Roche v. Hyde ( 2020 )

Filed 7/29/20 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
BRENDAN ROCHE, A150459
Plaintiff and Respondent, (Sonoma County
v. Super. Ct. No. SCV259143)
THOMAS F. HYDE,
Defendant and Appellant.
BRENDAN ROCHE, A150462
Plaintiff and Respondent, (Sonoma County
Super. Ct. No. SCV259143)
v.
ORDER MODIFYING OPINION
RAM’S GATE WINERY, LLC, et al., AND DENYING REHEARING;
Defendants and Appellants. NO CHANGE IN JUDGMENT
THE COURT:
The respective petitions for rehearing filed by appellants Ram’s Gate
Winery, LLC, Michael John and Jeffrey B. O’Neill, and by appellant
Thomas F. Hyde, are denied, subject to the following modification of the
opinion filed in these consolidated appeals on June 30, 2020:
1. On page 40, in the first full paragraph, delete the following
sentence:
Because the Boudreau Report was among the materials in the
2005 Due Diligence Binder, marked with a tab and clearly
identified, Hyde knew it had been in Hardy’s possession, and he
knew it revealed the very information he was advising Ram’s
Gate to sue Roche for failing to disclose.
1
2. Insert in place of the deleted sentence on page 40, continuing within
the same paragraph, the following substitute language:
According to a November 18, 2016 declaration Hyde filed in
connection with the anti-SLAPP motions, the first two pages of
this volume consisted of a “Binder Index” organized as a table of
contents, listing the documents in it by numbered tabs. Because
the Boudreau Report was among the materials Hyde received
from Hardy, marked clearly—“Geologist’s Report, July 12, 1987”
—and identified by tab number on this index, Hyde knew it had
been in Hardy’s possession, and he knew it revealed the very
information he was advising Ram’s Gate to sue Roche for failing
to disclose.
The modifications effect no change in the judgment.
Dated: July 29, 2020 POLLAK, P. J.
2
Trial court: Sonoma County Superior Court
Trial judge: Honorable René Auguste Chouteau
Counsel for defendant and appellant Hinshaw & Culbertson
Thomas F. Hyde: Edward F. Donohue
Jared W. Matheson
Counsel for defendants and appellants Arnold & Porter Kaye Scholer
Ram’s Gate Winery, LLC et al.: Steven L. Mayer
Sean M. SeLegue
Jonathan W. Hughes
John S. Throckmorton
Counsel for plaintiff and respondent: Beyers Costin Simon
Bob Haroche
Peter L. Simon
Steven J. Bleasdell
A150459 / A150462
3
Filed 6/30/20 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
BRENDAN ROCHE,
Plaintiff and Respondent, A150459
v. (Sonoma County
THOMAS F. HYDE, Super. Ct. No. SCV259143)
Defendant and Appellant.
BRENDAN ROCHE, A150462
Plaintiff and Respondent,
(Sonoma County
v.
Super. Ct. No. SCV259143)
RAM’S GATE WINERY, LLC, et al.,
Defendants and Appellants.
In 2006, Ram’s Gate Winery, LLC (Ram’s Gate) purchased a Sonoma
County winery from Dr. Joseph G. Roche (Roche) and his wife. Ram’s Gate
later sued the Roches for breach of contract, fraud, and negligent
nondisclosure based on claims they withheld seismic information about the
property and made misstatements concerning the ability to build on an
existing building pad. The protracted litigation ultimately ended with Ram’s
Gate dismissing the action, Roche paying nothing to Ram’s Gate, and Ram’s
Gate paying most but not all of Roche’s attorney fees.
1
Roche then brought a malicious prosecution suit against Ram’s Gate,
two of its members, Michael John and Jeffrey O’Neill (collectively, Ram’s
Gate or the Ram’s Gate defendants), along with their attorney, Thomas Hyde
(collectively with Ram’s Gate, the defendants), alleging they withheld
documents in discovery that would have proved they knew or should have
known the seismic information they claimed was kept from them when they
bought the property from Roche. The defendants filed special motions to
strike the complaint as a strategic lawsuit against public participation (anti-
SLAPP motions).
Following denial of their anti-SLAPP motions, the Ram’s Gate
defendants and Hyde separately appealed. Though they largely take a
common position in these now consolidated appeals, Ram’s Gate and Hyde
have appeared separately and have filed separate briefs, as they did in the
trial court. Together, the defendants attack the denial of their anti-SLAPP
motions from many angles—necessitating the extended discussion to follow—
but at its core the single issue before us, put simply, is whether Roche made a
sufficient showing that he was likely to succeed on the merits. We conclude
he did and therefore affirm.
I. SUMMARY
While the ultimate issue may be put simply, that is not so for the case
as a whole. We therefore pause at the outset to provide a summary of the key
points of decision, intending with this précis to set forth an outline of what
will follow. The two primary legal issues presented are (1) whether Roche
met his prima facie burden of proving the underlying action was terminated
in his favor and (2) whether Roche met his prima facie burden of proving
Ram’s Gate lacked probable cause to bring or maintain the underlying action
against him.
2
Taking the favorable termination issue first, we begin with the
principle that a unilateral dismissal raises a presumption of favorable
termination. (Sycamore Ridge Apartments LLC v. Naumann (2007)
157 Cal.App.4th 1385, 1400 (Sycamore Ridge).) To determine whether the
presumption has been rebutted, we evaluate the circumstances of the
dismissal. (See Daniels v. Robbins (2010) 182 Cal.App.4th 204, 217
(Daniels).) Here, that situational inquiry boils down to this: Where the
underlying suit was unilaterally dismissed by Ram’s Gate in the face of a
terminating sanctions motion that was almost certainly going to be granted
for discovery abuse, and where the dismissal was accompanied by a
negotiated payment of some but not all of Roche’s attorney fees—with Roche
signing no settlement agreement, releasing no claims, and expressly
reserving his rights—did the dismissal constitute a favorable termination in
favor of Roche? On this record, we hold that the answer is yes. Because the
modest discount on attorney fees that Ram’s Gate received was a matter
“ancillary” to the merits, under HMS Capital, Inc. v. Lawyers Title Co. (2004)
118 Cal.App.4th 204, 215 (HMS Capital) it did not constitute a settlement.
The probable cause issue breaks down into four component parts, one of
which is substantive and three of which are procedural.
First, as a substantive matter, we conclude that Roche has met his
burden of showing that, under the tenability standard announced in Sheldon
Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863 (Sheldon Appel Co.), no
reasonable attorney would have brought or maintained an action against
Roche in these circumstances. In arriving at that conclusion, we address the
following two questions: (1) Where transactional counsel for Ram’s Gate had
possession of allegedly concealed information prior to the closing of the sale,
is knowledge of that information chargeable constructively to Ram’s Gate by
3
imputation under applicable agency principles? And (2) even if the allegedly
concealed information is imputed to Ram’s Gate, did Ram’s Gate nonetheless
have probable cause to sue on other grounds because it asserted various
alternative theories of liability? On this record, we hold the answers to these
questions are, respectively, yes, that under Wittenbrock v. Parker (1894) 102
Cal. 93 (Wittenbrock), Ram’s Gate must be constructively charged with
information in the hands of its transactional counsel, and no, that none of
Ram’s Gate’s alternative theories of liability supplies an independent basis
for probable cause because under Cuevas-Martinez v. Sun Salt Sand, Inc.
(2019) 35 Cal.App.5th 1109 (Cuevas-Martinez), none states an independent
cause of action.
Second, under the interim adverse judgment rule as enunciated in
Parrish v. Latham & Watkins (2017) 3 Cal.5th 767 (Parrish), does a summary
adjudication ruling in the underlying case in favor of Ram’s Gate, finding
triable issues of fact on several of Ram’s Gate’s claims of nondisclosure and
misrepresentation, compel a finding as a matter of law that Ram’s Gate had
probable cause to sue? That issue, in turn, requires us to decide whether an
exception to the interim adverse judgment rule recognized in Carpenter v.
Sibley (1908) 153 Cal. 215 (Carpenter) for judgments procured by fraud or
perjury applies. As a matter of first impression, we hold that egregious
discovery misconduct—here, the withholding of a critical piece of evidence in
willful violation of multiple court orders, including a sanctions order, where
the suppressed evidence likely would have resulted in a summary judgment
victory for Roche—may provide a basis for applying the fraud or perjury
exception under Carpenter. And we think the evidence supplies a prima facie
basis for applying the exception in this case.
4
Third, in evaluating the merits of whether Roche bore his prima facie
burden on lack of probable cause, must we draw all inferences for a malicious
prosecution defendant seeking anti-SLAPP dismissal, contrary to the usual
rule that, on review, we draw inferences for the non-movant in the
“ ‘ “summary-judgment-like” ’ ” (Sweetwater Union High School Dist. v.
Gilbane Building Co. (2019) 6 Cal.5th 931, 940 (Sweetwater)) proceedings at
step two of the anti-SLAPP process? Pointing to the principles of tenability
announced in Sheldon Appel Co. as they have been applied in Parrish and
other cases, and emphasizing that this body of precedent establishes a
substantive standard of liability that is highly generous to those accused of
malicious prosecution, the defendants urge us to adopt a novel procedural
exception and draw inferences for the movant and malicious prosecution
defendant. We reject these arguments and apply conventional standard of
review principles applicable to the review of anti-SLAPP denials, drawing all
inferences in favor of the non-moving party and malicious prosecution
plaintiff, Roche.
Fourth, how will the law of the case doctrine apply in this case going
forward, on remand, following our affirmance of the denial of the defendants’
anti-SLAPP motions? We hold that, as to triable issues of fact, the only
impact of the law of the case doctrine is to preclude a summary judgment
motion by any of the defendants asserting the same grounds asserted in their
anti-SLAPP motions, unless they later come forward with “additional or
different evidence that would, as a matter of law, conclusively negate
plaintiff’s prima facie case.” (Bergman v. Drum (2005) 129 Cal.App.4th 11,
18 (Bergman), italics omitted.) Following remand, therefore, the case may
now proceed to trial, where Roche will have the burden of proving all
elements of his malicious prosecution claim. At trial—except for rulings
5
made in this opinion on issues of law on undisputed facts, which will provide
binding guidance as the law of the case—the inferences we draw here from
the record evidence shall have no effect on the matters to be tried.
II. BACKGROUND
A. History of the Winery Purchase
1. The Conforti Site Plan and the Boudreau Report
In the late 1980’s, Roche and his wife, Genevieve,1 purchased a 135-
acre ranch in Sonoma County with the plan of establishing a winery on it.
That they did, but not before commissioning two studies of the property. The
first, a site plan depicting the location of the winery building and its
orientation on the site, was prepared by architect Victor Conforti in February
1987 (the Conforti site plan). The second, a report by an engineering
geologist, Eugene Boudreau, was prepared in July 1987 (the Boudreau
Report). Boudreau’s work was a seismic hazard study specifically required by
the county because the property is located in a seismic special studies zone.
(See Pub. Resources Code, § 2621 et seq. [Alquist-Priolo Earthquake Fault
Zoning Act].)
The Boudreau Report concluded that “[t]he principal hazards in the
area are associated with faulting and earthquakes[.]” The report
summarized the findings of a 1982 “fault evaluation report” by geologist E.W.
Hart from the California Division of Mines Geology (CDMG), which showed
1 Dr. Genevieve Roche passed away during the underlying litigation,
and Dr. Joseph Roche passed away during the pendency of these appeals.
Only the late Dr. Joseph Roche was a party to the malicious prosecution
action. He has been succeeded in these appeals by a personal representative
of his estate. Although the Roches appear to have been co-owners of the
Roche Winery, we will recite the facts as if Dr. Joseph Roche had been the
sole owner of the winery, without reference to any role his wife may have
played in establishing and running it.
6
“the Rodgers Creek Fault Zone to run from Santa Rosa to the Roche
property.”2 “[T]he Rodgers Creek is definitely considered to be an active
fault.” Drawings accompanying the report showed multiple fault traces on
the Roche property, including one within 20 feet of the proposed winery site.3
This fault trace, which Boudreau located at the “southernmost portion
of the Rodgers Creek [Fault], which includes the Roche property,” was
originally identified by the CDMG, as shown by a map prepared by Hart in
1982. Based on topographical features of the site, the Hart map delineates
several “traces of recently active faults traversing the area east of Arnold
Drive . . . to the north of the winery site,” roughly at the intersection of two
underlying rock formations known as the Petaluma formation and the
Sonoma volcanics. Boudreau, too, looked at topographical features of the site
2 The term “fault,” in common usage, sometimes refers to what
geologists would describe as a “fault zone” (e.g., the San Andreas Fault, or the
Hayward Fault, or the Rodgers Creek Fault). Within fault zones, there are
tributary faults, known to geologists as “fault traces.” Whether a “fault” or a
“fault trace” is deemed to be “active” depends on the recency of its seismic
activity.
In this opinion, we will use the official name of the fault zone at issue
here (i.e., the Rodgers Creek Fault) where we believe that is the intended
meaning of the witness or document being referenced. Except for occasional
instances where we use the nonspecific term “fault” in quoting from
testimony or documentary exhibits (because these source materials are
sometimes not specific), we will generally use the specific term “fault trace,”
since, on this record, as we read it, that is nearly always the contextual
meaning.
3 Boudreau attached a map, drawn to 1:200 foot scale, showing the
location of these fault traces. The map has two arrow indicators, one bearing
the annotation “Active fault traces from CDMG map by Hart” which points to
two discontinuous solid lines located approximately 40-feet from the proposed
winery building, and the other bearing the annotation “possible fault” which
points to a dotted-line approximately 20-feet from the proposed winery
building.
7
and other observed surface conditions, but he did some analysis of the soils
by excavation as well.
Using Hart’s earlier map as a starting point, Boudreau dug exploratory
trenches at the location of the “possible fault” nearest to the location of the
proposed winery building. Observations of the soils revealed by these
trenches showed a “fault plane” at that location. Hart himself—whom
Boudreau consulted—confirmed Boudreau’s opinion after examining
Boudreau’s trenches, but also advised Boudreau that further confirmation
could be found if deeper trenches were dug. While Boudreau ultimately
found no evidence of recent seismic activity in the excavated soil, he
concluded that “a possible fault (which will have to be considered to be
potentially active) was discovered north of the site, but a 50 foot clearance
can be kept between the fault trace and the building.”
Boudreau’s findings thus made it clear the site initially considered for
the winery was very close to multiple active fault traces, and nearly on top of
one he suspected to be active. His drawings noted a location that would allow
the required 50-foot setback from this suspected active fault trace. The
Conforti site plan was revised in 1988, evidently to take account of
Boudreau’s findings. The Conforti site plan is less detailed geologically than
the drawings prepared by Boudreau, but does show a fault trace that appears
to correspond to the one Boudreau identified nearest to the proposed winery.
It is clear from Conforti’s site plan that he did not make an independent
judgment as to the location of any trace fault. One sheet of his plan includes
an annotation with a pointer to a line indicating “Geologist Fault Trace
Exploratory Trench,” and on another sheet he has a similar pointer with a
note “Trace Fault Line Field Confirm Location by Geologist.”
8
2. The Giblin Report, the Harding Lawson Proposal, and the
Offering Memorandum
The next chapter in these events concerns the building pad. In 1996,
the California Department of Transportation (CalTrans) undertook a
highway widening project on Highway 121, adjacent to the Roche Winery.
Ghilotti Construction (Ghilotti), the contractor doing the work, needed a place
to offload gravel and soil from the roadwork operations. Ghilotti suggested
using the old road base to build a two-acre building pad behind the winery at
no cost to Roche. Thinking he could use it to put up a warehouse, Roche
agreed. The pad was built by Ghilotti under monitoring and inspection by
the geotechnical engineering firm Giblin Associates (Giblin). Giblin provided
Ghilotti with a final report (the Giblin Report) indicating the pad had been
built in accordance with grading plans prepared by civil engineers, and
Ghilotti gave a copy of the final Giblin Report to Roche.
Roche solicited a proposal from a second geotechnical engineering firm,
Harding Lawson Associates (HLA), to perform a fault hazard investigation
for a planned warehouse to be constructed on the two-acre building pad built
by Ghilotti (the HLA Proposal). The HLA Proposal specifically recommended
that to satisfy the requirements of the Alquist-Priolo Earthquake Fault
Zoning Act, a fault hazard investigation be undertaken before erecting the
planned warehouse. Roche never completed the additional seismic
investigation recommended by HLA and never built the warehouse.
By early 2005, Roche Winery had filed for Chapter 11 protection in
bankruptcy, and Roche sought to sell the winery, initially listing it for $10.5
million. The real estate broker for the sale, Catherine Somple, wrote the text
of an Offering Memorandum about the property that, among other things,
summarized the history of the building pad, concluding with the following
statement: “[Ghilotti built] the winery a free-of-charge, fully engineered,
9
Sonoma County approved building pad. You can literally start building on it
w/ no ground work. It was always the Sellers [sic] long term plan to construct
a ‘cut and cover’ building there for production, and turn the current facility
into a pure retail/office location.”
3. 2005 Attempt To Purchase the Winery
The transactional history of Ram’s Gate’s eventual purchase of the
winery unfolded over the course of two years, starting in mid-2005. In July
2005, Michael John and John Hansen launched an effort to buy the winery
and formed a limited liability company (LLC), JHP Land, LLC (JHP Land I),
for that purpose. John and Hansen both were managers of JHP Land I.
Their plan was to replace the existing winery with a new one that would be
open to the public, sell specialty groceries, and be available to rent for special
events. Carrying out that plan would have required expanding the property’s
permitted uses under Sonoma County’s zoning law. For JHP Land I, whether
the county would grant a use permit allowing new uses of the property was
therefore a key issue.
John and Hansen were represented by broker and attorney Lester
Hardy and his law firm of Clement, Fitzpatrick & Kenworthy (the Clement
firm)4 in the formation of JHP Land I and the purchase of the winery. The
agreed-upon purchase price was $10 million. In connection with the
purchase, the buyers received a set of broad written disclosures from Roche.
On July 21, 2005, Roche sent to Hardy a “Roche Winery Disclosure List”
The main office of the Clement firm was, and still is, in Santa Rosa.
4
Hardy worked out of a satellite office in St. Helena.
10
which indicated “None” on lines requesting information about “Geological
Hazards” and “Geotechnical Reports.”5
Although the main focus of Hardy’s preliminary due diligence work was
on permitting issues, he did have some limited discussions with the Roches’
counsel, Thomas Davenport, about seismic matters. The Roches, who lived
on a ranch across Arnold Drive several hundred yards to the north of the
winery, wished to retain water rights to a well located on the winery site.
Concerned that these retained rights could affect water capacity for the
winery, Hardy asked Davenport whether the Roches could simply drill a well
on their side of Arnold Drive. According to Davenport, the answer was no
because there was a “fault” on the winery site between the water-bearing
rock formation from which the winery’s well drew and the rock formation on
the other side of Arnold Drive, where the Roches lived.
