Cultivation Technologies v. Duffy CA4/3 ( 2021 )

Filed 12/2/21 Cultivation Technologies v. Duffy CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
CULTIVATION TECHNOLOGIES,
INC.,
G059457
Plaintiff and Appellant,
(Super. Ct. No. 30-2019-01120155)
v.
ORDER MODIFYING OPINION;
JAMES DUFFY et al., NO CHANGE IN JUDGMENT
Defendants and Appellants.
It is ordered that the opinion filed herein on November 12, 2021, be
modified as follows:
On page 1, the superior court case number read 30-2019-001120155 but is
now changed to read 30-2019-01120155.
This modification does not change the judgment.
O’LEARY, P. J.
WE CONCUR:
BEDSWORTH, J.
FYBEL, J.
2
Filed 11/12/21 Cultivation Technologies v. Duffy CA4/3 (unmodified opinion)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
CULTIVATION TECHNOLOGIES,
INC.,
G059457
Plaintiff and Appellant,
(Super. Ct. No. 30-2019-001120155)
v.
OPINION
JAMES DUFFY et al.,
Defendants and Appellants.
Appeal from orders of the Superior Court of Orange County, Deborah C.
Servino, Judge. Affirmed in part and reversed in part.
Lockett + Horwitz, Lawrence Horwitz and Ryan Thomason for Plaintiff
and Appellant.
Catanzarite Law Corporation, Kenneth J. Catanzarite and Nicole M.
Catanzarite-Woodward for Defendants and Appellants.
Earlier this year we considered three consolidated appeals concerning
Cultivation Technologies, Inc.’s (CTI) motion to disqualify the Catanzarite Law
Corporation (Catanzarite), in two related cases. (Fincanna v. Cultivation Technologies,
Inc. (June 28, 2021, G058700) [nonpub. opn.] (Fincanna).) We affirmed the trial court’s
determination Catanzarite could not represent the following parties: (1) CTI; (2) three
CTI subsidiaries; and (3) a group of CTI shareholders bringing a derivative lawsuit
(which included James Duffy and Amy Cooper). (Ibid.)
After Catanzarite’s disqualification, CTI filed a lawsuit against Cooper,
Duffy, and Catanzarite (referred to collectively as the Faction, unless context requires
otherwise). The complaint alleged Cooper and Duffy were liable for breach of fiduciary
duty, intentional and negligence interference with economic relations, and intentional
interference with contractual relations. The court granted their special motion to strike
(anti-SLAPP motion) (Code Civ. Proc., § 425.16)1 as to all the causes of action except
breach of fiduciary duty. CTI alleged Catanzarite was liable for breach of fiduciary duty
and legal malpractice. The court denied Catanzarite’s anti-SLAPP motion in its entirety.
All parties appealed.
We affirm the trial court’s orders denying Catanzarite’s anti-SLAPP motion
and Cooper and Duffy’s motion regarding CTI’s breach of fiduciary duty claim. We
reverse the trial court’s orders granting Cooper and Duffy’s anti-SLAPP motion
regarding the remaining claims, concluding they qualify as mixed causes of action that
require a claim by claim approach, rather than evaluating each cause of action as a whole.
(Bonni v. St. Joseph Health System (2021) 11 Cal.5th 995, 1010 (Bonni).) Because CTI’s
complaint lacks specificity with respect to the contents of the published e-mails giving
rise to the alleged actionable misconduct, we direct the trial court on remand to permit
1 All further statutory references are to the Code of Civil Procedure, unless
otherwise indicated.
2
CTI to amend its complaint. CTI must set forth only allegations (discussed later in this
opinion) that support its claims for recovery but do not rest on protected activity.
FACTS
I. Background Facts2
Like the Fincanna appeal, this appeal arises from the ongoing battle
between two groups of shareholders over who controls CTI.3 Shareholders of Mobile
Farming Systems, Inc., (MFS), formed CTI, a “distinct and separate” business entity.
Cooper and Duffy were shareholders of both entities. CTI began to quickly experience
economic success, whereas MFS “struggled financially and ultimately ceased operations
in . . . 2016.”
Cooper and Duffy, seeking a bigger stake in, and control of CTI, asserted
MFS was entitled to 100 percent of CTI’s stock. They hired Catanzarite to file multiple
shareholder derivative lawsuits aimed at gaining more control over CTI. They also took
steps to expel the elected board members (referred to as the Probst Faction) and
communicated directly with CTI’s business associates to interrupt the Probst Faction’s
business plans for the corporation.
For example, in January 2019, Cooper and Duffy “caused” Catanzarite to
publish a fraudulent written consent removing CTI’s board of directors and replacing it
with three new directors (Duffy, Mo Zakhireh, and Richard O’Connor). The following
month, CTI through its “duly elected” board members, ignored the Faction’s written
consent and executed a letter of intent to complete a reverse takeover merger with a
2 Our factual summary is a compilation of allegations of the operative
complaint, declarations, and other evidence submitted in support of the anti-SLAPP
motion. (Ralphs Grocery Co. v. Victory Consultants, Inc. (2017) 17 Cal.App.5th 245,
249.) It should go without saying that these are not litigated facts nor findings, and we
imply no view on what actually happened in this case.
