2). (See Century 21 Chamberlain & Associates v.
Haberman (2009) 173 Cal.App.4th 1, 5 [Private arbitration “is a private alternative to a
judicial proceeding. It is not an ‘official proceeding’ because it is a nongovernmental
activity not reviewable by administrative mandate or required by statute”].) The
11
(§ 425.16, subd. (e)(4), italics added.) Each distribution and use of the documents was
done to further litigation efforts, either on behalf of Valdez or on behalf of others.
Nothing in subdivision (e)(4) limits the protected activity to petitioning or speech on
behalf of a particular client. The question is simply whether the conduct was done in
furtherance of the right of petition or speech. The more difficult question is whether the
petitioning activity being “furthered” was “in connection with a public issue or an issue
of public interest,” a topic to which we now turn.
The anti-SLAPP statute does not define the terms “public issue” or “public
interest.” “The terms are, as one court stated, ‘inherently amorphous and thus do not lend
themselves to a precise, all-encompassing definition.’ [Citation.] Another court has
stated, somewhat tautologically, that ‘“an issue of public interest” . . . is any issue in
which the public is interested.’ [Citations.] Nevertheless, ‘judges and attorneys will, or
should, know a public concern when they see it.’” (Healthsmart Pacific, Inc. v. Kabateck
(2016) 7 Cal.App.5th 416, 428 (Healthsmart).)
We first explore the nature of qui tam litigation, which unquestionably
involves a public issue or a matter of public interest. A qui tam action is one brought
under a statute that allows a private person to sue as a private attorney general to recover
damages or penalties, all or part of which will be paid to the government. (People ex rel.
Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534, 538.) As explained by another
panel of this court, “‘a qui tam relator is essentially a self-appointed private attorney
general, and his recovery is analogous to a lawyer’s contingent fee. The relator has no
personal stake in the damages sought — all of which, by definition, were suffered by the
government.’ [Citation.] A qui tam action ‘is a type of private attorney general lawsuit’
[citation], in which ‘the qui tam plaintiff stands in the shoes of the state or political
subdivision’ [citation]. ‘[A]lthough qui tam actions allow individual citizens to initiate
transmittal of documents to Plutzik for use in the Vasquez arbitration was nonetheless a
communicative act in furtherance of Reich’s constitutional right of free speech.
12
enforcement against wrongdoers who cause injury to the public at large, the Government
remains the real party in interest in any such action.’” (People ex rel. Strathmann v.
Acacia Research Corp. (2012) 210 Cal.App.4th 487, 500-501 (Strathmann).)
In Strathmann, the relator sought recovery under Insurance Code section
1871.7, subdivision (g)(2)(A), concerning false or fraudulent insurance claims.
(Strathmann, supra, 210 Cal.App.4th at p. 502.) There, we concluded the qui tam action
met the public interest exception to the anti-SLAPP statute under section 425.17,
13
subdivision (b). (Id. at p. 492.) While analyzing the qui tam action in Strathmann, we
noted, “‘“The driving force behind the false claims concept is the providing of incentives
for individual citizens to come forward with information uniquely in their possession and
to thus aid the Government in [ferreting] out fraud.”’ [Citation.] The bounty advances
the public purpose and benefit by encouraging private qui tam actions; ‘[i]ndeed, this
prospect of reward may be the only means of inducing such private parties to come
forward with their information.’” (Id. at p. 502, italics in original.)
Outside the qui tam context, in Healthsmart, the court concluded statements
during a news report and radio program about a “massive medical fraud lawsuit” filed
against hospitals and doctors alleging kickbacks paid to doctors were made in connection
with a public issue or an issue of public interest. (Healthsmart, supra, 7 Cal.App.5th at
pp. 424-427.) The court concluded defendants’ activity was protected under section
425.16, subdivision (e)(4), because, inter alia, members of the public, as consumers of
medical services, have an interest in being informed of issues concerning particular
doctors or healthcare facilities and that the assertions of a widespread illegal physician
13
“Not all public interest or class actions are intended to be exempt from the
anti-SLAPP law. [Citation.] To be exempt, the action must be ‘brought solely in the
public interest or on behalf of the general public’ and meet the three conditions set forth
in section 425.17(b).” (Strathmann, supra, 210 Cal.App.4th at p. 499.)