To help gather preliminary due diligence information, a law partner of
Hardy at the Clement firm, Kathleen Winter, reviewed documents on file
with the county’s Permit Resource Management Department (PRMD)
relating to the Roche property, copying some of them and placing them into
binders. One of these binders contained the Boudreau Report. An email from
Davenport to Hardy dated August 1, 2005, says a binder of “disclosure
documents” was being hand-delivered to Hardy that day. In addition, an
email dated July 27, 2005, from Davenport to Hardy forwarding an email
from Roche’s son, Brendan Roche, indicated that various materials were
5The disclosure sheet divided the responses into seven categories of
information, “Violations,” “Sewer,” “Illegal/Hazardous,” “Asbestos,” “Existing
Agreements/Contracts,” “Reports,” and “Other Facts, Conditions or
Agreements.” The “[n]one” response for “Geological Hazards” appears in the
category for “Violations” and the “[n]one” response for “Geotechnical Reports”
appears in the category for “Reports.”
11
being provided to Hardy, including “[a] [t]hree-ring binder cataloguing the
construction of the winery, including engineering information, seismic
information, plumbing, refrigeration, etc. THESE ARE ALL ORIGINALS.
Please look through it and make copies as needed, and return to us at your
convenience.”6
By mid-August 2005, John and Hansen lost interest in purchasing the
property because, considering restrictions expected to be imposed by the
county, the cost of building and running the winery would have made it
impossible to service the debt. Accordingly, on August 11, 2005, John wrote a
letter to Roche and his son Brendan, terminating the deal and explaining
why. That marked the conclusion of Hardy’s representation of JHP Land I in
2005. Later, John, through out-of-state lawyers, canceled the registration of
JHP Land I with the California Secretary of State.
6 Roche contends a copy of the Boudreau Report was contained in a
binder prepared by Brendan Roche and provided to Ram’s Gate through
Davenport in 2005. In ruling on the defendants’ anti-SLAPP motions, the
trial court sustained Ram’s Gate’s objections to consideration of Brendan’s
declaration. These objections were made on multiple grounds, including lack
of foundation and speculation (because, according to Ram’s Gate, Brendan
failed to identify exactly what he sent Davenport and had no personal
knowledge of what Davenport sent Hardy) and judicial estoppel (because
Roche had not claimed in the underlying action that Brendan provided the
binder, but rather that he never possessed a copy of the Boudreau Report and
the only copy he knew of was on file with the county). Roche does not
challenge the court’s ruling on the objections. Because we conclude the
source of the binder does not matter for present purposes (at pp. 42–43, post),
we will treat the binder containing the Boudreau Report as having originated
with Winter (at pp. 42–43, fn. 21, 56–57, post), not Roche’s son. Because it
ended up in Hardy’s hands in connection with his preliminary due diligence
investigation in 2005, we will sometimes call it the “2005 Due Diligence
Binder.”
12
After JHP Land I backed out of the deal, Davenport asked for the
return of disclosure materials Roche had provided in July and August 2005,
as required under the parties’ agreement, because many of them were
originals. JHP Land I and Hardy never complied with that request.
4. 2006 Purchase of the Winery
a. Purchase and sale agreement
In January 2006, Roche again put the winery on the market, asking the
reduced price of $8.5 million. John and Hansen found another investor,
O’Neill, and the three formed an entity initially known again as JHP Land,
LLC (JHP Land II), but which eventually was called Ram’s Gate Winery,
LLC.7 With Roche under time pressure from his lender, the three investors,
who were all initially designated managers, negotiated to buy Roche’s winery
for $7 million. They again retained Hardy, now in his own firm,8 to represent
them in setting up Ram’s Gate and handling the purchase of the property.
The parties entered into a purchase and sale agreement (PSA) on
November 15, 2006. The name of the contracting purchaser was recorded as
“JHP Land, LLC”—the same name as the entity Roche had dealt with in
2005. Roche and his attorneys, Davenport and Peter Simon, all have sworn
under oath they did not know they were dealing with a different entity (JHP
Land II) in 2006 than they had dealt with in 2005 (JHP Land I).
b. Required disclosures
The PSA required Roche to produce to Ram’s Gate, within 10 days,
documents including “any known geological hazards; . . . soil reports, . . .
geotechnical reports, . . . and all other facts, events, conditions or agreements
7The LLC changed its name to “Carneros Vintners, LLC” in 2008 and
to “Ram’s Gate Winery, LLC” in 2010.
8 In early 2006, Hardy left the Clement firm and set up a solo practice.
13
which have a material effect on the value of the ownership or use of the
Property. . . .” Ram’s Gate then had 13 days in which to conduct its due
diligence inquiry and to decide whether to go through with the purchase.
It is undisputed that Ram’s Gate understood the property was in an
Alquist-Priolo Earthquake Fault Zone. What, if anything, it knew about the
existence of active fault traces on the property when it purchased the winery
is at the heart of this case. When due diligence resumed in the Fall of 2006,
Roche and Davenport did not believe it was necessary to produce the same
documents they had given to Hardy in 2005, since both transactions were
handled by Hardy, the purchasing entity had the same name it had carried in
2005, two of the members were the same, and Hardy still had not returned
the original documents Roche had produced in 2005.
Among the documents produced by Roche during the 2006 due diligence
period, however, were the Giblin Report and the HLA Proposal. The HLA
Proposal noted there were “active fault traces in the vicinity of the existing
winery buildings” and cautioned that “[i]n the event fault traces are
determined to underlie the building site it may be necessary to consider
moving or reconfiguring the building to avoid encroachment into the area of
potential fault rupture.” Prior to building any new structures on the building
pad, HLA advised that Sonoma County would require “an investigation” to
“be performed to satisfy the requirements of the [Alquist-Priolo Earthquake
Fault Zoning Act].”
Roche’s attorney, Davenport, sent those documents to Hardy via email
on November 20, 2006. Hardy then forwarded all of the documents to the
members of Ram’s Gate (John, O’Neill and Hansen) and discussed the
documents with his clients in an “Update” email dated November 27, 2006,
specifically advising his clients as follows: “Please note that the engineer
14
expressly advises that additional engineering may be required before
construction. My recommendation is that we contact the engineers (Giblin &
Associates) if you need or want any additional insights into the present
condition.” There is no evidence that Ram’s Gate took any further action in
response before escrow closed.
The sale of the winery closed on December 14, 2006, with the
purchasers taking title in the name JHP Land, LLC. Shortly after the
closing, Ram’s Gate started preparations for construction of a new winery
building and learned from a planning consultant, allegedly for the first time,
it could not build on the building pad without further seismic study. It
turned out such a study would be expensive because there was a great deal of
fill dirt under or around the building pad that would have to be trenched
through to conduct the seismic investigation. As a result, Ram’s Gate decided
to renovate the existing winery building rather than build on the pad.
The chosen site for the proposed new, renovated winery was in roughly
the same place as the existing Roche winery, on top of a prominent four-acre
knoll in the central portion of the property. In the course of the planning
process for the project, Ram’s Gate incurred a cost of some $127,000 to do the
required seismic hazard study.9 The study was undertaken in the summer of
2008, when O’Neill commissioned a consulting geologist, RGH Consultants,
Inc. (RGH), to provide “geologic information regarding the possible presence
or absence of active trace(s) of the Rodgers Creek fault” in connection with
permitting of the renovation project (the RGH Report).
9Whether this was additional cost, over and above what JHP Land II
would have spent if Roche had, in fact, completed the seismic hazard study
that HLA proposed in 1997, or whether a new seismic hazard study was
always going to be necessary for any construction of a structure on the
building pad following Ram’s Gate’s acquisition of the winery, is disputed.
15
RGH, like Boudreau, started with the work by the CDMG in 1982,
appending to its report, as Boudreau did, a map showing the active fault
traces delineated by Hart. RGH, like Boudreau, dug exploratory trenches
near the proposed winery building. “During our study,” RGH reported, “we
observed evidence of an active, northwesterly-trending fault to the Northeast
of Roche Winery. The observed fault appears to coincide with the location of
the fault found by Boudreau (1987).” Like Boudreau, and Hart before him,
RGH concluded that this active fault was likely one of several active faults
near the winery.10
Sometime around April of 2008, Ram’s Gate consulted attorney Thomas
Hyde, apparently in connection with an effort to deal with water rights under
the lease-back arrangement Ram’s Gate had with Roche in the year following
the sale, but later, after Ram’s Gate received the RGH Report, to investigate
the adequacy of Roche’s pre-sale disclosures. Hyde, in representing Ram’s
Gate, asked Hardy for his client files for both JHP Land I and JHP Land II,
telling Hardy his clients were investigating “saltwater intrusion” and making
no mention of seismic issues. With O’Neill’s permission, Hardy provided his
files to Hyde. And among those files was the Boudreau Report.
In September 2008, apparently unaware that the fault trace findings by
RGH had been previously reported by Boudreau (which a close read of the
RGH Report would have revealed), or that his own lawyer and broker, Hardy,
may have had possession of the Boudreau Report in November 2006 but
10 RGH Consultants, Inc. (August 20, 2008) Alquist Priolo Fault Hazard
Study: New Carneros Winery 27665 Arnold Drive, Sonoma, California, page
30 (“Because this fault appears to be a discontinuous strand across the knoll,
it appears to be a secondary fault. The main trace of the Rodgers Creek
Fault, juxtaposing the Petaluma formation against Sonoma volcanics, is
judged to be further northeast on the side of the knoll.”).
16
never told him about it, O’Neill briefed his partners by memo on his
renegotiation strategy with the Roches, as follows: “Over the next month, I
will renegotiate the lease with the Roche family for the use of the property
through 2008. It is my opinion that we can modestly enhance the revenue
associated with this lease, but more importantly we want to keep the Roche
family on our side while we apply for new plans, permits and a potential need
for additional water. While we have not played our card regarding the fault
line, we can, if necessary in the future.”
Ram’s Gate played that “card” two years later.
B. Ram’s Gate’s Action Against the Roches
On October 12, 2010, Ram’s Gate filed a lawsuit against Joseph and
Genevieve Roche, Catherine Somple, the selling broker, and its own lawyer,
Lester Hardy. The suit alleged fraud and negligent nondisclosure against the
Roches and Somple, in addition to breach of contract against the Roches.
Against Hardy, it alleged professional negligence and breach of fiduciary
duty. The assigned trial judge was Judge Elliot Daum.
The operative first amended complaint alleging these causes of action
was filed February 14, 2011. The negligent nondisclosure and breach of
contract causes of action were based in large part on Roche’s alleged failure
to disclose seismic information showing an active fault trace near the winery
building, premised in large part on Roche’s alleged failure to disclose the
Boudreau Report (referred to in the first amended complaint as the “1987
soils report”) and the Conforti site plan.
In support of all of these causes of action, Ram’s Gate also included
allegations of affirmative misrepresentations, including principally the
statement in the Offering Memorandum that “You can literally start building
on [the building pad] w/ no ground work.”
17
1. Initial Withholding of Documents by Ram’s Gate
After launching its suit, Ram’s Gate immediately began taking a series
of shifting discovery positions designed to justify not producing documents
that would allow Roche to prove the Boudreau Report had been in Hardy’s
hands all along.11
At the outset of discovery, Roche requested, among other things, “all
. . . communications between [Ram’s Gate] and Defendant Lester Hardy”
which “related to this action” or to the Roche Winery. In response, Ram’s
Gate produced only 524 pages of documents—not including the 2005 Due
Diligence Binder or any communications about its contents. There was no
objection on the ground that Hardy’s communications had been with JHP
Land I, not Ram’s Gate.
Rather, Ram’s Gate tried to shield any communications with Hardy by
asserting attorney-client privilege. Ultimately, ruling on a motion to
compel production of documents in February 2012, Judge Daum overruled
this objection for two primary reasons: first, Hardy was acting as a broker
as well as a lawyer and many communications were not intended to be
confidential, and second, Ram’s Gate waived the attorney-client privilege
by suing Hardy.
Judge Daum ordered Ram’s Gate to provide “complete responses” to
Roche’s document requests “without withholding documents under the
attorney-client privilege,” and required Ram’s Gate to produce a “privilege
log” of documents withheld for any reason. Ram’ s Gate did none of these
11 As a source of proof, Roche was dependent on documents produced in
discovery, because JHP Land I and Hardy never returned the originals of the
due diligence material he provided in connection with the aborted 2005
transaction, and because his own copies of emails and other documents had
been destroyed when his attorney’s computer crashed.
18
things. Its new tack was to deal with the waiver issue by dismissing
Hardy, suing him separately, and reasserting attorney-client privilege.
2. First Motion for Sanctions
Because, months later, Ram’s Gate was still ignoring the prior order to
produce a log of anything still being withheld, in April 2012 Roche made a
motion for sanctions, requesting not only a monetary sanction but the
ultimate sanction of termination. Shortly before the hearing, Ram’s Gate
filed an amended supplemental response to the document request, claiming
that “after conducting a diligent search,” “all [responsive] documents [Ram’s
Gate] has received from Mr. Hardy . . . have already been produced.”
Faced with Ram’s Gate’s repeated flouting of orders compelling
production, the tentative ruling was to grant the requested terminating
sanction. There is no doubt Judge Daum was inclined to view Ram’s Gate’s
conduct as beyond the pale. “Although terminating sanctions are severe,” his
tentative ruling explained, “Plaintiff’s actions have been misleading, and
constitute an abuse of the discovery process. Further, Plaintiff’s refusal to
turn over the requested documents constitutes a blatant refusal to abide by
the Court’s order. There can be little doubt that documents have been
withheld. As a result, Defendants’ [sic] have been deprived of an opportunity
to prosecute this case and defend themselves.”
Judge Daum’s final order of June 12, 2012, granting sanctions was just
as scathing in its tone of reproval. “Plaintiff has completely ignored the order
of the court,” he found. “Instead of producing documents or supplemental
responses, plaintiff has simply provided amended responses reasserting the
same privilege” and seemed to believe that simply dismissing its lawyer,
Hardy, somehow “obviated the necessity . . . to comply with the court’s order
of February 9, 2012.” Ultimately, however, Judge Daum gave Ram’s Gate a
reprieve, deciding not to enter a terminating sanction “at this time,”
19
awarding a $2,500 monetary sanction, inviting an in limine motion for issue
sanctions at trial, and once again ordering compelled production.
Although proof that Ram’s Gate was still being deceptive had yet to
surface—and would not come to light for nearly four years—it is evident that
Judge Daum suspected he was being misled, and his sanctions order said so
in plain terms. “The declaration of [Ram’s Gate’s] counsel makes no
reference to review of any documents, withheld or otherwise,” the order
pointed out. “There is no explanation for how countless representations were
made to this court and to the parties about the existence of the documents
that had been withheld.”12
3. Continued Withholding of Documents by Ram’s Gate
Despite having been admonished for making representations that it
was not withholding discoverable documents (while it was doing just that
based on an unsustainable privilege objection), the pattern of dissembling by
Ram’s Gate immediately resumed. Within a day of Judge Daum’s sanctions
order issuing, on June 13, 2012—the day before Hardy’s deposition was
scheduled—Ram’s Gate produced an additional 673 pages of documents,
including 62 emails among the Ram’s Gate principals, Hardy, Davenport, and
the Roches. And once again, Ram’s Gate claimed it had produced all
responsive documents, including all communications with Hardy.
12Following entry of this sanctions order in June 2012, Hyde remained
counsel of record for Ram’s Gate but ceded the lead role in handling discovery
on a going-forward basis to co-counsel, William Paynter, who appeared for
Ram’s Gate by association of counsel on June 6, 2012. With Paynter in
charge of discovery, nothing changed. Ram’s Gate continued to follow the
course Hyde had set from the beginning, withholding the Boudreau Report
for unspecified reasons while continuing to claim that all responsive
documents had been produced.
20
As it turns out, many more discoverable emails among the Ram’s Gate
principals and Hardy were still being withheld. The existence of some of
these additional documents came to light on February 5, 2013, when Hardy
produced a CD containing 2,316 pages of documents, consisting almost
entirely of communications between himself and Ram’s Gate’s members, a
document production Hardy made despite Hyde’s request that he not do so.
Around the same time, Roche served a second set of document requests, again
seeking any documents concerning earthquake faults on the property and
Ram’s Gate’s communications with Hardy.
Ram’s Gate responded to Roche’s second set of document requests on
February 13, 2013, by claiming it would make all such documents available
at Ram’s Gate’s place of business. That, too, was revealed to be inaccurate at
the deposition of John, which took place with a summary judgment motion by
Roche pending. The John deposition commenced on February 21, 2013. He
testified that he made “no attempt” to search for documents responsive to the
document requests contained in his deposition notice. Although John
testified he had “no documents” because he gave them all to O’Neill after the
winery property was acquired, it was soon evident that John possessed
emails and other documents that had never previously been produced.
John agreed at his deposition to search for discoverable documents and
provide all email communication with his co-investors and with Hardy, but
before any further production of documents based on that search could be
made, on March 1, 2013, Judge Daum issued a ruling on the pending
summary judgment motion. At this point, a trial date was set for March 22,
2013, only weeks away. Just days prior to trial, Ram’s Gate produced a CD
containing over 17,000 of John’s emails, many of which included
attachments. This eleventh hour production consisted of approximately
21
60,000 pages, and was produced too late for Roche to use in connection with
the already-decided summary judgment motion.
4. Summary Adjudication Ruling and First Appeal
In December 2012, Roche filed a motion for summary judgment or in
the alternative for summary adjudication. The motion was two-pronged.
First, Roche attacked the fraud and negligent misrepresentation claims
on grounds that (1) Hardy admitted knowing in 2005 that the winery was in
the Alquist-Priolo Earthquake Fault Zone due to its proximity to the Rodgers
Creek Fault and, since his knowledge was imputed to his client under agency
principles, Ram’s Gate could not have relied on Roche’s alleged failure to
disclose seismic information when Ram’s Gate purchased the winery, and
(2) because Ram’s Gate had actual notice of any injury to it when it learned of
the possible existence of an active trace fault on the property in early 2007,
these claims were tardy under the applicable statute of limitations.
Second, Roche attacked the breach of contract claim because, (1) under
the doctrine of merger by deed, the allegedly breached disclosure warranties
in the PSA did not survive the closing of the transaction, leaving Ram’s Gate
solely with the remedy of rescission if it could prove fraud, and (2) because
Ram’s Gate had a full opportunity to conduct due diligence prior to the
purchase, and because at most all it could show had it received the allegedly
withheld information is that it would have terminated the sale (which its
failure to sue for rescission shows it would not have done), Ram’s Gate
received the “benefit of its bargain” and could not prove damages.
Roche’s summary judgment motion met with mixed success. At that
procedural juncture in the case, Roche contends, because he had no proof
Hardy or Ram’s Gate ever had possession of the Boudreau Report, he made
no attempt to attack any of the claims against him on the ground that Ram’s
Gate knew, actually or constructively, that there were active fault traces in
22
the vicinity of the winery building at the time of the sale. Ruling on a record
that made no mention of Hardy’s or his client’s possession of the Boudreau
Report, since all Roche knew then was that a publicly available copy of the
Boudreau Report was in the PRMD files, Judge Daum granted summary
adjudication to Roche on the breach of contract cause of action based on the
merger by deed doctrine, but denied summary adjudication as to the tort
claims.