3 This issue is to be decided as part of the shareholder derivative/class action
Mesa, et al. v. Probst, et al., OCSC No. 30-2019-01064267 (the Mesa Action).
3
Canadian corporation, Western Troy Capital Resources, Inc. (Western Troy). A few days
later, Western Troy publicly announced the merger on its Web site. The merger would
have meant CTI’s shares would be listed publicly on the Canadian stock exchange “at a
time when public cannabis companies in Canada often traded at multiples of up to 80X
revenue” raising CTI’s “potential valuation between $175,000,000 and $240,000,000.”
Cooper and Duffy recognized this merger would “interfere with MFS
shareholders’ false assertion MFS” owned all of CTI’s shares. They took action to stop
the merger. They “caused Catanzarite” to send Western Troy an e-mail on the same day
the company publicly announced the merger. The e-mail falsely stated CTI’s board had
been replaced and the new directors disputed and objected to the merger. The e-mail
asserted CTI’s management had not agreed to the merger described on Western Troy’s
Web site, especially since it was a “valueless” company. Thereafter, Western Troy
withdrew from the merger deal. CTI’s complaint alleged the Faction sent this e-mail
“with the express design and intent to injure CTI through killing the Western Troy
merger.”
Also in January 2019, Cooper and Duffy “acting through” Catanzarite, sent
CTI’s largest secured creditor, Fincanna Capital Corporation (Fincanna), an e-mail
stating future modifications or agreements between them must be signed by the new
board members (O’Connor, Zakhireh, and the chief financial officer and secretary,
Duffy).
During the same month (January 2019), Catanzarite filed a lawsuit for MFS
asserting CTI was MFS’s subsidiary and seeking cancellation of CTI’s shares (the MFS
Action). MFS asserted specific CTI board members were liable for various misdeeds
including conversion and misappropriation of trade secrets because MFS owned CTI.
MFS alleged the elected board refused to acknowledge the MFS shareholder’s written
consent removing and replacing them. In April 2019, the court ruled against the MFS
shareholders, concluding MFS was not one of CTI’s shareholders and could not vote in
4
CTI’s elections. When this legal attack failed, Cooper and Duffy attempted to acquire
control of CTI by once again executing fraudulent “written consents” removing CTI’s
elected board and replacing them with Cooper, Duffy, and O’Connor. This time the
Faction attempted to oust the Probst Faction via proxy votes.
In the complaint, CTI (the Probst Faction) maintained the May 14, 2019,
written consent was “based on fraud, deceit, and trickery.” Specifically, the Faction used
“at least one forged proxy vote in the name of CTI shareholder Carlos Calixto in order to
bolster the votes they needed” to secure a majority. (Bold and underline omitted.) CTI
alleged that Duffy, to effectuate the written consent, “with actual knowledge or reckless
indifference for the truth, voted 2,720,000 shares which he did not own and were not
registered in his name . . . .” (Bold and underline omitted.)
On May 23, 2019, a few days after this purported board takeover, Fincanna
foreclosed upon CTI’s assets, including its manufacturing and distribution subsidiaries.
It filed a lawsuit against CTI. At the end of August 2019, Western Troy issued a press
release stating that merger plans were terminated in July 2019.
CTI’s elected board became involved in confidential negotiations to settle
Fincanna’s lawsuit and resume their business dealings. These efforts were thwarted
when Catanzarite filed a cross-complaint against Fincanna and filed an answer “‘on
behalf’ of CTI, though he had no authority to do so from CTI.” At the time Catanzarite
was representing multiple parties who were suing CTI.
Indeed, Catanzarite filed multiple lawsuits against CTI, creating a sense of
instability. One lawsuit, filed on behalf of Cooper, sought a forced election and
investigation into CTI’s accounts (the Cooper Action). In addition to the MFS Action,
Catanzarite filed the Mesa Action, another derivative/class action lawsuit designed to
stop the Probst Faction from controlling CTI. Catanzarite also filed a declaratory relief
action purporting to represent CTI against CTI’s insurance company (the Scottsdale
Action). The purpose of this litigation was to stop the insurance company from providing
5
a defense or indemnity to the Probst Faction defendants in the Mesa Action. In total,
Catanzarite filed six lawsuits involving the shareholder dispute.
In October 2019, while Catanzarite was counsel of record for CTI in the
Fincanna and Scottsdale actions, it filed a motion on behalf of the Mesa Action plaintiffs
for the court to appoint a receiver over CTI. Thereafter, CTI expended a great deal of
time and money to have the court disqualify Catanzarite as its legal counsel. Soon
thereafter, Catanzarite dismissed the Scottsdale Action but asserted it still represented
CTI’s subsidiaries.