13
kickback scheme raise issues concerning the integrity of the health care system, which is
14
a matter of widespread public concern. (Id. at p. 429.)
As in Healthsmart, we conclude Reich’s conduct is protected under section
425.16, subdivision (e)(4). Reich’s distribution of documents to others was done in
connection with the qui tam action and issues related to it, all of which concern a public
issue or an issue of public interest.
Reich shared documents with Attorney Plutzik, who represented claimants
in the Vazquez arbitration. Aside from the Vazquez arbitration, Reich declared Plutzik
was one of the attorneys who considered representing Valdez in the qui tam action. He
also declared the other attorneys listed in the so-called dissemination chart were
contacted to consider whether to represent Valdez in the qui tam action. Plaintiffs do not
dispute Reich’s declaration. Plaintiffs did not, for example, obtain a contrary declaration
from Plutzik.
Reich also shared documents with attorney Perez, who represented
defendants in the Marini action, a case filed by plaintiffs against a terminated medical
provider in which the defendants filed counterclaims alleging improper contract
termination and inappropriate claim denials. Reich declared the documents he shared
were related to both the qui tam action and the Marini action because both actions
involved plaintiffs’ retaliation against providers for providing expensive, but necessary,
care and the failure to pay non-network providers for emergency services. Reich thus
contends he provided documents to Perez to prove up a common issue. Plaintiffs dispute
Reich’s characterization of the Marini action, but even though they and their affiliates
were the plaintiffs in the Marini action, they did not provide us with pleadings.
Moreover, they did not obtain a contrary declaration from Perez.
14
The Healthsmart court did not analyze whether the statements were
protected under section 425.16, subdivision (e)(2), choosing instead to analyze the case
under the “catchall definition under subdivision (e)(4).” (Healthsmart, at p. 427, fn. 7.)
14
Plaintiffs concede all three matters — the qui tam action, the Vazquez
arbitration, and the Marini action — involve medical services and billing, but
nevertheless they contend the issues do not overlap. We are not persuaded.
In the qui tam action, Valdez alleged MMM is the largest of two Medicare
plans owned by MMM’s then parent company, serving 130,000 members in Puerto Rico.
It also alleges in 2010, plaintiffs knew they were overcharging the government based on
diagnosis codes that were not supported by medical records. And in the first amended
complaint in the qui tam action, Valdez further alleged plaintiffs failed to pay doctors for
emergency-related services and retaliated against providers for providing expensive
medical care. In the Vazquez arbitration, claimants alleged that in 2010, the government
adjusted the Medicare fee schedule for Puerto Rico resulting in substantial fees increase
for Medicare providers, which fee increases were not passed on to the providers, resulting
in the underpayment of tens of millions of dollars even though plaintiffs knew the sums
were properly due.
The overall picture that emerges from the three actions is this: plaintiffs
allegedly overbilled the government and underpaid their medical providers, a legal
double whammy that, because it involves taxpayer funds, implicates a public issue or an
issue of public interest. While there are some distinctions that demarcate each case, it is
enough for our purposes that plaintiffs’ litigation adversaries all contend plaintiffs’
billing and payment practices were dubious. The documents acquired during Valdez’s
employment and later given over to his attorney, Reich, have at their core the intent of
proving the double whammy allegations.
Plaintiffs contend litigation over the business relationships of doctors and
hospitals and HMOs are not matters of public interest. We disagree to the extent
plaintiffs are alleged to be engaged in widespread overbilling of Medicare and
underpaying of Medicare providers.
15
“The definition of ‘public interest’ within the meaning of the anti-SLAPP
statute has been broadly construed to include not only governmental matters, but also
private conduct that impacts a broad segment of society and/or that affects a community
in a manner similar to that of a governmental entity.” (Damon v. Ocean Hills Journalism
Club (2000) 85 Cal.App.4th 468, 479.) “Although matters of public interest include
legislative and governmental activities, they may also include activities that involve
private persons and entities, especially when a large, powerful organization may impact
the lives of many individuals.” (Church of Scientology v. Wollersheim (1996) 42
Cal.App.4th 628, 650, disapproved on other grounds in Equilon Enterprises v. Consumer
Cause, Inc. (2002) 29 Cal.4th 53 [citing product liability suits and real estate or
investment scams as examples].) Here, plaintiffs are large, powerful organizations
serving thousands of Puerto Ricans by providing access to government-paid Medicare.