To facilitate an appeal following entry of the summary adjudication
order, Ram’s Gate voluntarily dismissed the tort causes of action without
prejudice. For the appeal, Ram’s Gate retained an appellate team from
Arnold & Porter Kaye Scholer, LLP. In April 2015, a panel of this division
reversed the summary adjudication for Roche, allowing the breach of contract
cause of action to proceed in the trial court, and holding the doctrine of
merger by deed did not preclude Ram’s Gate from asserting the Roches’
failure to abide by disclosure requirements in the PSA. (Ram’s Gate Winery,
LLC v. Roche (2015) 235 Cal.App.4th 1071, 1079–1083.) Following its
successful appeal, Ram’s Gate returned to superior court, where it continued
to be represented by Arnold & Porter, with newly assigned trial counsel,
Jonathan Hughes, pursuing solely the breach of contract claim that had been
reinstated on appeal. Discovery resumed after remand.
5. Second Motion for Sanctions and Dismissal of the Action
Trial was scheduled for April 15, 2016. Ten days before trial, Roche’s
counsel, Simon, took O’Neill’s deposition as the person most qualified (PMQ)
to respond for Ram’s Gate. (Code Civ. Proc., § 2025.230.) On the morning of
the deposition, Hughes emailed Simon that his office had learned of a “binder
of materials” consisting of “Hardy’s documents from the 2005 transaction”
which had been in Hyde’s possession. “My understanding,” Hughes wrote, “is
that the binder had not been previously produced and we are producing it
23
today.” What he produced was the 2005 Due Diligence Binder, and in it was
the Boudreau Report—which amounted to a “smoking gun,” as the course of
events in the case would shortly reveal.13
Confronted at his PMQ deposition with this new evidence, O’Neill
admitted that: (1) Ram’s Gate’s agent Hardy had the Boudreau Report in his
possession before close of escrow; (2) the Boudreau Report provided “much
more detail” about active earthquake faults than the Conforti site plan;
(3) there was no additional information, outside of what was contained in the
Boudreau Report, that O’Neill could identify as something Roche should have
disclosed; and (4) after five and a half years of accusing Roche of having
fraudulently concealed the Boudreau Report and the Conforti site plan,
13Though they are careful to avoid highlighting it, the Ram’s Gate
defendants and Hyde take different positions on whether the 2005 Due
Diligence Binder should have been produced in discovery.
Obviously, Ram’s Gate now believes it should have been, because, on
Hughes’s counsel, that is what happened. About this, in their opening brief
on appeal, the Ram’s Gate defendants simply say Ram’s Gate “had stated
incorrectly that it had produced all documents responsive to Roche’s requests
for production”; that “[a]mong the unproduced documents was a binder that
Hardy appears to have possessed at the time of the winery purchase”; that
the binder included a copy of the Boudreau Report; and that, because the
binder’s production was called for by a notice to produce documents in
connection with O’Neill’s April 2016 deposition, it was produced at that time.
Hyde, on the other hand, takes the position that no JHP Land I client
files should have been produced, at any time. He chalks up the need to
produce these files as having been based on a privilege waiver due to
“inadvertent” production of some of them by Hardy in March 2013. Without
directly taking a position on the judgment Hughes made to produce JHP
Land I client files—including the Boudreau Report—at O’Neill’s April 2016
deposition, Hyde contends it was unethical for Hardy to produce any JHP
Land I client files without the consent of the client. And at that point, Hyde
argues, since JHP Land I had been dissolved, the “client” was John, who in
his view was the holder of former JHP Land I’s attorney-client privilege.
24
O’Neill could no longer stand behind that charge. When asked if he knew
with certainty whether the Boudreau Report and the Conforti site plan had
or had not been disclosed, O’Neill replied, “No, we don’t know that
definitively.”14
Two days later, Roche again moved for sanctions, again seeking
monetary and terminating sanctions based on Ram’s Gate’s continued
pattern of deliberately withholding discoverable documents—most crucially,
the 2005 Due Diligence Binder and the Boudreau Report. Instead of allowing
the motion to come on for a ruling, O’Neill, as manager of Ram’s Gate,
decided to pull the plug on the case. The next day the parties agreed that
Ram’s Gate would dismiss the underlying action and pay Roche $600,000 in
attorney fees and costs. A stipulated judgment was entered on April 13,
2016.
C. Roche’s Malicious Prosecution Action
In July 2016, Roche filed a malicious prosecution action against Ram’s
Gate, John, O’Neill and Hyde, seeking compensatory and punitive damages
totaling upwards of $5 million.15 The gist of the complaint is that Roche had
In its rehearing petition, Ram’s Gate, citing nothing but an assertion
14
put forward in its reply brief, tries to back away from this concession,
claiming, “O’Neill testified he was certain that neither document [the
Boudreau Report nor the Conforti site plan] was disclosed to him but could
not testify from personal knowledge as to what was disclosed or not to
others.” The deposition transcript does not bear this out. Right after
conceding that “we don’t know that definitively,” O’Neill—who was appearing
for deposition as Ram’s Gate’s PMQ designee, not in his personal capacity—
was asked, “And you are the person most qualified on behalf of Ram’s Gate
Winery to testify about what was and what was not disclosed during escrow,
correct?” To which he answered unequivocally “Correct.” (Deposition of
Jeffrey O’Neill (O’Neill Deposition) (April 5, 2016) at p. 134, italics added.)
Hansen at some point severed ties with Ram’s Gate and had no
15
involvement in the underlying action. He is not a party to this litigation.
25
disclosed to the defendants all the information required by the PSA prior to
the close of escrow, so that the underlying action prosecuted against Roche
was brought without probable cause and with malice. Roche alleged the
defendants were trying to “shake down a 72-year-old man . . . for millions of
dollars” in spite of knowing their accusations were false.16 The assigned trial
judge was Judge René Auguste Chouteau.
Roche claimed the defendants already had knowledge of the seismic
condition of the property and could not have relied on any alleged
nondisclosures because Ram’s Gate’s attorneys had in their files the
Boudreau Report, which disclosed active fault traces near the winery
building. With respect to the two-acre building pad, Roche contended the
alleged misstatements in the Offering Memorandum about the viability of
building on it without further approvals could not have induced Ram’s Gate’s
justifiable reliance because the HLA Proposal, emailed to John and O’Neill
before the close of escrow, disclosed the need to perform further seismic
testing before building on the pad.
The Ram’s Gate defendants filed an anti-SLAPP motion under Code of
Civil Procedure section 425.16, and Hyde filed a separate motion on the same
grounds. The motions were denied. The Ram’s Gate defendants and Hyde
filed separate appeals, and we consolidated the two cases for all purposes in
this court. We filed an unpublished opinion in August 2019 affirming Judge
Chouteau’s denial of the anti-SLAPP motions, and Ram’s Gate and Hyde
timely sought rehearing. We also received two requests for publication, one
16 Although the first amended complaint in the underlying action
specified damages of only $127,403.79, Roche alleges in his malicious
prosecution complaint, and in his declaration, that Ram’s Gate demanded
$5 million to settle the matter in early settlement talks. Hyde denies making
such a demand.
26
from the Consumer Attorneys of California and one from attorney Steven B.
Piser, both citing rule 8.1105(c)(3), (4), (6), (7) and (8) of the California Rules
of Court. Piser, a 45-year solo practitioner specializing in legal malpractice
and other kinds of complex business litigation, points out a trend toward
“declin[ing] . . . civility in our profession [that] . . . often manifests itself in
discovery stonewalling, withholding of evidence and misrepresentations by
counsel to the court and opposing parties.”
According to Piser’s publication request, “only if appellate and trial
courts vigorously—and publicly—enforce the rules and impose consequences
for their violation will there be any hope for change.” He contends that our
opinion addresses in a well-reasoned way “an all too frequently occurring—
yet infrequently addressed—set of circumstances confronting trial lawyers
and litigators.” He sees in it a “strong message” that “should not be buried in
the land of unpublished non-citable, decisions[, for it provides] . . . a lesson to
attorneys about the ethical, practical and predictable outcomes of flouting the
rules and engaging in win at any cost tactics.”
With revisions to address several aspects of the rehearing petitions we
found to merit additional discussion or modification, we now re-file our
opinion as modified and certify the opinion for publication.
III. DISCUSSION
A. The Law
1. Anti-SLAPP Principles
The anti-SLAPP statute requires a two-step analysis. First, the
defendant must establish that the challenged claim arises from his or her act
in furtherance of the “ ‘right of petition or free speech under the [federal or
state] Constitution in connection with a public issue . . . .’ (§ 425.16,
subd. (b)(1).) ‘The anti-SLAPP statute does not insulate defendants from any
liability for claims arising from the protected rights of petition or speech. It
27
only provides a procedure for weeding out, at an early stage, meritless claims
arising from protected activity.’ ” (Sweetwater, supra, 6 Cal.5th at p. 940.)
“ ‘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. We have 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 determine if it defeats
the plaintiff’s claim as a matter of law. [Citation.] “[C]laims with the
requisite minimal merit may proceed.” ’ ” (Ibid.)
“We review the trial court’s rulings on an anti-SLAPP motion de novo,
conducting an independent review of the entire record.” (HMS Capital,
supra, 118 Cal.App.4th at p. 212.) In exercising our independent judgment,
we “may consider affidavits, declarations, and their equivalents if it is
reasonably possible the proffered evidence set out in those statements will be
admissible at trial.” (Sweetwater, supra, 6 Cal.5th at p. 949; Code Civ. Proc.,
§ 425.16, subd. (b)(2) [we consider “the pleadings, and supporting and
opposing affidavits . . . upon which the liability or defense is based”].) And we
“must draw ‘every legitimate favorable inference’ from the [anti-SLAPP]
plaintiff’s evidence.” (Cuevas-Martinez, supra, 35 Cal.App.5th at p. 1117;
HMS Capital, supra, at p. 212.)
2. Malicious Prosecution
A cause of action for malicious prosecution fits by definition into the
scope of the anti-SLAPP statute. (Jarrow Formulas, Inc. v. LaMarche (2003)
31 Cal.4th 728, 734–735.) Hence, the first step of the analysis is satisfied,
and we proceed to the second step. The issue there is whether Roche
28
provided sufficient evidence to make out a prima facie case of malicious
prosecution, which requires a plaintiff to establish three elements: the
underlying action was (1) initiated or maintained by, or at the direction of,
the defendants, and pursued to a legal termination in favor of the malicious
prosecution plaintiff; (2) initiated or maintained without probable cause; and
(3) initiated or maintained with malice. (Parrish, supra, 3 Cal.5th at p. 775;
Zamos v. Stroud (2004) 32 Cal.4th 958, 965–966.)
B. Favorable Termination
1. We Evaluate Favorable Termination Based on the Entire Action
and the Surrounding Circumstances of the Dismissal
In its opening brief, Ram’s Gate contends Roche cannot show the claims
against him were terminated in his favor. It suggests Roche was required to
show that he prevailed upon each of the causes of action asserted against
him. But as Ram’s Gate concedes in reply, under Crowley v. Katleman (1994)
8 Cal.4th 666, holding to the contrary, it is the action as a whole that must
have terminated favorably (id. at pp. 684–685). Thus, we need not decide
whether the voluntary dismissal of the tort claims following summary
adjudication of the contract claim constituted a favorable termination of
those causes of action; only the final judgment following Ram’s Gate’s
agreement to pay $600,000 of Roche’s attorney fees need be examined to
decide whether it was a favorable termination for Roche.
“A ‘ “favorable” termination does not occur merely because a party
complained against has prevailed in an underlying action. While the fact he
has prevailed is an ingredient of a favorable termination, such termination
must further reflect on his innocence of the alleged wrongful conduct. If the
termination does not relate to the merits—reflecting on neither innocence of
nor responsibility for the alleged misconduct—the termination is not
favorable in the sense it would support a subsequent action for malicious
29
prosecution.’ [Citation.] ‘ “[W]hen the underlying action is terminated in
some manner other than by a judgment on the merits, the court examines the
record ‘to see if the disposition reflects the opinion of the court or the
prosecuting party that the action would not succeed.’ ” [Citations.]’
[Citation.] ‘Should a conflict arise as to the circumstances of the termination,
the determination of the reasons underlying the dismissal is a question of
fact. [Citation.]’ ” (Sycamore Ridge, supra, 157 Cal.App.4th at p. 1399.)
The relevant circumstances here are these. After O’Neill’s PMQ
deposition on April 5, 2016, and facing Roche’s motion for monetary and
terminating sanctions, Ram’s Gate decided to dismiss the underlying action.
On Friday, April 8 at 5:06 p.m., Hughes, on behalf of Ram’s Gate, emailed
Simon that Ram’s Gate would dismiss the action and pay Roche $500,000 in
fees and costs. Simon responded at 5:15 p.m. that Roche, 76 years old at the
time, was emotionally exhausted from the litigation and did not want any
further “back and forth.” Simon extended Roche’s counteroffer of $600,000 in
fees and costs, with the dismissal, requesting a response by 5:30 p.m.
Roche’s actual fees and costs amounted to more than $725,000, but
there is no evidence a precise figure had been calculated at the time the
agreement was reached. The written counteroffer specifically says Roche and
his attorney “do not consider this a settlement.” Simon put Ram’s Gate on
notice that Roche retained his right to initiate a separate malicious
prosecution action later. At 5:31 p.m., Hughes responded by email,
expressing the belief that a malicious prosecution action would not succeed,
but nevertheless agreeing to Roche’s terms.
Ram’s Gate dismissed the underlying action the following Monday,
April 11. And on April 12, the parties entered into a stipulation for entry of
judgment, which said in part: “It is intended that the judgment would
30
preclude Roche from seeking additional costs or fees in this case, without
waiving the right to seek them in a different action.” Also, “[t]he parties do
not intend to release or waive or otherwise interfere with any claims they
may have, including, without limitation, any claim for malicious prosecution
arising out of this action.” The next day a “judgment for costs and fees” was
entered, identifying Roche as the prevailing party and noting his entitlement
to fees and costs under the PSA.
2. The Unilateral Dismissal by Ram’s Gate Is Presumptively a
Favorable Termination for Roche
The unilateral dismissal of a cause of action (except on technical or
procedural grounds) is presumed to be a favorable termination on the merits
unless otherwise proved to a jury. (Sycamore Ridge, supra, 157 Cal.App.4th
at p. 1400.) “[T]he circumstances surrounding the dismissal of an underlying
case for discovery abuse may justify a conclusion that a favorable termination
on the merits occurred.” (Daniels, supra, 182 Cal.App.4th at p. 217
[dismissal entered as terminating sanction was a favorable termination for
defendant]; Ross v. Kish (2006) 145 Cal.App.4th 188, 192 [dismissal for
plaintiff’s refusal to be deposed was a favorable termination for defendant].)
The same outcome is called for here, where Ram’s Gate unilaterally decided
to dismiss the underlying action rather than face a sanctions motion that
almost certainly would have resulted in termination of the action and even
greater financial liability.
While the stipulated dismissal may appear in form to effectuate a
settlement, as signatures on behalf of both parties appear, we view it in
substance as a unilateral dismissal. The defendants argue the dismissal was
pursuant to a negotiated settlement and was not a termination favorable to
Roche. (See Ferreira v. Gray, Cary, Ware & Friedenrich (2001)
87 Cal.App.4th 409, 413 (Ferreira); Ludwig v. Superior Court (1995)
31
37 Cal.App.4th 8, 27 (Ludwig); Villa v. Cole (1992) 4 Cal.App.4th 1327, 1335
(Villa).) It is true that where a case is dismissed pursuant to a give-and-take
settlement, it “will not be viewed as a favorable termination as long as [the
dismissal] was a necessary condition to achievement of the overall
settlement.” (Villa, at p. 1336.) That is because a dismissal pursuant to a
settlement “ ‘reflects ambiguously on the merits of the action as it results
from the joint action of the parties, thus leaving open the question of
defendant’s guilt or innocence.’ ” (Ibid.; see also Siebel v. Mittlesteadt (2007)
41 Cal.4th 735, 743–744 (Siebel).)
But the Supreme Court has cautioned against an unyielding rule that
would make any resolution of a case by agreement ineligible as a basis for a
subsequent malicious prosecution action. (Siebel, supra, 41 Cal.4th at
pp. 742–743.) “Such a conclusion would run counter to the policy favoring
negotiated dispositions. A blanket rule could also bar legitimate malicious
prosecution actions, allowing unscrupulous parties and/or their attorneys to
hide behind its shield.” (Ibid.) In Siebel, the court held an agreement by the
parties to dismiss their appeals, without altering the underlying favorable
judgment for Siebel, did not foreclose his later malicious prosecution action.
(Id. at pp. 742–745.) The underlying substance and effect of an agreed
dismissal—not its form—was the determining factor there, as it is here.
3. In Light of the Circumstances of the Dismissal, Defendants
Have Not Overcome the Presumption of Termination Favorable
to Roche
Ram’s Gate acknowledges that a dismissal unaccompanied by a
settlement can be a favorable termination, but argues that under the holding
in Siebel, supra, 41 Cal.4th 735, the issue of favorable termination turns on
whether there has been an adjudication for the malicious prosecution
plaintiff followed by a quid pro quo settlement in the underlying case. As
32
counsel for Ram’s Gate put it at oral argument, in Siebel—where the
malicious prosecution plaintiff largely prevailed in a jury trial, secured a
judgment, and then settled on appeal—“the key is . . . that there is an
adjudication. There’s a subsequent settlement. And the subsequent
settlement doesn’t disturb the adjudication.” Where there has been a
settlement, Ram’s Gate argues, no case has ever found a favorable
termination without a prior adjudication of some kind, and as a result, it
would be a “major change” in the law to find for Roche on this record.
We do not think so. Ram’s Gate’s position begs the question of whether
there was an agreement on anything that can fairly be called a “settlement.”
If the record clearly discloses the terms of an overall compromise of claims
requiring dismissal as a condition, such a rule makes sense. (See Villa,
supra, 4 Cal.App.4th at p. 1336 [“[D]ismissal from the lawsuit pursuant to . . .
settlement will not be viewed as a favorable termination as long as it was a
necessary condition to achievement of the overall settlement. Such a
dismissal is not considered unilateral because it was required by the terms of
a settlement agreement[.]”].) But in the absence of a written settlement
agreement compromising specified claims, we must assess the circumstances
surrounding a pretrial dismissal to discern the terms that were agreed upon,
if any. The object, in the end, as it is with any issue of contract formation or
contract interpretation, is to examine the parties’ words, actions and conduct
to determine whether there is a mutual intent to dismiss, as Ram’s Gate puts
it, as “part . . . of a settlement agreement that was conditioned on each side
giving something to the other.”