CTI filed the underlying complaint against the Faction before the trial court
ruled on its disqualification motions.4 CTI alleged, “[The Faction’s] actions of
publishing two wholly improper [w]ritten [c]onsents, one of which included a forged
proxy and a representation that [Duffy] voted 2,720,000 shares which in reality were not
owned by him, have damaged CTI by causing the merger with Western Troy to fall
through, and causing CTI’s largest creditor to foreclose on CTI’s assets in ongoing
litigation which CTI has not been able to settle due to the unauthorized [c]ross-
[c]omplaint filed by [Catanzarite].” In addition, the complaint alleged CTI had been
damaged by Catanzarite’s “manifestly unethical adverse actions taken against CTI while
CTI was his own client of record in pending litigation.” CTI alleged it had been injured
in excess of $100,000,000.
II. Anti-SLAPP Motion
Catanzarite filed a separate anti-SLAPP motion from Cooper and Duffy
(although Catanzarite acted as legal counsel for Cooper and Duffy). Catanzarite asserted
CTI’s causes of action against the law firm and lawyers violated section 425.16 because
they arose from protected speech and petitioning activity. It added CTI could not prevail
on the merits because in the complaint “it maintains it did not retain Catanzarite . . . or
4 As discussed in our opinion in Fincanna, supra, G058700, the court
correctly disqualified Catanzarite from representing these parties.
6
authorize Catanzarite . . . to act on its behalf.” It argued that absent an attorney client
relationship, CTI could not prevail on its claims for breach of fiduciary duty and attorney
malpractice.
Cooper and Duffy’s motion alleged CTI’s causes of action against them
arose from “protected speech and petitioning activity, i.e., pleadings, statements and
writings in connection with judicial proceedings.” In addition, they asserted CTI could
not succeed on the merits because the claims were based on activity protected by the
litigation privilege. Moreover, CTI could not prevail on the breach of fiduciary duty
claim based on the premise Cooper and Duffy owed a fiduciary duty as corporate officers
because CTI also alleged they were never directors.
CTI opposed the motions, arguing the case “directly [arose] from the
unethical conduct of a rogue lawyer” who simultaneously represented parties that were
suing each other, but was now claiming the conduct was protected petitioning activity.
CTI argued the publishing of fraudulent shareholder consents and misleading e-mails
were not in furtherance of a right to petition. In addition, any reference to the filing of
lawsuits and cross-complaints “were merely incidentally used to illustrate how far [the
Faction was] willing to go to derail and interfere with CTI’s business and opportunities.”
III. The Court’s Ruling
The court determined CTI’s claims for breach of fiduciary duty and
malpractice did not arise out of protected activity. It determined CTI’s claims related to
“the conflicts of interest created by Catanzarite’s representation of adverse parties and . . .
Duffy and Cooper’s alleged positions as members of [CTI’s] Board of Directors.” It
determined the remaining causes of action alleged against Duffy and Cooper related to
e-mail communications to Western Troy and Fincanna about a legal dispute regarding
rightful control over the corporation. The court noted the e-mails attached copies of the
MFS Action complaint. Because the causes of action “center on communications in
connection with an issue under consideration in at least one of the six cases” the court
7
concluded they arose “out of protected speech, specifically under . . . section 425.16,
subdivision (e)(2) concerning statements made in legal proceedings.” The court added,
CTI failed to establish a probability of prevailing on these causes of action due to the
litigation privilege. Finally, the court denied CTI’s request for attorney fees.
DISCUSSION
I. Applicable Law and Standard of Review
Section 425.16 authorizes a special motion to strike claims arising from any
act “in furtherance of the person’s right of petition or free speech under the United States
Constitution or the California Constitution in connection with a public issue.” (§ 425.16,
subd. (b)(1).) The purpose of the anti-SLAPP statute is to encourage participation in
matters of public significance by allowing defendants “to request early judicial screening
of legal claims targeting free speech or petitioning activities.” (Wilson v. Cable News
Network, Inc. (2019) 7 Cal.5th 871, 880.)
“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, and if the defendant makes this showing, the burden shifts to the plaintiff
to demonstrate the merit of the claim by establishing a probability of success. [Citation.]
On appeal, we review the trial court’s ruling on the anti-SLAPP motion de novo.
[Citation.]” (Wittenberg v. Bornstein (2020) 50 Cal.App.5th 303, 311-312 (Wittenberg).)
II. First Step—Liability Arising from Protected Activity
Section 425.16, subdivision (b)(1) (section 425.16(b)(1)), provides that “[a]
cause of action against a person arising from any act of that person in furtherance of the
person’s right of petition or free speech under the United States Constitution or the
California Constitution in connection with a public issue shall be subject to a special
motion to strike, unless the court determines that the plaintiff has established that there is
a probability that the plaintiff will prevail on the claim.”