We also note that to the extent plaintiffs stand firm that Reich’s conduct
was improper, they are not left without a remedy and have suffered no prejudice.
(Cal. Const., art. VI, § 13.) The issue was placed before the district court in Puerto Rico.
Plaintiffs insist Reich disseminated privileged communications, and Reich insists he did
not. That issue is more appropriately dealt with by the Puerto Rico district court or by the
tribunals hearing the Marini action and Vasquez arbitration, rather than in a tort action
against Reich.
Reich has met his burden to show his conduct arose from protected activity.
Accordingly, we now turn to plaintiffs’ burden on prong two.
Plaintiffs Have Not Demonstrated the Probability of Prevailing on Their Claims
Under the second prong of the anti-SLAPP analysis, plaintiffs have the
burden of establishing a probability of prevailing on their claims. (Jarrow Formulas, Inc.
v. LaMarche (2003) 31 Cal.4th 728, 733.) “Put another way, the plaintiff ‘must
demonstrate that the complaint is both legally sufficient and supported by a sufficient
16
prima facie showing of facts to sustain a favorable judgment if the evidence submitted by
the plaintiff is credited.’” (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811,
821.)
A plaintiff cannot establish a probability of prevailing if the litigation
privilege precludes the defendant's liability on the claim. (Flatley v. Mauro (2006) 39
Cal.4th 299, 323.) The litigation privilege precludes liability arising from a publication
or broadcast made in a judicial proceeding or other official proceeding. (See Civ. Code,
§ 47, subd. (b).) “‘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
[has] some connection or logical relation to the action.’ [Citation.] The privilege ‘is not
limited to statements made during a trial or other proceedings, but may extend to steps
taken prior thereto, or afterwards.’” (Action Apartment Assn., Inc. v. City of Santa
Monica (2007) 41 Cal.4th 1232, 1241.) “The purposes of section 47, subdivision (b), are
to afford litigants and witnesses free access to the courts without fear of being harassed
subsequently by derivative tort actions, to encourage open channels of communication
and zealous advocacy, to promote complete and truthful testimony, to give finality to
judgments, and to avoid unending litigation. [Citation.] To effectuate these purposes, the
litigation privilege is absolute and applies regardless of malice. [Citation.] Moreover,
‘[i]n furtherance of the public policy purposes it is designed to serve, the privilege
prescribed by section 47[, subdivision (b)], has been given broad application.” (Rusheen,
supra, 37 Cal.4th at p. 1063.)
“Because the litigation privilege protects only publications and
communications, a ‘threshold issue in determining the applicability’ of the privilege is
whether the defendant’s conduct was communicative or noncommunicative. [Citation.]
The distinction between communicative and noncommunicative conduct hinges on the
gravamen of the action. [Citations.] That is, the key in determining whether the privilege
17
applies is whether the injury allegedly resulted from an act that was communicative in its
essential nature.” (Rusheen, supra, 37 Cal.4th at p. 1058, italics added.)
The definition of the word “communicate” virtually describes the conduct
here at issue. “Communicate” means “to convey knowledge of or information about.”
(Merriam-Webster’s Collegiate Dict. (10th ed. 2001) p. 232.) Disseminating the
documents to Plutzik and Perez communicated knowledge and information about
plaintiffs’ acts and thus was “communicative in its essential nature.” (Rusheen, supra, 37
Cal.4th at p. 1058.)
But plaintiffs contend the litigation privilege does not insulate Reich from
liability because: (1) the duty breached by Reich arises from a contract; (2) Reich’s
activities were unlawful; or (3) Reich owed plaintiffs an independent duty. We are not
persuaded.
Plaintiffs argue that Valdez breached his contractual duty to return the
documents upon his termination, but they have not cited any apt authority that would
bind Reich to that alleged contractual duty, much less make the litigation privilege
unavailable. Valdez is not a party to this case, and plaintiffs have not alleged breach of
contract as a cause of action against Reich.
The argument Reich’s activities were unlawful is also a nonstarter.