Roche’s proof shows that there was no such agreement here. Drawing
inferences in his favor, as we must at this stage, the record leaves little doubt
that Ram’s Gate unilaterally decided to dismiss this action prior to trial
33
independently of the parties’ agreement on fees. In the face of a second
request for terminating sanctions (something it had narrowly averted once
before), Ram’s Gate made an uninvited, unilateral offer to dismiss the
underlying action. Gone was any demand for payment from Roche. Ram’s
Gate offered, instead, to pay $500,000 in fees to Roche, and then when that
offer was rejected, immediately met Roche’s demand for $600,000 without
obtaining a release of claims.17 Ram’s Gate portrays the dismissal as part of
a “package” of proposed terms, pointing out that its original offer to dismiss
was expressly contingent on the parties agreeing to an amount of fees
payable to Roche. But that original offer was rejected by counteroffer, and it
is beside the point in any event because the negotiations centered on the
collateral issue of Ram’s Gate’s fee exposure—for which it received no
protection—not on a compromise of its claims. If Ram’s Gate’s post hoc
version of agreed terms was indeed the parties’ shared intent, the way to
proceed was to write it down and have the document mutually executed.
On the record presented here, we conclude Roche has met his prima
facie burden of showing that the dismissal of this action does not reflect a
17 In his rehearing petition, Hyde argues “there is no requirement that
a settlement agreement contain release language or other terms related to
liability.” While that may be literally true—there is no requirement that a
settlement agreement, as a contract, must contain particular language—any
lawyer who prepares a settlement agreement without protecting his or her
client against future claims by release is inviting malpractice risk. (See
4 Mallen, Legal Malpractice (2019 ed.) Drafting the settlement documents,
§ 33.103.) Arguably, a release is unnecessary in cases involving settlement
by stipulated judgment (Code Civ. Proc., § 664.6; cf. Villa, supra,
4 Cal.App.4th at p. 1333 [stipulation to dismissal with prejudice in federal
court])—which is not the situation we have here—but even in that setting
there may be some risk to omitting “release language or other terms related
to liability” that defines the scope of the claims being resolved and thus the
preclusive effect of the judgment.
34
compromise driven by uncertainty over the merits of Ram’s Gate’s claims. As
we see things, an outcome unfavorable to Ram’s Gate was sealed by its own
conduct in discovery, and the only remaining issue when Hughes approached
Simon to discuss terms was whether anything could be done to minimize its
exposure to attorney fees. In light of the parties’ actions, the expense-saving
“discount” that was offered cannot fairly be called a compromise of claims.
Especially when the circumstances are viewed in light of O’Neill’s declaration
explaining Ram’s Gate’s decision to fold,18 and the pressure Ram’s Gate was
under at the time, the inference is unavoidable that the decision to abandon
the litigation was made independently of how much Ram’s Gate would pay
Roche for his legal fees.
O’Neill’s declaration states that he decided “we would not continue with
the litigation” after discussing the pending sanctions motion with Hughes.
He says he decided to dismiss the action in large part because he feared a
worse result if the case went forward, in light of the pending motion for
monetary and terminating sanctions and because, even if the case went to
trial, “a jury could be critical” of Hyde’s handling of the Boudreau Report and
hold that against Ram’s Gate. O’Neill had in mind the fee-shifting provision
of the PSA and was obviously concerned about potentially having to pay the
full measure of Roche’s fees and costs. He was particularly concerned about
having sanctions imposed by the court because he “knew the court previously
had been very frustrated with Hyde’s handling of discovery and had almost
terminated the case in 2012.[]”
Declaration of Jeffrey B. O’Neill in Support of Defendant Ram’s Gate
18
Winery, LLC et al.’s Special Motion to Strike Plaintiff Joseph G. Roche’s
Complaint (Sept. 5, 2016) (O’Neill Declaration) at page 10.
35
Ram’s Gate complains that any reliance on O’Neill’s declaration runs
contrary to cases holding “[i]t is not necessary to analyze the particular
circumstances of the settlement or to examine the motivations of the parties”
to decide the issue of favorable termination. (Ferreira, supra, 87 Cal.App.4th
at p. 414; Ludwig, supra, 37 Cal.App.4th at p. 28.) But in Ferreira and
Ludwig the evidence was clear enough to show negotiated terms referring to
and resolving claims on the merits and specifying in detail the obligations
undertaken and the concessions made by each side as part of an overall
compromise of those claims.19 There is no such evidence here. The
significance of O’Neill’s declaration is not that it impeaches the purpose of a
19 See Ferreira, supra, 87 Cal.App.4th at page 412 (“[T]he parties
agreed to settle the litigation on the following terms: (1) notwithstanding the
jury’s verdict [against Ferreira on Maryanne’s wiretapping and infliction of
emotional distress claims], judgment would be entered in favor of Ferreira on
[these claims] . . . ; (2) judgment would be entered in accordance with the
remainder of the verdict, including the award of $75,982 in damages to
Ferreira; (3) Ferreira would accept $1 each from Debra, Christine and
Maryanne in full satisfaction of this judgment and file a satisfaction of
judgment forthwith; and (4) Debra, Christine and Maryanne would not
pursue an appeal of the judgment. As a result of this agreement, an
amended judgment was entered on November 24, 1997, and on December 2,
1997, Ferreira filed an acknowledgment of satisfaction of judgment.”);
Ludwig, supra, 37 Cal.App.4th at page 12 (“Sheree Krier . . . filed an action
under the California Environmental Quality Act (CEQA) [the Keating
lawsuit] challenging Barstow’s adoption of a negative declaration for the
Tanger project. Krier later dismissed the action in return for the payment by
Barstow of at least $75,000; Barstow, as part of the settlement, asserted that
Krier’s claims had no merit and had been brought for harassment purposes.
[¶] The record as later developed indicates that the Keating lawsuit was
dismissed with a mutual cost waiver. . . . [¶] The Krier settlement obligated
Barstow to prepare an ‘updated Master Environmental Assessment’ at a cost
of at least $35,000 ($15,000 payable to a named ‘environmental attorney’ who
happened to be Krier’s attorney), to create an ‘environmental advocacy fund’
with a contribution of at least $30,000, evidently to go primarily to Krier or
her attorney, and to pay her attorney fees of $10,000.”).
36
settlement agreement—to compromise claims in the face of uncertainty about
the outcome on the merits, an objective we generally presume in the case of a
settlement of claims, without looking further into subjective motivation—but
rather that it confirms there was never such a settlement in the first place.
The position taken by Ram’s Gate and Hyde in citing Ferreira and Ludwig
skips over this critical, antecedent question.
In light of O’Neill’s admitted concerns when he decided to walk away
from the case and the circumstances leading to that decision, we view the
parties’ agreement with respect to the amount of attorney fees Ram’s Gate
would pay to Roche not as a settlement of claims on the merits, but as the
resolution of an “ancillary” matter that does not foreclose a finding of
favorable termination for Roche. (See HMS Capital, supra, 118 Cal.App.4th
at pp. 215–216.) In HMS Capital, as here, the subject of what the appellant
tried to characterize as a settlement was merely a reduction in the amount of
costs claimed by the prevailing party. In that case, the Second District held
this agreed reduction of costs payable was “ancillary” to the merits of the
claim and did not foreclose a later action for malicious prosecution. (Id. at
p. 215.)
The same reasoning applies here. The final chapter in the underlying
case was a surrender, not a negotiated settlement. To say there was a
negotiated settlement on this record is like saying the Civil War was “settled”
because, after opting against a final blow on the battlefield at Appomattox,
Ulysses S. Grant had Robert E. Lee’s men stripped of their weaponry but
allowed them to return home with their horses and mules, rather than suffer
confiscation of everything they owned. Beyond that, he made no promises.
C. Lack of Probable Cause
On the question whether there was probable cause to pursue the
underlying action, we review the elements of each cause of action
37
individually. (Lanz v. Goldstone (2015) 243 Cal.App.4th 441, 459.) The
decision on the probable cause element is normally made by the court as a
matter of law based on an objective assessment of the merits of the
underlying action. (Parrish, supra, 3 Cal.5th at p. 776; Sheldon Appel Co.,
supra, 47 Cal.3d at pp. 877–882.) Our review is de novo. (HMS Capital,
supra, 118 Cal.App.4th at p. 212.)
“[T]he probable cause element calls on the trial court to make an
objective determination of the ‘reasonableness’ of the defendant’s conduct,
i.e., to determine whether, on the basis of the facts known to the defendant,
the institution of the prior action was legally tenable.” (Sheldon Appel Co.,
supra, 47 Cal.3d at p. 878.) A claim is unsupported by probable cause if any
reasonable attorney would agree that it is totally and completely without
merit. (Parrish, supra, 3 Cal.5th at p. 776.)
The legal question of probable cause turns “not [on] the defendant’s
subjective belief in the legal tenability of his claim, but rather the state of the
defendant’s knowledge of the facts on which his claim was based.” (Sheldon
Appel Co., supra, 47 Cal.3d at p. 880.) “The importance of the distinction
between the defendant’s knowledge of facts and his subjective assessment of
tenability was made clear by Chief Justice Taft of the United States Supreme
Court in explaining the nature of the probable cause element of the
analogous tort of wrongful arrest: ‘The want of probable cause . . . is
measured by the state of the defendant’s knowledge, not by his intent. It
means the absence of probable cause known to the defendant when he
instituted the suit. But the standard applied to defendant’s consciousness is
external to it. The question is not whether he thought the facts to constitute
probable cause, but whether the court thinks they did.’ ” (Id. at p. 881.)
38
What this means is that, before the court reaches the ultimate issue of
probable cause, there may be preliminary questions of fact to resolve. “When
there is a dispute as to the state of the defendant’s knowledge and the
existence of probable cause turns on resolution of that dispute, . . . the jury
must resolve the threshold question of the defendant’s factual knowledge or
belief. . . . As Chief Justice Taft’s explanation of the probable cause element
indicates, . . . the jury’s factual inquiry into the defendant’s belief or
knowledge is not properly an inquiry into ‘whether [the defendant] thought
the facts to constitute probable cause’ [citation]; when the state of the
defendant’s factual knowledge is resolved or undisputed, it is the court which
decides whether such facts constitute probable cause or not.” (Sheldon Appel
Co., supra, 47 Cal.3d at p. 881.)
Before turning to a de novo analysis of the record to evaluate the
sufficiency of Roche’s prima facie showing on the element of lack of probable
cause, we emphasize that we are making no factual findings in the discussion
to follow. That is not our task. All we are charged with doing here is to
determine whether Roche has made the necessary prima facie showing of
likelihood of success on the merits. Whether he can bear his burden of proof
at trial remains to be seen.
1. Roche Made Out a Prima Facie Case of Likelihood of Success
that Ram’s Gate Lacked Probable Cause To Sue
While there are some preliminary questions of fact to resolve at trial
concerning the defendants’ belief or knowledge, at this stage inferences about
these matters must be drawn for Roche. Upon examination of the evidence
through that lens, we conclude that Roche has met his burden under Code of
Civil Procedure section 425.16, subdivision (b)(1) of showing that Ram’s Gate
lacked probable cause to bring or maintain the underlying action. This is not
a situation in which an attorney brought suit on thin evidence, hoping his
39
case would grow stronger in discovery, or on a novel legal theory, hoping the
law would evolve in his favor, only to suffer a predictable defeat that he
cannot be charged with a duty to predict. To the contrary, Roche has made a
showing that Hyde had no objectively provable case at all, yet proceeded
anyway.
The record here is complex, but the determinative issue is fairly
straightforward. Ram’s Gate’s central charge against Roche was alleged
failure to disclose the presence of an active fault trace near the winery site,
an omission O’Neill claims misled him into believing a new winery could be
constructed right away on the building pad Ghilotti had installed. Prior to
the filing of the lawsuit, however, Hardy sent Hyde his JHP Land I client
files, and those files included the 2005 Due Diligence Binder. Because the
Boudreau Report was among the materials in the 2005 Due Diligence Binder,
marked with a tab and clearly identified, Hyde knew it had been in Hardy’s
possession, and he knew it revealed the very information he was advising
Ram’s Gate to sue Roche for failing to disclose.
Judge Chouteau concluded that under agency principles Ram’s Gate
had constructive knowledge of the Boudreau Report and thus brought suit
alleging failure to disclose information it was charged to know by law, and
that Hyde either knew this or should have known it. In resolving the
probable cause issue for Roche, he rejected Ram’s Gate’s attempt to rely on
the interim adverse judgment rule, finding that “while Roche ultimately did
not prevail on the 2013 motion for summary judgment or adjudication in the
underlying action, this does not support a finding of probable cause because
Roche was improperly denied responsive discovery by Ram’s Gate et al. up to
and long after the motion was decided and appealed.”
40
For the reasons explained below, we agree on both counts. There is
evidence—prima facie evidence to be sure, but strong enough to survive an
anti-SLAPP motion—that Hyde likely knew, or at the least should have
known, that Ram’s Gate was aware of the Boudreau Report prior to the
closing. O’Neill himself submitted a declaration acknowledging the existence
of evidence that Hardy “obtained a copy of the Boudreau Report in 2005” and
sent a copy of the “files he obtained” in the course of his preliminary due
diligence in 2005 “to John’s law office.” And John testified in deposition that
he turned over all documents “concerning the property” to O’Neill when
O’Neill took the lead on due diligence in 2006.
O’Neill nevertheless insists that, in 2006, he personally had no actual
knowledge of the existence of the Boudreau Report and first learned of its
existence from the RGH Report in August 2008. John hedges a bit, but says
he is “pretty sure” he never saw the Boudreau Report at any time prior to the
closing. But even if we credit these claims of ignorance, we agree with Judge
Chouteau that it makes no legal difference because the Ram’s Gate
defendants must be charged with knowledge of information in the hands of
their own lawyers under principles of agency law.
Hyde argues he was entitled to rely on uncorroborated statements by
his clients, citing Swat-Fame, Inc. v. Goldstein (2002) 101 Cal.App.4th 613,
626 and Morrison v. Rudolph (2002) 103 Cal.App.4th 506, 512–513 (both
disapproved on other grounds in Zamos v. Stroud, supra, 32 Cal.4th at
p. 973). But the rule is otherwise when, as here, the attorney possesses
knowledge of specific facts directly calling into question the truth or legal
substance of the client’s claims or indicating that a fundamental element of
his client’s case is unmeritorious. (See Sheldon Appel Co., supra, 47 Cal.3d at
pp. 877–882; Swat-Fame, supra, 101 Cal.App.4th at p. 627; Daniels, supra,
41
182 Cal.App.4th at p. 223; Arcaro v. Silva & Silva Enterprises Corp. (1999)
77 Cal.App.4th 152, 156–157.)20
Against the weight of the evidence, Hyde disputes that Hardy ever had
possession of the Boudreau Report, at any time.21 But from whatever source
20 See also Morrison v. Rudolph, supra, 103 Cal.App.4th at page 513
(where attorney is “on notice of specific factual mistakes in the client’s
version of events”). In such circumstances, at least, “ ‘an attorney has a duty
to investigate the facts underlying a client’s claims and can be sanctioned for
failing to do so.’ ” (Takhar v. People ex rel. Feather River Air Quality
Management Dist. (2018) 27 Cal.App.5th 15, 29; see also Cuevas-Martinez,
supra, 35 Cal.App.5th at p. 1121 [holding an attorney may rely on the client’s
assertions at the beginning of the case, but “may not continue to do so if the
evidence developed through discovery indicates the allegations are unfounded
or unreliable”].)
21The parties take a range of positions on the issue of whether Hardy
had possession of the Boudreau Report, and if so, when he possessed it.
Roche argues Hardy had possession of it in 2005 and 2006, because it was
among the JHP Land I client files he sent to Hyde in 2008.
In the main briefs, Ram’s Gate admits there is evidence of Hardy’s
possession of the Boudreau Report prior to the closing and assumes it
arguendo, but contends that in 2005 Hardy never had any reason to review
the 2005 Due Diligence Binder because of the narrow scope of his
engagement. In its petition for rehearing, Ram’s Gate emphasizes that it has
never conceded the issue of Hardy’s possession of the Boudreau Report in
2006 and states that “Hardy may not have even possessed” the 2005 Due
Diligence Binder.
Throughout all of the briefing, Hyde has vigorously contested whether
Hardy ever had possession of the Boudreau Report at any time. Effectively
writing Hardy out of the picture by passive construction, Hyde claims “the
Boudreau Report was found in a binder created in 2005 by Clement
Fitzpatrick, a law firm which never represented Ram’s Gate.” (Italics added.)
Who he means to suggest “found” it is not clear. He does suggest, however,
that the Boudreau Report may, or may not, have been among a group of
documents that Winter—who worked out of the Santa Rosa office of the
Clement firm, separate from Hardy in St. Helena—copied from the PRMD
files to support Hardy’s investigation of permitting issues in 2005, but even if
42
Hardy received the document, there is evidence that Hardy, before close of
escrow, and later Hyde himself, had possession of it. In fact, the evidence
Hardy had possession of the Boudreau Report in 2005 was among the reasons
O’Neill cited when he decided to dismiss the underlying case in April 2016.
Exactly how Hardy came into possession of the Boudreau Report is disputed
(ante, at pp. 11–12 & fn. 6), but we find it unnecessary to know the answer to
that question. Because the evidence shows that Hardy had the Boudreau
Report in 2005, his client at that point, John, then the managing member of
JHP Land I, and later a member of JHP Land II, had constructive knowledge
of the report during the disclosure period in 2006.
a. Under agency principles any information that was material to the
closing of the transaction in 2006 must be imputed to Ram’s Gate if it
was in Hardy’s possession, actually or constructively
Under general agency principles, “an attorney is his client’s agent, and
. . . the agent’s knowledge is imputed to the principal even where . . . the
agent does not actually communicate with the principal, who thus lacks
actual knowledge of the imputed fact.” (Herman v. Los Angeles County
Metropolitan Transportation Authority (1999) 71 Cal.App.4th 819, 828; see
also Lazzarevich v. Lazzarevich (1952) 39 Cal.2d 48, 50 [“[o]rdinarily a person
is held to know what his attorney knows and should communicate to him”].)
This rule of imputed notice is irrebuttable. (Herman, at p. 828; Early v.
Owens (1930) 109 Cal.App. 489, 494; Watson v. Sutro (1890) 86 Cal. 500, 516–
517, 523; see Civ. Code, § 2332 [“[a]s against a principal, both principal and
agent are deemed to have notice of whatever either has notice of, and ought,
in good faith and the exercise of ordinary care and diligence, to communicate
it was, he claims there is no evidence it ever made its way into Hardy’s
possession.