8
“A claim arises from protected activity when that activity underlies or
forms the basis for the claim. [Citations.]” (Park v. Board of Trustees of California State
University (2017) 2 Cal.5th 1057, 1062-1063 (Park).) “[I]n ruling on an anti-SLAPP
motion, courts should consider the elements of the challenged claim and what actions by
the defendant supply those elements and consequently form the basis for liability.” (Id. at
p. 1063.)
“Consequently, ‘[i]n deciding whether the “arising from” requirement is
met, a court considers “the pleadings, and supporting and opposing affidavits stating the
facts upon which the liability or defense is based.” (§ 425.16, subd. (b).)’ [Citation.]
Thus, we are ‘not limited to examining the allegations of the complaint alone but rather
consider[] the pleadings and the factual material submitted in connection with the special
motion to strike.’ [Citations.]” (Optional Capital, Inc. v. Akin Gump Strauss, Hauer &
Feld LLP (2017) 18 Cal.App.5th 95, 111 (Optional Capital) [“The ‘gravamen is defined
by the acts on which liability is based, not some philosophical thrust or legal essence of
the cause of action’”].)
A. Catanzarite’s Anti-SLAPP Motion
CTI’s basis for liability, for breach of fiduciary duty and legal malpractice,
was Catanzarite’s unethical conduct in helping Duffy and Cooper illegally gain control of
CTI and by improperly acting as CTI’s appointed counsel while representing entities
suing CTI. Catanzarite inserted itself as corporate counsel while at the same time
conspiring with a faction of shareholders seeking to oust elected board members. As
noted earlier, this court affirmed the trial court’s decision to disqualify Catanzarite from
further representation of CTI, CTI’s subsidiaries, and the Mesa Action plaintiffs due to
unwaivable conflicts of interests. (Fincanna, supra, G058700.)
“‘Filing a lawsuit is an exercise of one’s constitutional right of petition, and
statements made in connection with or in preparation of litigation are subject to section
425.16.’ [Citation.] Thus, a cause of action arising from acts committed by attorneys in
9
representing clients in litigation may appropriately be the subject of an anti-SLAPP
motion. [Citation.] However, a client’s action against his or her attorney, whether it is
pleaded as a claim for malpractice, breach of fiduciary duty, or any other theory of
recovery, is not subject to the anti-SLAPP statute ‘merely because some of the allegations
refer to the attorney’s actions in court.’ [Citation.] When the allegations referring to
litigation activity ‘“‘are only incidental to a cause of action based essentially on
nonprotected activity, collateral allusions to protected activity should not subject the
cause of action to the anti-SLAPP statute.’”’ [Citation.]” (Wittenberg, supra,
50 Cal.App.5th at pp. 312-314.)
For example, in Freeman v. Schack (2007) 154 Cal.App.4th 719(Freeman), plaintiffs sued their former attorney for breach of contract, breach of
fiduciary duty, and negligence, alleging counsel abandoned them to represent adverse
interests in the same and different litigation. (Id. at p. 722.) The appellate court reversed
the order granting the attorney’s anti-SLAPP motion on the grounds that violations of the
State Bar Rules of Professional Conduct were not constitutionally protected. It reasoned
the “principal thrust of the conduct underlying [the plaintiffs’] causes of action is not [the
attorney’s] filing or settlement of litigation[,]” but rather “his undertaking to represent a
party with interests adverse to plaintiffs, in violation of the duty of loyalty he assertedly
owed them.” (Id. at p. 732.) The court recognized, “‘[I]f the allegations of protected
activity are only incidental to a cause of action based essentially on nonprotected activity,
the mere mention of the protected activity does not subject the cause of action to an
anti-SLAPP motion.’ [Citation.]” (Id. at p. 732.)
Catanzarite attempts to distinguish this case from other anti-SLAPP case
authority involving malpractice lawsuits. It asserts this is not a “‘garden variety’ attorney
malpractice action” (Freeman, supra, 154 Cal.App.4th at p. 732) because the complaint
repeatedly alleges Catanzarite was not really CTI’s attorney. As discussed in our recent
Fincanna opinion, Catanzarite’s authority and role as corporate counsel remains a hotly
10
disputed issue and the answer depends on resolution of the much larger and more-
complicated issue of which faction of shareholders rightfully controls CTI. We
concluded in Fincanna that because the two shareholder factions retained different legal
counsel to represent CTI, the fiduciary duty at stake was loyalty, and therefore, CTI had
standing to file the motion to disqualify attorneys hired by members of one faction.
(Fincanna, supra, G058700.) “Due to the undisputed contentious nature of their dispute,
it would be absurd to suggest the same attorney could simultaneously represent these two
factions of shareholders. Similarly, there was no need to determine which faction
controlled CTI to disqualify an attorney simultaneously purporting to act as corporate
counsel while pursuing a derivative action filed against the corporation. If the interests of
these two clients were in accord, there would be no need for a derivative action.