California courts consistently hold that defendants may satisfy their burden to show that
they were engaged in conduct in furtherance of their right of free speech under the anti-
SLAPP statute, even when their conduct was allegedly unlawful. (Taus v. Loftus (2007)
40 Cal.4th 683, 706-707, 713, [defendants’ investigation, including an interview that was
allegedly fraudulently obtained, constituted protected activity]; Hall v. Time Warner, Inc.
(2007) 153 Cal.App.4th 1337, 1343 [same]; Lieberman v. KCOP Television, Inc. (2003)
110 Cal.App.4th 156, 165-166 [concluding defendants' newsgathering, including the use
of surreptitious videotape recordings that were allegedly illegally obtained, constituted
protected activity].)
18
To the extent a distinction can be made, plaintiffs also seem to argue
Reich’s conduct was criminal. They point out the alleged violation of Penal Code section
496, which provides in part, “Every person who buys or receives any property that has
been stolen or that has been obtained in any manner constituting theft or extortion,
knowing the property to be so stolen or obtained, or who conceals, sells, withholds, or
aids in concealing, selling, or withholding any property from the owner, knowing the
property to be so stolen or obtained, shall be punished by imprisonment in a county jail
for not more than one year, or imprisonment pursuant to subdivision (h) of Section
1170.” (Pen. Code, § 496, subd. (a).) Penal Code section 496, subdivision (c), authorizes
a civil action for treble damages for violation of the statute.
Even if plaintiffs were correct that the litigation privilege does not apply to
conduct proscribed by Penal Code section 496, plaintiffs have not established, as an
evidentiary matter, that Reich’s conduct was criminal in nature. Penal Code section 496
requires a showing that the property received was, in fact, stolen, i.e., that Valdez’s
conduct in retaining the documents satisfied each of the elements of at least one of the
several varieties of theft offenses defined in Penal Code section 494, subdivision (a), and
was not merely a breach of contract. (People v. Moses (1990) 217 Cal.App.3d 1245,
1250 [violation of Pen. Code, § 496, subd. (a) requires showing “(1) that the particular
property was stolen, (2) that the accused received, concealed or withheld it from the
owner thereof, and (3) that the accused knew that the property was stolen” (italics
added)].) Thus, plaintiffs’ burden was to make a prima facie showing of theft by Valdez.
“‘Theft . . . is the unlawful taking of another's property. [Citation.] The crime includes
larceny, embezzlement, larceny by trick, and theft by false pretenses. [Citations].
Larceny, larceny by trick, and embezzlement involve taking another's personal property
from the owner's possession, without the owner's consent, with the intent to deprive the
owner permanently of the property. [Citations.] Theft by false pretenses does not require
that the defendant take the property; it requires that the defendant use false pretenses to
19
induce the other to give the property to him.’” (People v. Miller (2000) 81 Cal.App.4th
1427, 1445-1446, italics added.) The evidence here does not support the specific intent
element of a theft offense by Valdez, much less demonstrate that Reich had knowledge
that the elements of a theft offense had been committed by Valdez. Plaintiffs have not
produced any evidence that Valdez intended to do anything with the documents other
than to use them in litigation. The limited purpose of Valdez’s retention of the
documents was made manifest when Reich delivered electronic copies of the documents
to plaintiffs in October 2014, and electronic copies of Valdez’s notes in October 2015.
Plaintiffs’ evidence consists of four declarations and several exhibits. In
the trial court, plaintiffs made no effort to recite the required elements of any cause of
action pleaded in the complaint, and instead concluded with amorphous phrases such as
“[t]he evidence of [i]mproper [u]se here is almost entirely undisputed.” Plaintiffs
emphasized their contention Reich shared privileged documents that violated “the duties
in question.” Plaintiffs cited at length from the unverified complaint, allegations that
cannot be used to make the required showing on prong two. (Contreras v. Dowling,
supra, 5 Cal.App.5th at p. 405.) While plaintiffs also cited to their declarations submitted
in opposition to Reich’s motion, they did not analyze the declarants’ statements, or their
exhibits, nor did plaintiffs tie the evidence to any element of any cause of action alleged
in their complaint. We regard this as a requirement for an anti-SLAPP motion which
involves a “summary-judgment-like procedure.” (Baral v. Schnitt, supra, 1 Cal.5th at p.
384 [“We have described this second step as a ‘summary-judgment-like procedure.’”].)