43
to the other”].)22 And it includes things the agent not only knows with regard
to the subject matter of his agency, but by inquiry notice should know. (Clark
Equipment Co. v. Wheat (1979) 92 Cal.App.3d 503, 527; Civ. Code, § 19
[“Every person who has actual notice of circumstances sufficient to put a
prudent person upon inquiry as to a particular fact has constructive notice of
the fact itself in all cases in which, by prosecuting such inquiry, he or she
might have learned that fact.”].)23
The knowledge imputed from an attorney to his client extends beyond
the individual attorney involved, to other attorneys in the same law firm
working on the same engagement. (Stalberg v. Western Title Ins. Co. (1991)
230 Cal.App.3d 1223, 1230–1231 [concluding law firm’s knowledge of fact was
imputed to clients].) “[N]otice in regard to the subject-matter of the
employment, to one of a number of attorneys employed by a client, is notice to
the client.” (Annot., Imputation of Attorney’s Knowledge of Facts to His
Client (1919) 4 A.L.R. 1592, § VII [knowledge of partner or clerk of attorney].)
That means the knowledge of both Hardy and Winter may be imputed to
22 See also Restatement Third of Agency, section 8.11, italics added
(“An agent has a duty to use reasonable effort to provide the principal with
facts that the agent knows, has reason to know, or should know when [¶]
(1) subject to any manifestation by the principal, the agent knows or has
reason to know that the principal would wish to have the facts or the facts
are material to the agent’s duties to the principal; and [¶] (2) the facts can be
provided to the principal without violating a superior duty owed by the agent
to another person.”).
23 Actual notice is “express information of a fact.” (Civ. Code, § 18,
subd. 1.) “ ‘Constructive notice is “the equivalent of actual knowledge; i.e.,
knowledge of its contents is conclusively presumed.” (4 Witkin, Summary of
Cal. Law [(9th ed. 1987) Real Property], § 203, page 408, italics in original.)’ ”
(Alfaro v. Community Housing Improvement System & Planning Assn., Inc.
(2009) 171 Cal.App.4th 1356, 1385 (Alfaro), quoting Citizens for Covenant
Compliance v. Anderson (1995) 12 Cal.4th 345, 355.)
44
their client in 2005, JHP Land I, and its members, including John. The same
rule of imputation applies to a limited partner (Bedolla v. Logan & Frazer
(1975) 52 Cal.App.3d 118, 126–128), and by extension, to members of an LLC,
which is relevant here because John was later a member of JHP Land II. A
contrary rule would permit a corporate entity, by “not letting its right hand
know what is in its left hand, to mislead and deceive those who are dealing
with it in perfectly good faith.” (Sanders v. Magill (1937) 9 Cal.2d 145, 154.)
To avoid any inference that the seismic information revealed by the
Boudreau Report may be imputed to Ram’s Gate in 2006, the defendants rely
on the principle that client imputation is limited to information gained within
the authorized scope of an agent’s authority. (In re Marriage of Cloney (2001)
91 Cal.App.4th 429, 439; Zirbes v. Stratton (1986) 187 Cal.App.3d 1407,
1413.) They emphasize Hardy’s deposition testimony that he had no
recollection of reviewing anything in particular in the 2005 Due Diligence
Binder; that he had no knowledge of whether any geological report had been
submitted by Roche to permitting authorities; that in reviewing the PRMD
permit files obtained by Winter, he did not look for soils reports or concern
himself with seismic issues; and most importantly, that in the course of his
preliminary due diligence assignment in 2005 he was specifically instructed
to look only at permitting issues that would affect the financial viability of
Ram’s Gate’s contemplated business model.
But what the defendants overlook with this emphasis on the
narrowness of Hardy’s engagement in 2005 and the haziness of his
recollection is that he had a duty in 2006 to know what was in the 2005 Due
Diligence Binder, even if it was compiled for a limited purpose in the prior
transaction. (See Rest.3d Agency, § 8.08; see also Rules Prof. Conduct, rules
1.1 [Competence], 1.3 [Diligence], 1.4 [Communication with Clients].) “The
45
general rule that a principal is bound by the knowledge of his agent is based
on the principle of law, that it is the agent’s duty to communicate to his
principal the knowledge which he has respecting the subject-matter of the
negotiation, and the presumption that he will perform that duty.” (Distilled
Spirits (1870) 78 U.S. 356, 367.) If, in 2006, Hardy had in his files
information that was relevant to his due diligence then—regardless of its
source, when it was compiled or the reason it was compiled—he was not only
dutybound to know it under the principle of inquiry notice, but his client will
be charged with knowing it as well.
The defendants claim that when it comes to information an attorney
obtained in the course of a past limited engagement, constructive knowledge
is not enough to justify client imputation in a later engagement. Under Otis
v. Zeiss (1917) 175 Cal. 192, Chapman v. Hughes (1901) 134 Cal. 641, 647,
and Cooke v. Mesmer (1912) 164 Cal. 332, they argue, “the knowledge of an
attorney is the knowledge of his [or her] client” only so long as it is knowledge
acquired “in the course of the particular transaction in which he [or she] has
been employed by that principal” (Otis, supra, at pp. 195–196), and any
knowledge acquired before that is subject to a different rule. (See also
Christie v. Sherwood (1896) 113 Cal. 526, 530; Bogart v. George K. Porter Co.
(1924) 193 Cal. 197, 209–210.) In the defendants’ telling, these cases
demonstrate that any knowledge gained by Hardy during his earlier
engagement in 2005 is not chargeable to Ram’s Gate unless there is “ ‘clear
and satisfactory proof’ ” that Hardy had an awareness of the Boudreau
Report in his mind during the November 2006 due diligence period. (Otis,
supra, at p. 196.)
The foundational case in this line of precedent—and the linchpin of the
defendants’ agency analysis—is Wittenbrock, supra, 102 Cal. 93, which
46
recognizes that there may still be imputation to a client of an attorney’s
knowledge gleaned from past work, even for a different client on a different
transaction, including if his work “closely follows and is intimately connected
with” the prior transaction.24 (Wittenbrock, at p. 103; see O’Riordan v.
Federal Kemper Life Assurance Co. (2005) 36 Cal.4th 281, 288; Columbia
Pictures Corp. v. De Toth (1948) 87 Cal.App.2d 620, 631; Otis v. Zeiss, supra,
175 Cal. at pp. 195–196; Cooke v. Mesmer, supra, 164 Cal. at pp. 338–339.) If
such a nexus is present, what must be shown by “clear and satisfactory proof”
is that the agent had present in mind “knowledge of the former transaction”
(Wittenbrock, supra, at p. 103, italics added), not every detail of it, which is
where the defendants go wrong in emphasizing Hardy’s lack of awareness of
the Boudreau Report itself. Nothing in Wittenbrock or in the underlying
agency principles applied in that case displaces the basic statutory rule of
inquiry notice under Civil Code section 19.
Hyde claims that imputing to Ram’s Gate Hardy’s knowledge from a
past client relationship with a different client “would contravene law and
policy because it would effectively require a breach of professional
confidences to impute the attorney’s confidential investigation and records for
one client to a second stranger to the engagement.” For this proposition, he
cites a pre-Erie federal bankruptcy case, In re Locust Building Co. (2d. Cir.
24 The Wittenbrock court stated: “Pomeroy’s Equity Jurisprudence,
section 672, states the general rule to be limited by cases in which the
transaction in question closely follows and is intimately connected with a
prior transaction in which the agent was also engaged, and in which he
acquired material information, or where the information obtained by the
agent in a former transaction was so precise and definite that it is or must be
present to his mind and memory in the second transaction, then such
information operates as constructive notice to the principal in such second
transaction.” (Wittenbrock, supra, 102 Cal. at p. 103, italics added.)
47
1924) 299 F. 756. Putting to one side the fact that In re Locust Building Co.
does not apply California law and thus has no value as precedent on an issue
that was settled in California decades before it was decided in 1924, that case
applies the same rule Wittenbrock does—the “doctrine of imputed notice to a
client rests upon the ground that the attorney has knowledge of something
material to the particular transaction which it is his duty to communicate to
his principal” (In re Locust Building Co., supra, at p. 769)—drawing the rule
from Distilled Spirits, supra, 78 U.S. 356, just as Wittenbrock did.
Long ago, Hyde’s public policy objection was indeed the basis for a
different rule in some English common law cases holding that there should
never be client imputation from an attorney’s knowledge gained from a past
transaction for a different client. (Distilled Spirits, supra, 78 U.S. at pp. 366–
367 & fn. 12, citing the opinion of Lord Hardwicke in Warrick v. Warrick
(1745) 26 Eng.Rep. 970, 972.) But there was a split in the common law
authorities, with other cases recognizing under principles of equity that
where “ ‘one transaction might . . . follow so close upon the other as to render
it impossible to give a man credit for having forgotten it,’ ” we “ ‘should be
unwilling to go so far as to say, that if an attorney has notice of a transaction
in the morning, he shall be held in a court of equity to have forgotten it in the
evening; it must in all cases depend upon the circumstances.’ ” (Id. at p. 366,
citing the opinion of Lord Eldon in Mountford v. Scott (1823) 37 Eng.Rep.
1105, 1107.)
This common law split was eventually resolved in favor of Lord Eldon’s
view in Dresser v. Norwood (Exch. Chamber 1864) 144 Eng.Rep. 188, 194.
(Distilled Spirits, supra, 78 U.S. at pp. 366–368.) In Distilled Spirits, the
United States Supreme Court followed Dresser, but to account for the very
policy concern Hyde now presses, made the rule subject to “the qualification
48
that the agent [must be] at liberty to communicate” to the current client the
knowledge so imputed. (Id. at p. 367.) That qualification accounted for
circumstances in which an attorney was bound not to disclose past-acquired
knowledge to a new client by reason of conflict of interest or any other
continuing obligation of nondisclosure. The formulation of the Dresser rule in
Distilled Spirits—along with this proviso for confidentiality—was adopted in
Wittenbrock and remains operative in California to this day. (Wittenbrock,
supra, 102 Cal. at pp. 102–104.) But the confidentiality proviso is not
relevant here because, on this record, neither Hyde nor Ram’s Gate has
offered any credible basis to believe that Hardy was bound—to anyone—to
maintain the “confidentiality” of the Boudreau Report, a copy of which was
freely available in public files.
Applying the foregoing principles of agency law to this case, the
required Wittenbrock nexus seems plain on this record. There is no dispute
that Hardy was aware of and familiar with the attempt to purchase the
Roche winery in 2005. That proposed deal provided the template for the
terms of sale when negotiations resumed. There is also no dispute that, even
within the scope of the preliminary due diligence Hardy did in 2005, he and
Davenport discussed the presence of a “fault” on the winery site, a fact from
which the reasonable inference may be drawn that he had greater reason to
be sensitive to seismic issues than the mere fact, admittedly understood by
all involved, that the site fell within an Alquist-Priolo Earthquake Fault Zone
because of the Rodgers Creek Fault (that general level of awareness is all
Roche had to work with in seeking summary judgment).
But in the end what is dispositive—because of its unmistakable
specificity—is that in late November 2006 Roche sent Hardy a copy of the
HLA Proposal, which expressly stated: “Previous fault investigations of the
49
winery and mapping by [CDMG] have identified active fault traces in the
vicinity of the winery buildings.” Having been specifically advised of the
existence of “previous fault investigations” and “active fault traces” near the
winery buildings, and having had discussions with Davenport in 2005 about a
specific “fault” on the property (not just the Rodgers Creek Fault), we
conclude that Hardy was dutybound under Civil Code section 2332 to retrieve
the Boudreau Report from the 2005 Due Diligence Binder and brief O’Neill on
what it revealed. He failed to do so, as O’Neill’s April 2016 declaration makes
clear.25 Hyde insists there can be no client imputation of information that
was simply “available” to the client’s attorney. (Sibert v. Shaver (1952)
111 Cal.App.2d 833, 840–841; Fletcher v. Allen (1921) 51 Cal.App. 774, 778–
779.) But he fails to take account of Civil Code section 19. There was more
than simply “available” information here. There were good reasons Hardy
should have known it.
After completing the acquisition, O’Neill turned to RGH, commissioned
another seismic hazard study in 2008, and when RGH reported the existence
of active fault traces on the site—confirming exactly the same fault trace
Boudreau had previously identified, as well as other fault traces nearby, just
as Boudreau did—he apparently considered the RGH Report to be news. In
fact, that was the basis for the delayed discovery-of-harm argument Ram’s
Gate used to defeat the statute of limitations prong of Roche’s summary
judgment motion. But there is prima facie evidence here that O’Neill would
have known the RGH Report was not news had Hardy told him about or sent
him the Boudreau Report in November 2006. Under the circumstances, we
25O’Neill Declaration at page 8 (“No one ever brought these documents
[the 2005 due diligence documents copied from the PRMD file] to my
attention.”).
50
conclude Hardy was on inquiry notice of the Boudreau Report when the
winery sale closed, making Hardy’s knowledge, in turn, conclusively
imputable to Ram’s Gate. (Stevenson v. Baum (1998) 65 Cal.App.4th 159, 166
(Stevenson) [“By warning the [buyers in a commercial real estate] . . .
purchase contract that they took title subject to easements of record, [the
seller] put them on notice of the” material fact there was an oil pipeline
easement running through the purchased property, “which satisfied his duty
of disclosure under the express terms of the contract.”].)
In a last effort to stave off imputed knowledge of the Boudreau Report,
the defendants argue they cannot be charged constructively to know what
Hardy knew, actually or by constructive notice, because Roche stood accused
of making intentional, affirmative misrepresentations. The cases they cite
are real estate misrepresentation cases where the defendants were held to be
potentially liable even though the plaintiffs arguably could have discovered
the truth from public records. In such a scenario, these courts hold, the law
does not place upon a fraud victim any obligation to discover the fraud
against him. (Seeger v. Odell (1941) 18 Cal.2d 409, 414–415 (Seeger) [“As a
general rule negligence of the plaintiff is no defense to an intentional tort.
[Citation.] The fact that an investigation would have revealed the falsity of
the misrepresentation will not alone bar his recovery.”]; Manderville v.
PCG&S Group, Inc. (2007) 146 Cal.App.4th 1486, 1503 [“ ‘ “[n]o rogue should
enjoy his ill-gotten plunder for the simple reason that his victim is by chance
a fool” ’ ”].) But this is not a situation where Hardy needed to undertake an
investigation. In the exercise of reasonable diligence, all he needed to do was
review his own files. None of the cases in the Seeger line involves
information that, as we have here, was equally available to both buyer and
51
seller upon an exercise of reasonable diligence. (Stevenson, supra,
65 Cal.App.4th at pp. 166–167.)
b. None of the defendants’ arguments concerning corporate separateness
or different transactions defeats Roche’s prima facie showing as a
matter of law
We reject defendants’ attempt to avoid imputation factually, as well as
legally. Reading the record in favor of Roche, as we must, we conclude there
was one continuous, though episodic, stream of business activity here, carried
out by essentially the same parties. Even under the narrow reading the
defendants give Wittenbrock, supra, 102 Cal. 93, our view of the transactional
history and the parties involved undermines a central pillar of the position
they take on imputation: Their reliance on technical and formalistic
arguments that JHP Land I was a separate entity from JHP Land II, and
their dissection of the business activity here into two separate and distinct
transactions, a first unsuccessful acquisition attempt by JHP Land I in 2005,
and a second successful acquisition in 2006 by JHP Land II.
As is the case with many of the points of error urged on this appeal,
Hyde and Ram’s Gate advance different variations of the same line of
argument. Hyde argues there was no “continuity nor unity of interest as
between” JHP Land I and JHP Land II. He emphasizes that JHP Land I was
represented by the Clement firm, and JHP Land II was represented by Hardy
as a solo practitioner. Without disavowing the notion that JHP Land I and
JHP Land II were separate and distinct entities and, legally, should be
treated as such, Ram’s Gate, for its part, emphasizes differences in the
transactions in 2005 and 2006, rather than differences in the entities.
According to Ram’s Gate, the provenance of the 2005 Due Diligence Binder
was not in Hardy’s “work as Ram’s Gate’s attorney in the 2006 transaction.”
“[H]e obtained it,” Ram’s Gate points out, “while working for a different
52
entity, JHP Land [I], regarding a different transaction,” and never even knew
the Boudreau Report was in his possession because of the limited scope of his
due diligence engagement in 2005.
None of these arguments defeats Roche’s showing as a matter of law. It
is wholly artificial to treat what happened here as equivalent to two
completely different transactions, undertaken for two completely different
clients, under the guidance of two law partners working on each transaction
independently of one another, which was the scenario presented in
Wittenbrock, supra, 102 Cal. 93. The time lapse was only 12 months from the
end of the 2005 negotiations to the start of the 2006 negotiations. Except for
a reduction in price, the subject matter of the 2006 deal was the same as the
proposed deal in 2005, as was its basic structure (purchase of the winery site,
its buildings and equipment, along with a residential leaseback to the Roches
on an adjacent parcel). The buyer-side lawyer, broker and point man for due
diligence, Hardy, was the same, except he reported to O’Neill instead of John,
and he had changed law firms, having left the Clement firm to open a solo
practice, but without changing his office location in St. Helena or the location
of his files.
The buyer—an entity known as JHP Land, LLC—was the same as well,
except for some minor changes in corporate form and ownership. The
putative buyer in 2005, a limited liability company co-owned by John and
Hansen (JHP Land I) which did business as JHP Land, LLC, dissolved in
July 2006. O’Neill then joined John and Hansen as a one-third owner, and in
mid-November 2006, the same day the PSA with Roche was executed, the trio
formed a new limited liability company (JHP Land II) to serve as the buying
entity, doing business under the same name as its predecessor, JHP Land,
53
LLC. By the time the case against Roche was filed, the entity once known as
JHP Land, LLC had changed its name to Ram’s Gate.
We are not persuaded that any of the slight changes from 2005 to 2006,
either in the transaction or in the cast of characters, materially alters the
agency analysis. The contrary point of view, coming from Hyde, with his
emphasis on different buyer-side entities, represented by different lawyers,
and coming from Ram’s Gate, with its emphasis on differences in the nature
of the transactional activity and the limited scope of Hardy’s 2005
engagement, fails for three reasons.
First, no legally meaningful distinction can be drawn between the
Clement firm and Hardy so long as the information at issue (the 2005 Due
Diligence Binder) was obtained while Hardy was a Clement partner—a fact
which the defendants admit is undisputed. Hardy brought to his
representation of JHP Land II whatever knowledge he acquired as a Clement
partner, actually or constructively. Law firms act through individual
attorneys, and when a client retains an attorney, he or she retains the entire
firm. (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro,
LLP (2007) 150 Cal.App.4th 384, 392 (Christensen Miller).) When an
individual attorney leaves a firm, the law presumes that his or her
knowledge travels to the attorney’s new practice destination as well, which is
why “the concern for client confidences, like the attorney’s duty to preserve
those confidences, continues after the attorney’s services end.” (People ex rel.
Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th
1135, 1147.)