[Citation.]” (Ibid.)
In addition, we need not resolve the factual dispute of Catanzarite’s status
as corporate counsel to review the anti-SLAPP ruling. “[M]erits based arguments have
no place in our threshold analysis of whether [CTI’s] causes of action arise from
protected activity.” (Freeman, supra, 154 Cal.App.4th at p. 733.) If Catanzarite cannot
meet its threshold showing, the fact it “‘might be able to otherwise prevail on the merits
under the “probability” step is irrelevant.’ [Citation.] Nor do [its] arguments show how
[its] evidence defeats [CTI’s] claims as a matter of law. [Citation]” (Ibid.)
We conclude that while the complaint disavows the existence of a proper
attorney-client relationship with Catanzarite, the complaint also asserts Catanzarite filed a
complaint and answer on CTI’s behalf. As mentioned, we recently affirmed the trial
court’s ruling Catanzarite may no longer represent CTI or its subsidiaries. Catanzarite’s
disqualification was mandatory because it was simultaneously representing clients with
conflicting interests. (Fincanna, supra, G058700.) It is improper for Catanzarite to now
suggest this unethical conduct is somehow protected petitioning activity. We affirm the
trial court’s ruling as to Catanzarite.
11
B. Cooper & Duffy’s Anti-SLAPP Motion
As aptly stated by CTI, the claims against Cooper and Duffy fall into the
following two categories: (1) those claiming interference with a prospective business
advantage/contract (Interference Claims); and (2) those concerning breach of fiduciary
duty (Fiduciary Claims). The trial court determined the Interference Claims were subject
to anti-SLAPP, but the Fiduciary Claims were not.
In their motion, Cooper and Duffy asserted all the claims were subject to
the anti-SLAPP statute because they were based on allegations concerning published
writings made in connection with judicial proceedings. They asserted, “The common
thread of all the allegations against Cooper and Duffy is that they were engaged in
petitioning activity advancing the Copper/Duffy Board’s interests in court.”
Protected activity includes a writing made “in connection with an issue
under consideration” by a court. (§ 425.16, subd. (e)(2).) “A statement is ‘in connection
with’ an issue under consideration by a court in a judicial proceeding . . . if it relates to a
substantive issue in the proceeding and is directed to a person having some interest in the
proceeding. [Citation.]” (Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th
1153, 1167.) Thus, there are two components we must consider. First, did the published
writings at issue in this case relate to a substantive issue in the pending MFS Action.
Second, were these statements directed at persons having some interest in the proceeding.
i. Interference Claims
CTI’s Interference Claims involved different types of misconduct. First,
CTI asserted Cooper and Duffy had Catanzarite publish to shareholders two fraudulent
and legally ineffective written consents purporting to remove and replace CTI’s board.
Second, Cooper and Duffy, through Catanzarite, sent e-mails to Western Troy and
Fincanna containing false information about who controlled CTI. Thus, CTI alleged
multiple factual bases support their claim Cooper and Duffy interfered with their business
relationships with Western Troy and Fincanna.
12
Our Supreme Court in Baral v. Schnitt (2016) 1 Cal.5th 376, 382 (Baral),
addressed how a court should proceed when a plaintiff has pleaded what is commonly
referred to as a “‘mixed cause of action.’” “[W]e conclude that the Legislature used
‘cause of action’ in a particular way in section 425.16(b)(1), targeting only claims that are
based on the conduct protected by the statute. Section 425.16 is not concerned with how
a complaint is framed, or how the primary right theory might define a cause of action.
While an anti-SLAPP motion may challenge any claim for relief founded on allegations
of protected activity, it does not reach claims based on unprotected activity.” (Ibid.) The
Supreme Court considered and disapproved case authority holding an anti-SLAPP
“motion lies only to strike an entire count as pleaded in the complaint.” (Ibid.)
Our Supreme Court recently clarified the scope of analysis of an anti-
SLAPP motion as not being “confined to evaluating whether an entire cause of action, as
pleaded by the plaintiff, arises from protected activity or has merit. Instead, courts
should analyze each claim for relief—each act or set of acts supplying a basis for relief,
of which there may be several in a single pleaded cause of action—to determine whether
the acts are protected and, if so, whether the claim they give rise to has the requisite
degree of merit to survive the motion. [Citation.]” (Bonni, supra, 11 Cal.5th at p. 1010.)
In Bonni, the Supreme Court clarified a court must take “a claim by claim
approach . . . rather than attempting to evaluate a cause of action as a whole” regardless
of whether the motion moved to strike an entire cause of action or “merely parts of it.”