Finally, we are at a loss to understand the argument that Reich owed
plaintiffs — his client’s adversaries — any legally recognizable duty. Perhaps most
importantly, plaintiffs do not allege negligence or breach of any duty in their complaint.
Plaintiffs’ reliance on Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th
1153 is misplaced. There, the court held the litigation privilege was inapplicable in an
action by a former client against its attorney for breach of professional duties. (Id. at p.
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1174.) The case is factually distinguishable, because here plaintiffs are not Reich’s
former clients. Similarly, the other cases cited by plaintiffs do not establish an
independent duty owed to plaintiffs by their adversary’s attorney. (See Kolar v.
Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532 [former client suing
attorney for legal malpractice]; Mattco Forge, Inc. v. Arthur Young & Co. (1992) 5
Cal.App.4th 392 [company and individuals suing accounting firm they used as expert
witnesses]; Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal.App.4th 1388[corporation suing fiduciaries]; Oasis West Realty LLC v. Goldman (2011) 51 Cal.4th 811[former client suing attorney for breach of fiduciary duty, professional negligence, and
breach of contract].)
Plaintiffs also suggest Civil Code section 1714.10, entitled “Attorney client
civil conspiracy; proof and court determination prior to pleading; defense; limitations;
appeal,” has some application. We disagree. The statute requires a litigant to obtain
court approval to file a complaint containing conspiracy allegations between an attorney
and his or her client. (Civ. Code, § 1714.10, subd. (a).) The purpose of the statute is to
“discourage frivolous claims that an attorney conspired with his or her client to harm
another. Therefore, rather than requiring the attorney to defeat the claim by showing it is
legally meritless, the plaintiff must make a prima facie showing before being allowed to
assert the claim.” (Klotz v. Milbank, Tweed, Hadley & McCloy (2015) 238 Cal.App.4th
1339, 1350.) There is no inkling anywhere in the record on appeal suggesting plaintiffs
attempted to obtain a pre-filing order necessary to state a claim for conspiracy against
Reich.
All the conduct alleged against Reich is protected by the litigation
privilege, or, alternatively, with respect to the civil receiving stolen property cause of
action, unsupported by a prima facie evidentiary showing. We have already determined
all five causes of action arise from Reich’s use of the documents he received from Valdez
in connection with the qui tam action Reich filed. Reich’s conduct in sharing documents
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with Plutzik and Perez is also protected because both Plutzik and Perez were involved in
litigation — the qui tam action, the Vazquez arbitration, and the Marini action. The
documents were “reasonably relevant” to pending or contemplated litigation and thus
protected by the litigation privilege. (See Neville v. Chudacoff (2008) 160 Cal.App.4th
1255, 1266.)
Having failed to demonstrate their complaint is legally sufficient and
supported by a prima facie factual showing, plaintiffs have not established the probability
of prevailing on their claims. Therefore, they did not meet their burden on prong two of
the anti-SLAPP analysis.
Request for Judicial Notice
Both parties request we take judicial notice of documents attached as
exhibits to motions filed in an action pending in Puerto Rico and of the ruling on
15
plaintiffs’ motion in the qui tam action for return of the subject documents. These
documents were not before the trial court, so the requests are denied. “It has long been
the general rule and understanding that ‘an appeal reviews the correctness of a judgment
as of the time of its rendition, upon a record of matters which were before the trial court
for its consideration.’ [Citation.] This rule reflects an ‘essential distinction between the
trial and the appellate court . . . that it is the province of the trial court to decide questions
of fact and of the appellate court to decide questions of law . . . .’ [Citation.] The rule
promotes the orderly settling of factual questions and disputes in the trial court, provides
a meaningful record for review, and serves to avoid prolonged delays on appeal.
‘Although appellate courts are authorized to make findings of fact on appeal . . . the
authority should be exercised sparingly. [Citation.] Absent exceptional circumstances,
15
The motions are in Spanish, but the attachments are in English.
22
no such findings should be made.’” (In re Zeth S. (2003) 31 Cal.4th 396, 405.) No
exceptional circumstances exist here.
DISPOSITION
The order is affirmed. Reich shall recover his costs on appeal.
IKOLA, J.
WE CONCUR:
O’LEARY, P. J.
THOMPSON, J.
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