Second, the distinction between JHP Land I and JHP Land II is legally
irrelevant. Any knowledge imputed to JHP Land I through its agents, Hardy
or John, is also imputed to its corporate successor, JHP Land II. (Blue
54
Diamond Plaster Co. v. Industrial Accident Commission (1922) 188 Cal. 403,
408–409 [knowledge of managers employed by predecessor corporation,
Temescal Rock Company, whose plant operations were purchased and taken
over by a successor corporation, Blue Diamond Plaster Company, imputed to
successor, where same managers continued to be employed by successor];
Dicker v. Italo-American Oil Corp. (1931) 119 Cal.App. 451, 453, 456 (Dicker)
[knowledge of directors of Italo-American Oil Corporation, a Nevada
corporation, imputed to affiliated corporation, Italo-American Petroleum
Corporation, a California corporation, where California corporation created
Nevada corporation for purposes of avoiding creditors’ claims, and the same
individuals served as directors of both corporations].)
Hyde attempts to distinguish these cases on the ground that they do
not apply because, under the defendants’ narrow reading of Wittenbrock,
supra, 102 Cal. 93, “clear and satisfactory proof” that Hardy or John had
actual knowledge of the Boudreau Report is lacking. But as we have
explained, that reading of Wittenbrock is incorrect. In his reply brief and on
petition for rehearing, Hyde adds the argument that only if there is such a
complete identity of common ownership between JHP Land I and JHP
Land II as to justify veil piercing under the alter ego doctrine could there be
imputation to JHP Land II. This, too, is incorrect. Not only does he miscite
the principal alter ego case he relies upon (CADC/RADC Venture 2011-1 LLC
v. Bradley (2015) 235 Cal.App.4th 775), erroneously claiming it stands for the
proposition that there must be “common ownership” before that doctrine will
apply (id. at p. 789 [no veil piercing where alleged alter ego owners had no
“direct ownership” in corporate entity through which they borrowed money]),
but alter ego is the wrong frame of reference in any event. Roche has ample
grounds to argue there is no legally cognizable difference between JHP
55
Land I and JHP Land II under the doctrine of corporate successor liability.
(See Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1319, 1322, 1328
[“ ‘mere continuation’ ” of a corporation’s unincorporated business line by a
new corporation with nearly the same management and nearly the same
ownership justifies imposition of corporate successor liability].)26
Third, as to the possibility that Winter had sole possession of the 2005
Due Diligence Binder in Santa Rosa and the uncertainty surrounding what, if
anything, she communicated to Hardy about the binder’s contents—not to
mention what she herself knew of its contents, an issue Ram’s Gate, in its
rehearing petition, emphatically contends is nowhere addressed in the
evidence—a fair inference may be drawn from the fact she copied the
Boudreau Report and included it in the 2005 Due Diligence Binder that she
was familiar with it and determined it was relevant to the work she was
doing for Hardy.27 Her knowledge was imputed to Hardy as her law partner
and to John as their principal. (See Christensen Miller, supra,
150 Cal.App.4th at p. 392.) It is not just the lead partner’s knowledge that
26 As is the case with alter ego analysis, “[i]t is not necessary that the
plaintiff prove actual fraud. It is enough if the recognition of the two entities
as separate would result in an injustice.” (Gordon v. Aztec Brewing Co.
(1949) 33 Cal.2d 514, 523; see Cleveland v. Johnson, supra, 209 Cal.App.4th
at pp. 1328–1330.)
27 Ram’s Gate argues that Winter, necessarily, since she was working
under the same terms of engagement as Hardy was, could not have been
conducting an inquiry any broader than Hardy’s limited preliminary due
diligence investigation. Limited though it may have been, it is undisputed
that, according to Hardy, he and Davenport did discuss seismic issues in
2005 to the extent they bore on the issue of water rights. Winter’s inclusion
of the Boudreau Report in the 2005 Due Diligence Binder is consistent with
that. Approximately a third of the discussion in the Boudreau Report
addresses the impact of fault traces on the water extraction potential in the
rock formations underneath the winery site.
56
will be imputed to the client, but the knowledge of any attorney in the firm
who worked on the transaction, at least as to knowledge acquired in
connection with matters to which he or she was assigned.
2. In Evaluating Whether Roche Made Out a Prima Facie Case of
Likelihood of Success on the Element of Lack of Probable
Cause, We Draw All Reasonable Inferences from the Record
Evidence in Roche’s Favor
Claiming there is, at least, a conflict in the evidence concerning what
information Ram’s Gate and Hardy possessed, what they knew, and when
they knew it, the defendants argue that all inferences must be drawn in their
favor, contrary to the standard approach we take on review of an anti-SLAPP
ruling. Although none of the defendants presented this line of argument in
their respective opening briefs, we will address it now that it has been fully
briefed on rehearing.
In his petition for rehearing, Hyde makes the most sweeping version of
the argument. He contends that under the governing tenability standard, all
evidence favorable to him must be accepted as true. The only case he cites for
this argument, Daniels, supra, 182 Cal.App.4th 204, holds nothing of the
kind. In Daniels, the sole respondents on appeal in the malicious prosecution
case were the lawyers who brought the underlying case. (Id. at p. 210.)
Affirming an anti-SLAPP dismissal as to the attorneys, the Court of Appeal
held that the malicious prosecution plaintiff made out a prima facie case of
likelihood of success on favorable termination and lack of probable cause, but
that—even reading the record in her favor—she presented no evidence of
malice. (Id. at pp. 217, 222, 224–227.) There is no suggestion in Daniels that
the law of malicious prosecution changes any of the normal precepts of
appellate review in an anti-SLAPP appeal. As far as we can discern from the
page-cite from Daniels upon which Hyde relies—which points to a passage
quoting from a frequently cited standard of review discussion in HMS
57
Capital, 118 Cal.App.4th at page 212—Hyde appears to mistake the court’s
statement that “ ‘[t]he court’s responsibility is to accept as true the evidence
favorable to the plaintiff’ ” (Daniels, supra, at p. 215, italics added) for a
reference to the plaintiff in the underlying action (here Ram’s Gate), rather
than the plaintiff in the malicious prosecution action (here Roche).
Ram’s Gate’s spin on the same argument is more developed than the
one Hyde advances, but we reject it as equally unfounded. Relying on
Parrish, supra, 3 Cal.5th 767, Plumley v. Mockett (2008) 164 Cal.App.4th
1031 (Plumley), and Cheong Yu Yee v. Cheung (2013) 220 Cal.App.4th 184(Yee), Ram’s Gate contends, “[i]t is well-established [that] a genuine issue of
material fact cannot defeat probable cause, even if the malicious prosecution
court views the claim as weak or unlikely to succeed.” Starting from the
unremarkable premise that this “is a substantive rule regarding how
probable cause must be evaluated,” Ram’s Gate goes on to suggest that this
substantive rule has significant procedural implications—“overriding the
usual rule that on an anti-SLAPP motion, the facts must be construed in
favor of the non-moving party.” This proposition, if adopted, would effectively
create a special procedural rule for malicious prosecution defendants in the
“ ‘ “summary-judgment-like” ’ ” process (Sweetwater, supra, 6 Cal.5th at
p. 940) at step two of the anti-SLAPP analysis.28
We are not persuaded. Ram’s Gate offers no direct authority for such a
procedural innovation but instead asks us to cobble it together from bits and
28 Ram’s Gate would still have us apply the usual rule in which we read
the record to favor the non-movant when assessing favorable termination, to
factual disputes preliminary to the ultimate legal question of probable cause,
and presumably, to malice, while reversing the rule and reading the record to
favor the movant only for the element of probable cause.
58
pieces of other principles of tenability law. Pointing to the rule that, in
reviewing the legal tenability of claims attacked as malicious, courts construe
the allegations in the underlying action favorably to the malicious
prosecution defendant, Ram’s Gate argues the same principle must apply
“equally to the plaintiff’s ability in the underlying case to marshal evidence.”
To illustrate the point, Ram’s Gate points to Yee, where the trial court denied
a nonsuit motion in an action by an arts organization known as Lin Wah
against Cheong Yu Yee, alleging misappropriation of funds. (Yee, supra,
220 Cal.App.4th at pp. 190–191.) The court sent the case to the jury, giving
Lin Wah the benefit of the doubt that its proof was sufficient to make a prima
facie case. (Id. at p. 191.) The jury found against Lin Wah, and in an
ensuing malicious prosecution case by Cheong Yu Yee against Lin Wah and
its attorneys, the court granted an anti-SLAPP motion. (Id. at pp. 191–192.)
The Court of Appeal affirmed, concluding that “in this case, the trial
court’s determination on the motion for nonsuit that there was sufficient
evidence to allow the jury to decide the questions presented by the case
means that a reasonable attorney could have concluded” that the action
against Cheong Yu Yee “was not ‘ “totally and completely without merit.” ’ ”
(Yee, supra, 220 Cal.App.4th at p. 201.) The only evidence Cheong Yu Yee
presented to show the suit was brought without probable cause consisted of
the jury’s verdict, and some nit-picking about inconsistencies in a witness’s
testimony at trial. (Id. at p. 202.) Even granting that there were some
inconsistencies in the witness’s prior deposition testimony, the court found
that they would not have changed the result on the nonsuit motion. (Ibid.)
We read this holding as a straightforward application of the principle
in malicious prosecution law that “has come to be known as the interim
adverse judgment rule” (Parrish, supra, 3 Cal.5th at p. 771), which is the
59
principle for which Ram’s Gate cited Yee in its opening brief before proposing
a more aggressive reading in its reply brief and its petition for rehearing.
Ram’s Gate’s initial treatment of Yee as an interim adverse judgment case
was the right one. If, as a matter of law, a malicious prosecution claim
cannot succeed—under the interim adverse judgment rule, or any other mode
of defeating a malicious prosecution claim while conceding the plaintiff’s
factual showing to be true—dismissal will be required at step two of the anti-
SLAPP analysis. Yee stands for nothing broader than that.
It turns out that the defendants are not alone in trying to push the
envelope of tenability law in the way they propose here, creating another
layer of protection for malicious prosecution defendants under the anti-
SLAPP statute, beyond the robust protection that substantive tenability
principles give them. In Kinsella v. Kinsella (2020) 45 Cal.App.5th 442(Kinsella), which reverses the grant of an anti-SLAPP motion in a malicious
prosecution case, a Fourth District, Division One panel recently rejected the
argument that substantive tenability law requires a departure from the usual
rules of procedure governing step two of anti-SLAPP motions. (Id. at p. 462.)
We join our colleagues there and decline the invitation to create a special rule
of procedure favoring malicious prosecution defendants at the likelihood of
success stage of an anti-SLAPP motion. Because, by its own terms, the
interim adverse judgment rule would defeat Roche’s malicious prosecution
claim as a matter of law if it applied—even assuming Roche’s version of the
facts to be true—we see no need to adopt a previously unrecognized mode of
procedure. We therefore turn directly to whether the interim adverse
judgment rule applies.
60
3. The Interim Adverse Judgment Rule Does Not Apply
a. Discovery misconduct can trigger the fraud or perjury exception
The interim adverse judgment rule, which is a corollary of principles
governing the probable cause element of malicious prosecution claims, was
established long ago in cases going back to the nineteenth century where
litigants successfully brought suit, won at trial and secured a judgment, only
to lose on appeal and then face allegations of malicious prosecution for having
sued in the first place. (Wilson v. Parker, Covert & Chidester (2002)
28 Cal.4th 811, 817–818 & fn. 2 (Wilson); see Fairchild v. Adams (1959)
170 Cal.App.2d 10, 15; Crescent City Live Stock Co. v. Butchers’ Union
Slaughter-House Co. (1887) 120 U.S. 141, 149–151 (Crescent City Live Stock).)
Hence the moniker “interim,” which in these early decisions generally meant
a victory embodied in a judgment before it became final on appeal. The rule
is subject to an equally well-rooted exception that applies to situations in
which the judgment was procured by fraud or perjury. (Carpenter, supra,
153 Cal. at pp. 217–218.)
In recent years, the interim adverse judgment rule has been extended
to certain pretrial rulings (Wilson, supra, 28 Cal.4th at p. 815), including
summary judgment (Parrish, supra, 3 Cal.5th at pp. 771–772). This fairly
new strand of interim adverse judgment case law, Parrish in particular, is
the focal point of defendants’ argument. Under these cases, if applicable
here, it would not matter if Roche came forward now with evidence that
Ram’s Gate sued without probable cause, because that issue was litigated
before—on summary judgment in the underlying case—and thus may not
now be reopened. But does the fraud or perjury exception apply? That is the
question posed by Judge Chouteau’s finding that, despite Ram’s Gate’s
summary judgment victory, the rule does not apply because of improper
withholding of responsive discovery.
61
Because the fraud or perjury exception long predates Wilson and
Parrish, its nature and reach in the civil pretrial context are not well defined.
Both of those cases dealt with pretrial decisions on the merits, as does this
case, but here we have an added twist, presenting a question that could not
have been anticipated when the fraud or perjury exception was first
developed, since discovery in civil practice was unknown at that time. The
question, which appears to arise here as a matter of first impression, is this:
Can discovery misconduct trigger the fraud or perjury exception, thus
undermining the preclusive effect we would otherwise give a summary
judgment denial under Parrish? On this record—which shows that Ram’s
Gate, in violation of multiple court orders, withheld evidence material to
Roche’s ability to obtain summary judgment, and the suppressed evidence
came to light only after the summary judgment ruling was made—we
conclude that the answer is yes, the exception does apply. (Carpenter, supra,
153 Cal. at p. 218.)
We begin from the premise that the breadth of the exception should be
defined by its rationale. The reason for the exception, as we discern it, is that
any application of the interim adverse judgment rule must rest,
foundationally, on the integrity of the record underlying the prior adverse
ruling that is claimed to have preclusive effect. This concern is generally not
triggered by dishonesty or malfeasance that is merely intrinsic to an
adversary proceeding, such as reliance on alleged untruths or fabricated
evidence that a litigant has had a full and fair opportunity to meet and test.
But it is unquestionably triggered when a judgment was procured by
extrinsic fraud, which has the effect of denying a litigant a fair hearing on its
claims or defenses, thus corrupting the litigation process itself. What makes
the issue in this case challenging is that the dividing line between intrinsic
62
fraud, on the one hand, and extrinsic fraud, on the other, has always been
somewhat elusive, even in its traditional setting of collateral review. (Los
Angeles Airways, Inc. v. Hughes Tool Co. (1979) 95 Cal.App.3d 1, 7 (Hughes
Tool) [“[t]he extrinsic/intrinsic fraud rule is a doctrine developed in courts of
equity governing the basis for successful collateral attack on a final judgment
by way of an independent proceeding”].)
In assessing the utility of the extrinsic versus intrinsic fraud
distinction as a tool of analysis here, we are mindful that the interim adverse
judgment rule promotes finality and repose. But the Wilson court has
explained that the interim adverse judgment rule does not derive from other
rules of repose such as claim preclusion or issue preclusion. (Wilson, supra,
28 Cal.4th at p. 825.) It operates differently in a number of respects, and
chief among them is that it is rebuttable. The fraud or perjury exception is
the most commonly recognized means of rebuttal (Kinsella, supra,
45 Cal.App.5th at pp. 456–457), traceable to the earliest nineteenth century
interim adverse judgment cases. (Heck v. Humphrey (1994) 512 U.S. 477,
484, fn. 4.)
It is debatable whether the exception applies only to conduct classically
defined as extrinsic fraud—amounting, essentially, to a violation of due
process (Hughes Tool, supra, 95 Cal.App.3d at p. 7)—or whether it also
extends to “ ‘unfair conduct’ ” falling short of what might “support an action
for the setting aside of a judgment[.]” (Carpenter, supra, 153 Cal. at p. 218;
see Parrish, supra, 3 Cal.5th at p. 783 [noting that Carpenter has only been
cited three times by the California Supreme Court in more than a century
since it was decided]; cf. Plumley, supra, 164 Cal.App.4th at p. 1056, fn. 10
[questioning whether language in Carpenter suggesting that “either extrinsic
63
or intrinsic fraud may be relied on to avoid the interim adverse judgment
rule” remains good law]29.)
But however pertinent this unresolved question may be to a scenario
where the malicious prosecution plaintiff not only has an opportunity to
litigate the consequences of the alleged fraud in the underlying case, and
then actually litigates the issue and loses, thus barring its relitigation post-
judgment (Plumley, supra, 164 Cal.App.4th at pp. 1052–1056), the situation
here is different. The concept of extrinsic fraud is fundamentally designed to
preserve the sanctity of final judgments. Here, the “judgment” we are
29 We asked the parties to submit supplemental briefs addressing,
among other things, whether Plumley accurately states the holding of
Carpenter. Ram’s Gate, in its supplemental brief, takes the position that
“Plumley does not accurately interpret Carpenter” and then goes on to offer
the view that “the cases that have interpreted Carpenter as adopting a
general rule that the fraud which enables a malicious prosecution plaintiff to
avoid the interim adverse judgment rule ‘may be either extrinsic or
intrinsic’ ”—which is the expansive interpretation of Carpenter that Plumley
appears to give it—“are in error.” (Citing Norton v. John M.C. Marble Co.
(1939) 30 Cal.App.2d 451, 454; see also Kachig v. Boothe (1971) 22 Cal.App.3d
626, 639.)
It is not for us to decide whether the handiwork of our sister courts is in
error, but we agree it is probably too much to say that Carpenter permits
invocation of the fraud or perjury exception for any species of misconduct that
might qualify as fraudulent. The misconduct in Carpenter, which involved a
malicious prosecution claim arising out of underlying criminal proceedings,
was knowing use of perjured testimony. (Carpenter, supra, 153 Cal. at
pp. 216, 218.) Among the handful of appellate courts applying Carpenter to
malicious prosecution claims arising out of underlying civil litigation, we are
not the first to extend its holding to intentional corruption of the pretrial
process in some form. (Roberts v. Sentry Life Insurance (1999)
76 Cal.App.4th 375, 384 [“[I]f denial of summary judgment was induced by
materially false facts submitted in opposition, equating denial with probable
cause might be wrong. Summary judgment might have been granted but for
the false evidence.”]; Kinsella, supra, 45 Cal.App.5th at pp. 451, 456 [same].)
64
focused upon is the denial of a summary judgment motion, a provisional
ruling that by definition takes place prior to a full contest at trial and before
any available post-trial remedies for dealing with newly discovered evidence
have been exhausted. The level of adversarial testing at this stage does not
compare to the more robust process we must presume has been afforded by
the time final judgment is entered. In our view, the degree of finality that
attaches is commensurately weaker as well. The issue, distilled to its
essence, is that we are dealing with procurement of a summary judgment
denial by fraud, not procurement of a final judgment by fraud. The difference
matters to the preclusive weight we must extend.
Because summary judgment rulings necessarily rest on the accuracy of
the “paper” record made in pretrial discovery, we think the fraud or perjury
exception must apply to discovery misconduct that deprives a summary
judgment movant of a fair hearing on the merits of the motion itself. To place
the analysis within the high-level framework of interim adverse judgment
principles, the rule “has respect to the court and to its judgment, and not to
the parties, and no misconduct or demerit on their part, except fraud in
procuring the judgment itself, can be permitted to detract from its force.”