(Bonni, supra, 11 Cal.5th at pp. 1010-1011.) The court refused to “risk saddling courts
with an obligation to settle intractable, almost metaphysical problems about the ‘essence’
of a cause of action that encompasses multiple claims. [Citation.]” (Id. at p. 1011.) The
court clarified that not every court that has labeled its approach as a gravamen test after
Baral has errored, because a court may determine if particular acts alleged “supply the
elements of a claim [citation] or instead are incidental background [citations]. This
approach is consistent with Baral, which reaffirmed that ‘[a]ssertions that are “merely
13
incidental” or “collateral” are not subject to section 425.16. [Citations.] Allegations of
protected activity that merely provide context, without supporting a claim for recovery,
cannot be stricken under the anti-SLAPP statue.’ [Citation.]” (Id. at p. 1012.)
In light of the above, we first consider whether CTI’s various allegations of
misconduct supply context or the elements of CTI’s Interference Claims. Next, each act
alleged as a basis for relief must be analyzed separately under the two step anti-SLAPP
framework. (Bonni, supra, 11 Cal.5th at p. 1021.) If the Faction meets its burden of
showing the misconduct rests on protected activity, CTI must demonstrate there is some
merit to its claim or those particular allegations can be stricken. (Ibid.)
a. Publicized Written Consents
The complaint alleges Cooper and Duffy published two written consents
that falsely represented board members were removed and replaced. It alleged the
written consents were fraudulent and legally ineffective. The complaint does not specify
the manner of publication but there were allegations suggesting this misconduct in
combination with e-mails and unauthorized lawsuits damaged CTI by causing the
Western Troy merger to fall through, as well as Fincanna’s foreclosure and litigation.
In their motion, Cooper and Duffy maintained the alleged interference
regarding “the publication of written consents to the shareholders concerning the control
of CTI” was a “substantive issue” in the MFS, Mesa, and Fincanna Actions. (Italics
added.) They asserted a publication to third parties regarding the MFS Action, who had
an interest in that litigation, qualified as protected activity. They explained paragraph 33
of the MFS Action’s complaint illustrated Cooper and Duffy were the “rightful majority
shareholders and control persons of CTI.” They added, “The common thread of all the
allegations against Cooper and Duffy is that they were engaged in petitioning activity
advancing the Copper/Duffy Board’s interests in court.”
We conclude the published written consents do not relate to protected
activity. The written consents, allegedly published to other CTI shareholders, apparently
14
announced the removal and replacement of CTI’s board of directors.5 The validity of
each written consent was not an issue being litigated in the MFS Action, which
concerned liability related to misconduct committed by the Probst Faction. Thus,
publicized statements announcing new board members were not made in connection with,
but rather independent from the MFS Action. Although the lawsuit and the written
consents were designed to produce the same result of placing MFS’s shareholders in
control of CTI’s operations, the actions were independent and alternative remedies. For
example, there would be no need for the written consent if the Faction prevailed in the
MFS Action, and vice versa. Because the publication of the written consent notified
shareholders about the status of the board of directors, not the pending litigation with
MFS, it was not protected activity.
This conclusion does not end our analysis because CTI’s Interference
Claims fail to make a connection between the misconduct of publicizing the fraudulent
written consents with the alleged damages caused by interrupting relationships/contracts
with Western Troy and Fincanna. CTI does not refute Cooper and Duffy’s assertion the
publication was only to CTI’s shareholders. It does not assert CTI was harmed by the
shareholders knowledge or explain how the publication reached or negatively affected
Western Troy or Fincanna. It appears allegations regarding this fraudulent misconduct
served to provide context about the depth of the dispute between the shareholder factions
and the Fiduciary Claims. We conclude the allegations regarding the written consents
were not connected to any elements of the Interference Claims. Thus, these particular
allegations may be disregarded in considering the anti-SLAPP motion.
5 “Corporations normally function through their boards of directors, rather
than their shareholders. But there are a number of matters upon which shareholder action
or approval is required or permitted. [Citation.]” (Friedman et al., Cal. Practice Guide:
Corporations (The Rutter Group 2021) ¶ 6:6.) Under some circumstances directors can
be elected without any meeting, by shareholder written consents. But this method of
election requires the unanimous written consent of all shares entitled to vote for directors.
(Corp. Code § 603, subd. (d).)
15
b. Western Troy E-mail
Catanzarite wrote a lengthy e-mail to Western Troy, warning the company
it must speak with MFS’s chief executive operating officer because there was currently
litigation about whether MFS was CTI’s sole shareholder. Catanzarite attached a copy of
the MFS complaint to the e-mail. Catanzarite stated MFS disagreed with the merger and
“we dispute and object to any agreement purportedly by and between Western Troy and
CTI.” (Bold and underline omitted.) Catanzarite demanded Western Troy withdraw its
public notice about the merger and negotiate with MFS. Finally, Catanzarite insulted
Western Troy. It started the e-mail by commenting it was unexpected the company did
not have a receptionist to answer calls. Catanzarite noted Western Troy “appear[ed] to
have no assets or operations of any value” and saw “no justification for Western Troy
shareholders with a valueless company” to be entitled to CTI’s shares via the merger.
Catanzarite cut and pasted entries from Western Troy’s Web site and called them
“disturbing.”
Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, is instructive. In that
case, a company fired one of its employees because the employee stole customer lists and
secretly solicited its customers to start a competing business. (Id. at 1259.) The letter
informed customers the ex-employee may have already or may attempt to contact them
and that to avoid involvement in the litigation customers should cease dealing with the
ex-employee. (Id. at p. 1260.) Later, the company sued the fired employee, who asserted
a cross-complaint for defamation based on statements made in the pre-litigation letters.
The trial court granted the company’s anti-SLAPP motion. (Id. at pp. 1260-1261.) The
appellate court agreed, concluding the letters “related directly” to the employer’s claims
and were written to “persons whom [the employer] reasonably could believe had an
interest in the dispute,” and they did not contain any statements of fact that were not
based on the employer’s claim against the ex-employee. (Id. at pp. 1267-1268.) The
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court held the letters were “‘in connection with’” the employer’s underlying claim against
the ex-employee under section 425.16, subdivision (e)(2). (Id. at p. 1268.)
A similar connection can be made here. The e-mail warned Western Troy
to no longer contact the Probst Faction because there was litigation challenging whether
they still controlled CTI. The power struggle between CTI’s shareholders certainly
related to the MFS Action. Although Western Troy was not a party or witness in the
litigation, it certainly had an interest in the dispute’s outcome. If MFS prevailed the
merger deal might not survive. The complaint alleges the e-mail was designed, in part, to
make Western Troy question whether its deal with CTI was secure because there was
infighting between board members. And in fact, Western Troy withdrew from the
merger deal.
However, one important factor that distinguishes this case from Neville is
the e-mail contained harmful statements of facts unrelated to the MFS Action. Simply
stated, the e-mail harshly questioned whether Western Troy was a legitimate company,
calling it “valueless.” The elements of the interference with economic and contractional
relations simply requires knowledge of the relationship/contract and intentional/negligent
acts to disrupt the relationship causing damages. (See Korea Supply Co. v. Lockheed
Martin Corp. (2003) 29 Cal.4th 1134, 1153 [intentional interference with prospective
economic relations]; Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d
1118, 1126 [interference with contractual relations].)
Arguably, if the insulting portion of the e-mail was sent, without any
information about the MFS lawsuit, it could have had the desired effect of interfering
with the merger plans. “As we observed previously, ‘conduct is not automatically
protected merely because it is related to pending litigation; the conduct must arise from
the litigation.’ [Citation.]” (Optional Capital, supra, 18 Cal.App.5th at p. 114; see Paul
v. Friedman (2002) 95 Cal.App.4th 853, 867-868 [attorney’s investigation into and
disclosure of securities broker’s private information not protected activity because
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conduct not relevant to securities fraud at issue in arbitration proceeding]; see also
Nguyen v. Proton Technology Corp. (1999) 69 Cal.App.4th 140, 148 [no privilege when
attorney for former employer wrote plaintiff’s new employer stating plaintiff abused
spouse because misconduct not reasonably relevant to threatened unfair competition
litigation].) Thus, Catanzarite’s disparaging comments may have been in connection
with the lawsuit but were not relevant to an issue being reviewed in the MFS Action and
therefore not protected activity.
We conclude the e-mail contains a mixture of protected and non-protected
conduct. As stated in the Baral case, we must look at the protected activity and disregard
the unprotected activity. (Baral, supra, 1 Cal.5th at p. 396.) We conclude Cooper and
Duffy satisfied their threshold showing as to the Interference Claims, to the extent these
claims were based on the e-mail’s discussion of matters directly connected with the MFS
Action. Because CTI sought relief based on allegations arising from protected activity,
the second step is reached. Our analysis of the second prong will be provided later in this
opinion.
c. Fincanna E-mail
At first glance, Catanzarite’s e-mail to Fincanna simply looks like a
notification about CTI’s newly installed board of directors. The e-mail explains the new
board was interested in working with Fincanna. However, later in the e-mail Catanzarite
reveals MFS was litigating its right to control CTI as the sole shareholder and it attached
a copy of the complaint to the e-mail. The remaining and largest section of the e-mail is
devoted to discussing statements written by Justin Beck on behalf of CTI. Catanzarite
discusses Beck’s suspension by the SEC and opines Beck’s recommendations are
suspect. While many of the statements in the e-mail are jumbled and difficult to
understand, the concluding paragraphs stated the purpose of the e-mail was to inform
Fincanna there “is a dispute as to who speaks for CTI that we seek to resolve on an
expedited basis.” They added, “It is our position that any modifications or agreements
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between CTI and Fincanna at this point must be signed by” the newly installed officers
(Zakhireh, O’Connor, and Duffy).
As was the case with the Western Troy e-mail, allegations regarding the
Fincanna e-mail relate to both protected (the filing of the MFS Action) and unprotected
(maligning current board members) activity. So here too, Cooper and Duffy satisfied the
threshold showing on the Interference Claims to the extent they are based on
communications “‘in connection with’” the Faction’s involvement in the MFS Action
under section 425.16, subdivision (e)(2). (Neville, supra, 160 Cal.App.4th at p. 1268.)