(Crescent City Live Stock, supra, 120 U.S. at p. 159.) In applying this rule,
“an invincible presumption of the law” is that where a “judicial tribunal,
acting within its jurisdiction, has acted impartially and honestly[,] [t]he
record of its proceedings imports verity[.]” (Ibid., italics added.) What we
hold is that in circumstances where we cannot say the record of a summary
judgment proceeding “imports verity” (ibid.)—because discovery misconduct
has corrupted it—the fraud or perjury exception applies, whether the
misconduct would qualify as extrinsic fraud for purposes of collateral review
or not.
65
b. Ram’s Gate’s withholding of the Boudreau Report in deliberate
violation of multiple discovery orders amounts to fraudulent
concealment
We preface our evidentiary evaluation of the applicability of the fraud
or perjury exception with another reminder that we are not making factual
findings. Our task is to evaluate this issue while drawing inferences in favor
of Roche, as we have done with all of the issues presented in these appeals.
But because this particular issue turns on alleged sharp practices and breach
of ethics of the most serious kind, charges largely directed toward Hyde as
the architect of Ram’s Gate’s tactics and strategy in the underlying case, we
must in fairness stress once again the limited nature of our inquiry.
Although, as we explain below, we conclude upon de novo review that the
indictment Roche brings fully warrants public castigation of those who bear
responsibility for the charged misconduct, it is essential to bear in mind that,
at this stage, we are only evaluating the prima facie sufficiency of Roche’s
proof.
Roche alleges that by improperly withholding the 2005 Due Diligence
Binder, Ram’s Gate adopted a discovery strategy designed to mislead the
court into believing Hardy never had possession of the Boudreau Report,
thereby blocking Roche from pursuing his most effective line of defense on
summary judgment. The point of this strategy, if executed successfully—and
it was carried out successfully until shortly before trial—was to destroy the
predicate for any argument that Ram’s Gate knew of the Boudreau Report
when it brought suit. Tactically, the objective was to limit Roche to the
argument that Ram’s Gate should have discovered the Boudreau Report in
public files, which was an unwinnable argument on summary judgment since
it implicated factual issues going to the reasonableness of Ram’s Gate’s due
diligence investigation. By forcing Roche into this posture, Ram’s Gate
66
sought to cut off the much stronger—and we believe likely case-dispositive—
argument that Ram’s Gate already had possession of the information it
blamed Roche for failing to disclose.
As a theory of the case, this approach made sense—except for one
problem: Because Hyde had possession of evidence showing Ram’s Gate’s
awareness of the Boudreau Report through Hardy, the theory did not fit the
facts. So Hyde set about to manipulate the provable facts available to Roche.
That is evident not only from the documented course of discovery, but from
Hyde’s own explanation of his thinking in a September 28, 2016 declaration
filed by Ram’s Gate in support of the anti-SLAPP motion. The pertinent
discovery history begins with Roche’s service of his first set of document
requests on Ram’s Gate in August 2011. These requests called for production
of written communications between Hardy and Ram’s Gate or any of its
present or former “officers,” “executives,” “partners,” “attorneys,” “agents,” or
“affiliates, predecessors or successors in interest.” Because the requests
required production of the contents of Hardy’s JHP Land I client files,
including the 2005 Due Diligence Binder, which contained the Boudreau
Report, they probed directly at the critical weakness in Ram’s Gate’s case
theory.
Hyde’s September 2016 declaration makes plain how he expected to
deal with this predictable discovery thrust from Roche. He filed the case
believing he could avoid producing Hardy’s JHP Land I client files on the
ground they “were not Ram’s Gate’s records” and that he was holding them in
his capacity as counsel not for Ram’s Gate, but for John personally “as the
67
successor for JHP Land I.”30 That position, which Hyde never formally
interposed as an objection to Roche’s document requests, but is the only
plausible explanation of the stonewalling that took place over the next
several years, was untenable from the beginning.31 The idea that Ram’s Gate
could avoid producing the records of a predecessor corporation whose files it
controlled was not only frivolous under the governing “possession, custody, or
control” standard (Code Civ. Proc., § 2031.220; see West v. Johnson &
Johnson Products, Inc. (1985) 174 Cal.App.3d 831, 874 [corporate defendant
had possession, custody or control of records held by sibling corporation]), but
on this record was deceptive. Hyde pursued it sub rosa, hidden behind
baseless privilege objections, which made it all the more frivolous.
The initial skirmish over Roche’s first set of document requests, in
early 2012, is particularly revealing because it established the discovery
position Ram’s Gate would take for the next four and a half years. It is
30Declaration of Thomas F. Hyde (September 26, 2016) at page 6 (“The
Clement JHP I Client File were [sic] not Ram’s Gate records. At all relevant
times I had custody of the file as counsel for John as a successor to JHP
Land I.”); ibid. (“I made it clear from the outset of the Underlying Action that
my office would not produce records in the litigation of JHP Land I in
response to discovery served on Ram’s Gate.”).
31 Hyde claims he made this position clear from the outset of the
litigation, but the record does not bear that out, at least not with respect to
Roche. To support that claim, his declaration cites to meet-and-confer
discussions with Roche’s co-defendant, seller-side broker Catherine Somple,
concerning document requests served by Somple, and to document request
responses served by Ram’s Gate referring to and incorporating a meet-and-
confer agreement he made with her counsel to narrow the scope of her
document requests so that they covered only JHP Land II. According to the
proof of service, this discovery was not served on Roche and there is no
evidence Roche was part of the meet-and-confer discussions with Somple or
was aware of any agreement by her to narrow the scope of her document
requests.
68
elementary in civil discovery that if documents responsive to a document
request are withheld on privilege grounds, a privilege log or some equivalent
specification of any asserted privilege objection “shall” be supplied. (Code
Civ. Proc., § 2031.240.) This feature of the Discovery Act prevents secret
positions from being taken to justify the withholding of documents claimed to
be secret. Hyde ignored it. Without producing a privilege log—which
appears to be the root cause of everything that was to follow, since it would
have made it clear, to the trial court, and to Roche, exactly what Hyde was
shielding—Ram’s Gate tried to justify withholding documents responsive to
Roche’s document requests on attorney-client privilege grounds. Roche
challenged these objections in a November 2011 motion to compel, and in his
February 9, 2012 order granting the motion, Judge Daum not only overruled
Ram’s Gate’s privilege objections and compelled production, but directed
Ram’s Gate to produce a privilege log of documents withheld “for any reason.”
Despite the order, Ram’s Gate persisted with its refusal to produce the
Boudreau Report or to produce a log revealing its existence. It responded by
serving a supplemental document request response continuing to assert
attorney-client and work product privileges and still refusing to provide a
privilege log. Then, when Roche escalated the stakes by bringing a motion
for terminating sanctions in April 2012, it shifted ground, with Hyde
explaining to the court that “privilege was not really the issue” after all, “but
rather that there are simply no documents, privileged or otherwise that have
not been turned over during discovery.” Since the Boudreau Report was
sitting in Hyde’s files at the time, this representation was, to put it
charitably, inaccurate. The only discernible explanation for it in the record,
offered several years after the fact in Hyde’s September 2016 declaration
supporting the anti-SLAPP motions, is that Hyde claims he thought the
69
Boudreau Report was “not covered” by the February 2012 production order
because the order compelled production of document requests served only on
the entity Ram’s Gate Winery, LLC as a party.
If Hyde had tried to defend Ram’s Gate’s refusal to produce the
Boudreau Report in May 2012 based on such an argument, this position itself
would have been sanctionable. Judge Daum’s February 9, 2012 order
unambiguously overruled Ram’s Gate’s privilege objections and granted an
order compelling production. Unless otherwise expressly limited, an order
overruling objections and granting a motion to compel calls for production
according to the terms of the document requests that are the subject of the
motion. Here, Roche’s document requests called for documents not only in
Ram’s Gate’s possession, but under its custody and control. As of February 9,
2012, Ram’s Gate was therefore under a court order to produce Hardy’s JHP
Land I client files. We think it plain that by withholding these files for more
than four years based on shifting positions, none of which had any substance,
and by treating document discovery as if it were a shell game, Ram’s Gate
committed a gross misuse of the discovery process, wholly lacking in any
justification, much less a substantial one. (Code Civ. Proc., § 2023.030,
subd. (a).)
Hyde says he believed Roche could only obtain discovery of Hardy’s
JHP Land I client files by serving a subpoena on former JHP Land I. But for
discovery purposes, there was no practical difference between JHP Land I
and JHP Land II because John was a member of both entities and he
continued to have access to the dissolved entity’s files. Roche could indeed
70
have served a subpoena on former JHP Land I,32 it is true, and John as its
former manager would have been obligated to respond, but if Ram’s Gate had
possession, custody and control of JHP Land I’s records when Roche’s
document requests were served—which it plainly did, since Hyde had them,
as counsel for both Ram’s Gate and John—third party discovery was not the
exclusive discovery tool available to Roche. The more direct route, and the
route Roche took, was a first party document demand defining the obligation
to produce coextensively with the concept of legal possession. Once Ram’s
Gate’s privilege and work product objections to that demand were overruled
in February 2012, no reasonable civil litigator would have taken the position
Hyde did in continuing to refuse production of Hardy’s JHP Land I client
files.
If Hyde truly thought he could win an argument that there was some
impediment to JHP Land II (Ram’s Gate) producing the JHP Land I client
files on grounds other than the privilege arguments he unsuccessfully made,
the occasion to advance the argument was in opposition to Roche’s motion as
Actually, Roche did make a third party demand for production of
32
documents from Hardy by serving a subpoena on him prior to his June 2012
deposition. But Hyde—who was then suing Hardy on behalf of Ram’s Gate
for negligence as a co-defendant in the underlying litigation against Roche—
requested that Hardy not respond to the demand. Ram’s Gate then appears
to have dismissed Hardy from the suit without prejudice, subject to a tolling
agreement. Oddly, Hyde now claims he thought that to obtain production of
the 2005 Due Diligence Binder, which he asserts was the work product of the
Clement firm, Roche had to serve a subpoena on the Clement firm itself as
the custodian of those files. Putting to one side whether the Boudreau Report
qualified as anyone’s work product other than Boudreau’s and whether Ram’s
Gate should have listed the document on a privilege log if this issue was of
genuine concern, it is unclear why Hyde believed himself capable of making
such a judgment—rather than Hardy, a former partner of the Clement firm—
and, in the face of a court order, to withhold production on the basis of it.
71
a basis for narrowing the scope of any compelled production. He made no
such argument, forfeiting it at that point. The posture he takes now—that he
believed the February 2012 order compelling production could not have
overruled “third party privileges”—is disingenuous. If that was a true
concern, Hyde was obliged to flag it on a privilege log. Instead, he obfuscated
things by telling Judge Daum, when pressed to explain why Ram’s Gate
produced nothing in response to the February 2012 order to compel, that
“privilege [wasn’t] really the issue.” Thus, the bottom line: There was never
a viable legal argument for the position Hyde outlines in his September 2016
declaration stating his intention not to produce JHP Land I’s files in response
to discovery served on Ram’s Gate, and even if there had been a plausible
basis for an argument along that line, Hyde passed on the opportunity to
advance it by the time the February 9, 2012 production order issued.
Accordingly, we are satisfied that Judge Chouteau’s finding that “Roche
was improperly denied responsive discovery by Ram’s Gate et el., up to and
long after the [summary judgment motion] was decided and appealed,” is
amply supported by the record. If anything, this finding is understated.
O’Neill was right to be concerned that Judge Daum might issue terminating
sanctions on the eve of trial in 2016. Even after the sanctions order issued in
June 2012 compelling production a second time, Ram’s Gate still refused to
produce the Boudreau Report, which in our view makes what happened here
worse than simply improper. The rigorous standard for issuance of the
ultimate civil sanction of dismissal was undoubtedly met. (Siry Investment,
L.P. v. Farkhondehpour (2020) 45 Cal.App.5th 1098, 1117–1118.) Without
any apparent appreciation of the seriousness of the misconduct at issue here,
Ram’s Gate now claims it “sens[ed] that Hyde’s behavior had alienated the
judge” and as a result arranged for him to step back and cede the lead role in
72
discovery to Paynter. But the essential problem here was not, and is not
now, a matter of style or optics. What Judge Daum was concerned about,
what Judge Chouteau was concerned about, and what we are concerned
about, is that Hyde took an objectively indefensible discovery position
calculated to hobble his opponent’s defense, misled the court about it, and
defied multiple court orders in carrying it out.
c. The discovery misconduct here was egregious enough to warrant
invocation of the fraud or perjury exception
The Parrish court declined to hold that “inadvertent reliance on factual
inferences that turn out to be unsupported at trial” amounted to “ ‘ “other
unfair conduct” ’ ” sufficient to trigger the fraud or perjury exception.
(Parrish, supra, 3 Cal.5th at p. 783.) There was nothing inadvertent about
Ram’s Gate’s reliance on a misleadingly incomplete factual record to create
triable issues and thus defeat summary judgment when it knew that record
was contradicted by information in its possession, actually or constructively.
Hardy and Hyde had maintained the Boudreau Report in their files since
2005 and 2008, respectively, and before filing suit Hyde had read it, knowing
it had been obtained from the 2005 Due Diligence Binder.
As Parrish observed in the context of limits on the interim adverse
judgment rule, plaintiffs and their attorneys “have no right to mislead a court
about the merits of a claim in an attempt to procure a favorable ruling, and
such a ruling can provide no reliable indication that the claim was objectively
tenable.” (Parrish, supra, 3 Cal.5th at p. 778.) An attorney is an officer of
the court and owes the court a duty of candor. (United States v. Associated
Convalescent Enterprises, Inc. (9th Cir. 1985) 766 F.2d 1342, 1346.) The duty
of candor requires attorneys to use “those means only as are consistent with
truth, and never to seek to mislead the judge or any judicial officer by an
artifice or false statement of fact or law.” (Bus. & Prof. Code, § 6068,
73
subd. (d).) Improperly withholding crucial evidence called for in discovery
surely qualifies as an “artifice.” The Parrish court recognized that the fraud
or perjury exception applies when a party makes a representation it knew or
should have known was false. (See Parrish, at p. 782 & fn. 5.)
Ram’s Gate argues that “discovery issues in the Underlying Action did
not bear on whether Roche met his burden in this action to prove each
essential element of his malicious prosecution action with admissible
evidence.” Citing Sheldon Appel Co., supra, 47 Cal.3d 863 and Cedars-Sinai
Medical Center v. Superior Court (1998) 18 Cal.4th 1 (Cedars-Sinai), for the
proposition that “[d]iscovery issues must be adjudicated in the case in which
they arise,” Ram’s Gate argues that Roche, “[h]aving settled the Underlying
Action and foregone discovery-specific remedies such as monetary, issue, and
terminating sanctions, cannot resurrect those issues now in derivative
litigation.” In Cedars-Sinai, a spoliation case, our Supreme Court declined to
allow conduct that could be remedied through discovery sanctions to serve as
the basis of a separate tort cause of action. (Id. at pp. 4, 12–13, 16–17.) As a
matter of policy, the Sheldon Appel Co. court relied on similar reasoning in
the context of malicious prosecution. (Sheldon Appel Co., supra, at pp. 873–
874.)
But we do not suggest that discovery misconduct may serve as a basis
for a determination that Ram’s Gate lacked probable cause to sue. Rather,
what we hold is that, at least on this record, misconduct in discovery is
relevant to whether the fraud or perjury exception to the interim adverse
judgment rule applies. Contrary to Ram’s Gate’s assertion that Roche passed
on the opportunity to obtain redress for discovery misconduct in the
underlying case, he did not “settle” the underlying case against him, as we
explained above. Absent a release—which litigants are of course free to
74
negotiate upon the resolution of any action, thus controlling their own future
exposure to subsequent litigation—discovery misconduct can have
consequences for the party or the attorney committing it. All we hold is that,
in the absence of a release, those consequences may include inability to rely
on the interim adverse judgment rule in subsequent malicious prosecution
litigation.
d. The improper withholding of the Boudreau Report deprived Roche of
a fair hearing on the merits of his summary judgment motion
Even if there was some kind of discovery misconduct here and even if
we do take it into account in determining the applicability of the fraud or
perjury exception, the defendants contend that Roche still cannot overcome
the interim adverse judgment rule unless he is able to show—which they
insist he cannot—that he would have prevailed on summary judgment in
March 2013, had he been in possession of the document at that time. They
argue that the Boudreau Report would have made no difference, and at most
there would have been triable issues had it been part of the record at the
summary judgment stage of the underlying case, leading to exactly the same
result.
We do not agree. We think that Hardy’s possession of the Boudreau
Report supplied the basis for an argument that likely would have been
resolved in Roche’s favor, as a matter of law, on summary judgment. (Alfaro,
supra, 171 Cal.App.4th at p. 1393 [where deed restrictions in deeds gave
plaintiff home buyers enough actual knowledge to put them on inquiry notice
of undisclosed information concerning the alleged impact of these restrictions
on marketability, dismissal of complaint by buyers whose deeds contained
these restrictions affirmed]; see also Stevenson, supra, 65 Cal.App.4th at
p. 166 [affirming summary judgment where seller’s disclosure was adequate
to put buyer on inquiry notice of allegedly concealed fact].) The defendants
75
resist this conclusion, arguing that the fraud or perjury exception does not
apply unless it can be said that Roche would have won on summary judgment
“but for” the misconduct that triggers the exception. In the absence of a
reliable summary judgment record, of course we cannot go so far as to say
definitively that Roche would have prevailed had the Boudreau Report been
timely produced. But the defendants are to blame for that. It is anyone’s
guess what an unadulterated summary judgment record would have looked
like, had fair play been the rule in discovery.33
Hyde expresses incredulity that there could be any material difference
between a scenario in which, on the one hand, Roche tried to argue, as he did
in his summary judgment motion as filed, that the availability of the publicly
available PRMD files provided a basis for charging Hardy with knowledge of
33 Ram’s Gate argues, in the alternative, that Roche actually did have
evidence Ram’s Gate knew of the Boudreau Report before the closing of the
transaction in December 2006. According to Ram’s Gate, among the 2,316
pages of documents Hardy produced the day before the second session of his
deposition on February 8, 2013, was an email showing that, just before filing
the underlying action, Hyde brought the Boudreau Report to the attention of
O’Neill and John, told them it came from Hardy’s files, and asked them
whether they had seen it before. O’Neill responded that he had not, and John
responded that he was “pretty sure” he had not. Pointing to this email
exchange, Ram’s Gate argues that Roche could, in fact, have argued that
Hardy had possession of the Boudreau Report prior to the December 2006
closing, but either chose not to do so or as a result of the negligence of his
attorneys failed to appreciate that such an argument was available. It takes
this position despite the fact the production in question (which was in
response to the subpoena served on Hardy in May 2012) took place after
Roche framed the issues to be decided in his opening summary judgment
papers. We reject it on the ground that Roche cannot reasonably have been
expected to add a new argument to his motion mid-stream, at the reply stage
of briefing, having already framed the issues to be decided in his statement of
undisputed facts.