Our analysis of the second prong will be provided anon.
ii. Fiduciary Claim
The parties do not dispute board members generally owe a fiduciary duty.
Cooper and Duffy assert the complaint alleges they were never CTI directors, and
therefore, they did not owe a fiduciary duty to the other shareholders. They maintain
they cannot be held responsible for their role in facilitating their attorney’s malpractice in
handling CTI’s litigation. These arguments ignore the complaint’s allegation Cooper and
Duffy fraudulently claimed to be CTI board members and their misconduct directly
related to actions taken in their role as purported board members. The complaint raises
numerous allegations explaining how Cooper and Duffy, through their personal attorney,
acted contrary to CTI’s best interests by fraudulently ousting the elected board and
destroying CTI’s business relationship with Western Troy and Fincanna. For the same
reasons the legal malpractice claims survive anti-SLAPP, these related breach of
fiduciary duty allegations can remain.
C. Second Step—Probability of Prevailing
We have already determined Cooper and Duffy’s e-mails satisfied their
threshold showing as to the Interference Claims, to the extent these claims were based on
e-mails discussing matters directly connected with the MFS Action. Having concluded
CTI’s Interference claims arose from protected activity—in part—we turn our attention
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to the second step of the anti-SLAPP analysis. 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.) Like the trial court, we conclude that the
litigation privilege is applicable.
“The litigation privilege precludes liability arising from a publication or
broadcast made in a judicial proceeding or other official proceeding. ‘“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.”
[Citation.]’ [Citation.] [¶] ‘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.”
[Citation.]’ [Citation.]” (Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th
1153, 1172, fn. omitted.)
Contemporary Services Corp. v. Staff Pro Inc. (2007) 152 Cal.App.4th
1043, 1055, is instructive. Plaintiff’s claims were based on defendants’ acts of filing a
complaint and sending an e-mail to potential customers about plaintiff’s litigation tactics,
to “‘set the record straight’” about the lawsuit. (Id. at p. 1054.) A different panel of this
court determined the e-mail’s contents constituted “a litigation update, which describes
the parties’ contentions and court rulings, and is directed to individuals who had some
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involvement in the parties’ litigation.” (Id. at p. 1055.) After noting both section 425.16
and Civil Code section 47 must be construed broadly to protect the right of litigants, this
court determined defendants met their burden of showing the e-mail fell within the
parameters of anti-SLAPP legislation and plaintiffs could not show a probability of
prevailing. The court concluded the e-mail’s statements all related to providing an update
on the status of litigation, and even if they were not covered by the litigation privilege,
they were insufficient to support a defamation cause of action. (Id. at p. 1059.)
Here, the statements in Catanzarite’s e-mails about an issue to be decided in
pending litigation unquestionably come within the litigation privilege. The e-mails
contain statements that expressly refer to the litigation and each e-mail contained an
attachment with a copy of the complaint. The express purpose of each e-mail was to
inform CTI’s business associates about pending litigation and why the outcome could
negatively affect CTI’s future dealings with these third parties. Thus, the e-mail was
clearly a communication that had “some connection or logical relation to the action” as
described in Civil Code section 47, subdivision (b). CTI had no probability of prevailing
because the litigation privilege would preclude liability. CTI’s allegations of protected
activity supporting the Interference Claims do not survive anti-SLAPP.
DISPOSITION
We affirm the court’s decision to deny Catanzarite’s anti-SLAPP motion in
its entirety.
We affirm the court’s decision to deny Cooper and Duffy’s anti-SLAPP
motion as to CTI’s Fiduciary Claims.
We reverse the court’s decision to grant Cooper and Duffy’s anti-SLAPP
motion as to the Interference Claims because these causes of action are supported by a
mixture of allegations regarding protected activity as well as non-protected activity.
Following our Supreme Court’s directive in Baral and Bonni, we do not confine our anti-
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SLAPP analysis to determine whether an entire cause of action as pleaded has merit but
take a claim by claim approach. (Bonni, supra, 11 Cal.5th at p. 1010.)
Currently, CTI’s complaint refers generally to two e-mails sent to its
business associates. On remand, the trial court is directed to permit CTI to amend its
complaint to allege with specificity allegations supporting its Interference Claims that do
not arise from protected activity. As described in the opinion, this would include the
portions of the e-mails insulting Western Troy and maligning current board members.
Because CTI has no probability of prevailing on allegations of protected activity
(statements regarding which faction controls CTI due to the MFS Action), those claims
for relief do not a survive the anti-SLAPP motion and must not be included in the
complaint.
Respondents shall recover their costs on appeal.
O’LEARY, P. J.
WE CONCUR:
BEDSWORTH, J.
FYBEL, J.
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