76
the Boudreau Report by inquiry notice (an argument Judge Daum rejected in
denying summary adjudication on the tort claims in the underlying action),
versus, on the other hand, the argument he might have made based on a
scenario in which Winter visited the PRMD and copied the Boudreau Report
from the publicly available files. We think there is a material difference
between these two scenarios. In his summary judgment motion, Roche was
unable to close the gap between what Hardy might have learned from the
PRMD files and the information actually gathered for him in the course of his
2005 due diligence. Tying the Boudreau Report to Hardy would have closed
that gap, thus supplying a factual foundation for charging him with
knowledge of the document by inquiry notice.
The Seeger line of cases, holding that the fact that the victim had
constructive notice of the truth from public records is no defense to fraud,
illustrates why this distinction is important. Relying on Alfaro, supra,
171 Cal.App.4th at pp. 1386, 1392–1393, Ram’s Gate used the Seeger rule to
defeat summary adjudication of its fraud and negligent misrepresentation
claims in the underlying case. Seeger left Roche with, at most, an argument
that the availability of the Boudreau Report in the PRMD files might be
relevant to whether Ram’s Gate’s reliance was reasonable (Bishop Creek
Lodge v. Scira (1996) 46 Cal.App.4th 1721, 1734 (Scira)), an issue Judge
Daum found raised issues of fact. Hyde’s discovery strategy gave Roche no
other option but to assume that posture. And it is here that the evidence the
Boudreau Report was in the 2005 Due Diligence Binder—along with the duty
of inquiry triggered by facts Hardy actually knew—would have made a
difference. “[T]hough defrauded buyers will not be deemed to have
constructive notice of public records, this does not insulate them from
evidence of their actual knowledge of the contents of documents presented to
77
them or from being charged with inquiry notice based on those documents.”
(Alfaro, supra, at p. 1389, citing Scira, supra, at p. 1736.)
Hyde contends that Roche could not have defended by pointing to
Ram’s Gate’s knowledge because breach of a contractual duty of disclosure is
“akin to a strict liability” claim. But that is incorrect. Whether a real estate
buyer suing for nondisclosure seeks to state a cause of action sounding in
contract (RSB Vineyards, LLC v. Orsi (2017) 15 Cal.App.5th 1089, 1097, 1103
(RSB Vineyards)) or in tort (Holmes v. Summer (2010) 188 Cal.App.4th 1510,
1520), in “either event [his] allegations must reveal a fraud.” (Reed v. King
(1983) 145 Cal.App.3d 261, 264 (Reed).)34 “ ‘The elements of actual fraud,
34 “ ‘A real estate seller has both a common law and statutory duty of
disclosure. . . . “In the context of a real estate transaction, ‘[i]t is now settled
in California that where the seller knows of facts materially affecting the
value or desirability of the property . . . and also knows that such facts are
not known to, or within the reach of the diligent attention and observation of
the buyer, the seller is under a duty to disclose them to the buyer.
[Citations.]’ [Citations.] Undisclosed facts are material if they would have a
significant and measurable effect on market value. [Citation.]” . . . Where a
seller fails to disclose a material fact, he may be subject to liability “for mere
nondisclosure since his conduct in the transaction amounts to a
representation of the nonexistence of the facts which he has failed to
disclose.” ’ ” (RSB Vineyards, supra, 15 Cal.App.5th at p. 1097, quoting
Calemine v. Samuelson (2009) 171 Cal.App.4th 153, 161.)
The contractual disclosure commitment imposed on Roche here, though
quite detailed in its specification of examples of expected disclosure
materials, “did not impose any additional disclosure requirements beyond
those imposed by law” (RSB Vineyards, supra, 15 Cal.App.5th at p. 1097,
fn. 3) since the required disclosures were limited to “facts, events, conditions
or agreements which have a material effect on the value of the ownership or
use of the Property” (PSA, at ¶ 10) under circumstances where Roche knew
the buyer would have a full opportunity, “at its expense, and in its discretion,
to inspect any aspect of the Property to determine Buyer’s satisfaction with
the condition thereof.” (Id. at ¶ 9 (b).) Thus, the PSA simply tracked Roche’s
common law and statutory disclosure duty.
78
whether as the basis of the remedy in contract or tort, may be stated as
follows: There must be (1) a false representation or concealment of a
material fact (or, in some cases, an opinion) susceptible of knowledge,
(2) made with knowledge of its falsity or without sufficient knowledge on the
subject to warrant a representation, (3) with the intent to induce the person
to whom it is made to act upon it; and such person must (4) act in reliance
upon the representation (5) to his damage.’ ” (Reed, supra, 145 Cal.App.3d at
p. 264, italics omitted.)
“ ‘Concealment’ and ‘material’ are legal conclusions concerning the
effect of the . . . facts pled.” (Reed, supra, 145 Cal.App.3d at pp. 264–265.)
And “[c]oncealment is a term of art which includes mere nondisclosure when
a party has a duty to disclose.” (Id. at p. 265, citing Lingsch v. Savage (1963)
213 Cal.App.2d 729.) In the absence of a fiduciary duty or active concealment
by deceptive obstruction of the buyer’s ability to learn the truth (Goodman v.
Kennedy (1976) 18 Cal.3d 335, 346–347), liability for “mere nondisclosure”
(Lingsch, supra, at p. 738) in a real estate transaction may rest on the breach
of a contractual duty of disclosure. That is the common thread running
through each of Ram’s Gate’s causes of action against Roche.35 And in “mere
nondisclosure” cases, the plaintiff has the burden to show that the seller
knew the undisclosed information was “not known to, or within the reach of
the diligent attention and observation of the buyer.” (Id. at p. 735.) Had
Roche been able to show he was being sued for failing to disclose information
Ram’s Gate already knew—actually, or by imputation through its attorneys
or through John—this is the claim element Roche could have attacked by
35 The defendants point out, and Hyde features as one of his lead
arguments, that Ram’s Gate also alleged affirmative misrepresentation as a
basis of liability. We address this strand of Ram’s Gate’s fraud allegations in
Section III.C.4., post.
79
summary judgment motion. But Ram’s Gate’s discovery misconduct blocked
him from doing so.
Accordingly, we conclude that, because Roche was prevented from
moving for summary judgment on the ground that Ram’s Gate sued him for
failure to disclose information already known to it—actually or by
imputation—he has sufficiently shown that Ram’s Gate deprived him of a
meaningful hearing on the merits of his summary judgment motion, which
triggers the fraud or perjury exception. The same holds true for defendants’
victory on the first appeal in this case, where this court reversed the grant of
summary adjudication on Roche’s contract cause of action. That appeal
having been decided on the same record Ram’s Gate relied upon to establish
triable issues on Roche’s tort causes of action, the same analysis applies.
4. What the Defendants Contend Are Independent Bases for
Liability, Distinct from the Allegation that Roche Failed To
Disclose the Boudreau Report, Do Not Establish Ram’s Gate
Had Probable Cause To Sue
Retreating to a last line of defense, Ram’s Gate argues “[e]ven if Hardy
and Ram’s Gate could be charged with constructive notice of the Boudreau
Report prior to closing, this single fact would not have changed the outcome
of Roche’s summary judgment motion” because there were multiple grounds
for charging Roche with breach of contract, including failure to disclose the
existence of the Boudreau Report, failure to disclose the existence of the
Conforti site plan, and failure to disclose that the original planned location of
the winery had to be moved because of its proximity to active fault traces.
“Any one of these breaches,” Ram’s Gate contends, “provided Ram’s Gate with
probable cause to sue for breach of contract.” Hyde joins all of these
arguments, but with some unique points of focus, first on what he claims is
Roche’s false representation that the building pad was ready to build upon
80
immediately, and second on a contention that the significance of the
Boudreau Report is exaggerated.
a. Arguments made by all defendants
Although here again the form of the argument differs coming
respectively from Hyde and Ram’s Gate, its logic is the same in the versions
advanced by all defendants. We are asked to accept a framing of the claims
in the underlying case against Roche as having encompassed more than
simply a failure to disclose evidence of active fault traces. And with the
underlying case framed broadly to include multiple, independent bases of
liability, we are urged to put aside any issues surrounding the Boudreau
Report as only a distraction, for even assuming the Boudreau Report had
been produced on day one of the underlying lawsuit, so the argument goes, it
would not have changed the outcome—Ram’s Gate would still have defeated
Roche’s summary judgment motion, and at most we would be looking at
claims on which there were triable issues.
The court in Cuevas-Martinez, supra, 35 Cal.App.5th 1109, a recent
case evaluating probable cause at step two of an anti-SLAPP motion, rejected
a similar line of argument from the malicious prosecution defendant there.
“In the context of a malicious prosecution action,” the court explained,
“ ‘When a complaint alleges multiple theories of liability or “counts,” the
counts “are merely ways of stating the same cause of action differently.”
[Citation.] Accordingly, the only way that a litigant can show probable cause
for the cause of action as a whole—or for the “primary right”—is to show
probable cause for each of the counts or theories alleged.’ [Citation.] Thus,
even when the prior lawsuit involves multiple causes of action, the
subsequent malicious prosecution action seeks ‘to vindicate a single primary
right—the right to be free from defending against a lawsuit initiated with
malice and without probable cause.’ [Citation.]” (Id. at pp. 1118–1119.) This
81
holding applies here. By showing prima facie that any one of what Ram’s
Gate now characterizes as its multiple bases for suing was without probable
cause, Roche has met his anti-SLAPP step two burden.
Arguing to the contrary, the defendants rely heavily on Antounian v.
Louis Vuitton Malletier (2010) 189 Cal.App.4th 438 (Antounian), which
involved a case brought in federal court against George and Marijeanne
Antounian by manufacturers of upscale accessories for trademark
infringement and counterfeiting. (Id. at pp. 441–442.) The manufacturers
alleged the Antounians were selling counterfeits of these accessories. They
based their complaint on purchases by private investigators who were
somewhat confused about the addresses where they actually bought the
counterfeits because independent vendors had set up stalls and stands in
front of the Antounians’ shop and adjoining shops. (Id. at pp. 442–444.) The
investigative reports included some allegations pertaining to the Antounians’
shop that were later recanted, while some allegations about the shop were
not. (Id. at pp. 445–446, 454.)
Because the confusion left room for a jury to find that some of the
counterfeit goods had come from the Antounians’ shop, the Court of Appeal
concluded the allegations against the Antounians that remained unrecanted
were sufficient to show probable cause for bringing the action and hence
barred a subsequent malicious prosecution action. (Antounian, supra,
189 Cal.App.4th at pp. 446–453.) Defendants claim Antounian supports their
position that where some facts are shown not to support a cause of action, but
other facts relied upon by the plaintiffs in the underlying action remain
viable, the underlying action must be viewed as supported by probable cause,
and a subsequent malicious prosecution action is barred.
82
We reject these arguments. The reasoning in Antounian applies only if
the second barrel of a double-barreled theory of liability, by itself,
independently, could support liability. That is not the case here, as
confirmed by O’Neill’s deposition testimony, both individually and as Ram’s
Gate’s PMQ designee. Every strand of Ram’s Gate’s various theories of
misrepresentation and nondisclosure is merely another way of restating its
core allegation about nondisclosure of an active fault trace. They all seek
recovery for the same damage,36 which is the determining factor under
California’s primary rights approach to defining a single cause of action.
(Slater v. Blackwood (1975) 15 Cal.3d 791, 795 [“the ‘cause of action’ is based
upon the harm suffered, as opposed to the particular theory asserted by the
litigant”].) Thus, none of these theories of liability stands independently as a
separate cause of action.
Stated alternatively in terms of the elements of fraud Ram’s Gate was
required to prove, these theories may allege relevant evidentiary facts but
they add nothing material beyond what the Boudreau Report already reveals.
While in many cases the issue of materiality will present questions of fact
(Reed, supra, 145 Cal.App.3d at p. 265), here it may be decided as a matter of
36 O’Neill Deposition (April 5, 2016) at page 142 (“[Q]: I’m just trying to
find out what damages you contend have been suffered. You’ve given me five
components, correct? [¶] [A]: Correct. [¶] [Q]: Okay. And all five of those
are from the alleged failure to disclose an active trace fault on the property.
[¶] [A]: Correct.”); see also O’Neill Deposition (May 3, 2013) at page 235
(“[Q]: So the only information that you have now, the only different
information that you have now that you didn’t have before the close of escrow
is that you say nobody told you that there were active trace faults on or near
the location of the winery, right? [¶] [A]: Correct. [¶] [Q]: If that
information had been disclosed to you, the information that you have now
and the information you had then would be identical, correct?
[¶] [A]: Correct.”)
83
law, on undisputed facts, since the question is whether any of the additional
items Roche allegedly failed to disclose or misrepresented added anything,
incrementally, beyond what Ram’s Gate already knew or was charged to
know. The answer is no, in light of O’Neill’s testimony admitting that all of
Ram’s Gate’s other alleged nondisclosures and misrepresentations are
subsidiary to the claim that Roche failed to disclose an active fault trace.
b. Arguments made by Hyde
Hyde’s unique spin on the Antounian line of argument suffers from the
same defect, but fails of its own accord for additional reasons. By focusing its
attention exclusively on allegations surrounding the Boudreau Report, Hyde
argues, the trial court failed to take into account a set of misrepresentation
allegations concerning the building pad that, independently of whether Ram’s
Gate was, or was not, aware of active fault traces revealed by the Boudreau
Report, supported liability for breach of the PSA. In fact, we are told, these
building pad allegations—for failure to disclose that no soils report had been
done, that as a result the pad had been built without a permit, and that there
were 50–100 feet of fill beneath it, which made soils testing for evidence of
active fault traces cost prohibitive—stated the “central claim” of Ram’s
Gates’s breach of contract case all along.
Here, Hyde argues that, when Roche disclosed the HLA Proposal as
part of his November 2006 pre-closing disclosure package, Ram’s Gate
concluded from the very fact of the pad’s existence that the seismic
investigation work proposed by HLA must have been done. According to
Hyde, that was not only consistent with the affirmative representation in the
Offering Memorandum that the building pad was county-approved, but it
enhanced the believability of the immediate buildability representation. This
argument reads more into the evidence than is actually there. To understand
84
why, it is important to bear in mind that the building pad Roche sold to
Ram’s Gate as an appurtenance to the property was the foundation for a
building, not a building structure. The HLA Proposal specifically addressed
the possibility that, in 1997, Roche was planning to erect a building structure
on the pad. It did not address construction of the pad itself, without the
building.
To the extent Ram’s Gate meant to allege deficient engineering, per se,
by putting the word “engineered” in quotes in the operative complaint—
which might be construed as an attempt to signal it was raising questions
about the physical integrity of the pad itself, or about the pad’s suitability to
hold a building—that interpretation of the claim is at odds with O’Neill’s
understanding of it. When asked in deposition, “You agree that the building
pad was engineered. Correct?” he answered: “Well, look, I’m not an expert,
so somebody would have to review that . . . . We’ve never questioned that the
pad was engineered by Ghilotti. We’re not debating the engineering of the
pad.”37 The idea that Ram’s Gate’s building pad allegations pled a
“standalone” defective engineering claim is also legally unsupportable. The
complaint is too conclusory to support such a claim. There are no allegations,
for example, of cracks or other physical defects that might have evidenced an
improperly “engineered” building pad, and there is no claim for damages
incurred as a result of some need to repair or rebuild it.
The permitting aspect of Ram’s Gate’s purported “standalone” building
pad claim fares no better. Nowhere does Ram’s Gate allege damages in the
37 O’Neill Deposition (May 3, 2013) at page 234; see also O’Neill
Deposition (April 5, 2016) at page 146 (“[Q]: I just want to make sure that . . .
your claim related to the building pad is exclusively limited to the possibility
that there’s an earthquake trace fault under the building pad, correct?
[¶] [A]: Correct. That’s correct.”)
85
form of anticipated costs of undergoing another permitting process specific to
the building pad, apart from what was always going to be required if a
building were planned for the pad. The absence of any such damages request
is understandable. The HLA Proposal expressly states that a soils report
would be required if a structure were ever built on top of the pad. Despite
this specific written statement addressing the point, Ram’s Gate contends it
was surprised to find out that “[b]efore the County would approve any
construction on the ‘engineered’ pad, additional trenching and geological
analysis had to be performed.” Ram’s Gate’s own lawyer, Hardy, was not
confused about this. He testified he always understood it would be necessary
to undertake a permitting process for any structure Ram’s Gate wished to
build on the building pad, and that as part of the permitting process a soils
report would be necessary.38 With that understanding, the representation
that the pad was “immediately buildable” was true and therefore could not
have caused Ram’s Gate any damage. (Saffie v. Schmeling (2014)
224 Cal.App.4th 563, 566, 570–571 [where selling broker disclosed a 24-year-
old fault hazard study and represented that property sold to plaintiff “ ‘has
been declared buildable,’ ” there was no obligation to advise buyer of need to
update the study and the buildability representation could not have caused
any damage to the plaintiff because it was true].)
If Ram’s Gate genuinely believed it could skip the step of obtaining a
soils report for any structure it wished to build on the pad because of the
representation of “immediate buildability” in the Offering Memorandum, it
was subjectively laboring under a legal misunderstanding that was at odds
38 Deposition of Lester Hardy (June 14, 2012) at pages 52–53 (Hardy
testifies that, to construct anything on top of the building pad, he understood
a building permit would be required, and additional investigation or approval
would be required for a “geotechnical site”).
86
with knowledge imputable to it from its lawyer. “Here we have a question of
law[]—the existence, the provisions, the meaning, and the applicability”
(Watt v. Patterson (1954) 125 Cal.App.2d 788, 793) of permitting
requirements for the construction of a structure on the building pad. This is
not a situation in which Roche proposed to sell Ram’s Gate a turnkey project
by providing a full set of architectural plans for a building and then
representing, falsely, that a permit had already been issued for the pad and
the building as a package, leaving construction as the only remaining task.
“All of the pertinent facts” here—most importantly, the fact that there was no
building structure on the pad when Ram’s Gate acquired the winery, nor
were there any current plans for a building, which meant that a seismic
hazard study would be required of anyone who proposed to put one there—
were “equally well known to both parties.” (Ibid.)
In the last of the many probable cause arguments presented in these
appeals, Hyde presents an idiosyncratic reading of the record, shared by no
other party to this litigation, that the Boudreau Report is simply not very
important compared to other nondisclosures and misrepresentations alleged
by Ram’s Gate. According to this proposed interpretation of the facts,
Boudreau identified a fault trace that was 600 feet distant from the building
pad, and as a result, it was the nondisclosure of the Conforti site plan, not the
Boudreau Report, that was the most misleading omission here. This is so,
Hyde argues, because only the Conforti site plan, together with the
undisclosed information that Roche had to move the location of his winery
because of “findings” made by Conforti, would have alerted Ram’s Gate to the
fact there was an active fault trace near the winery building and the building
pad behind it. The argument hinges on the chronology; Conforti came before
Boudreau, Hyde points out, overlooking the fact Conforti (who Hyde and
87
Ram’s Gate both incorrectly refer to as an “engineer”) revised his site plan in
1988 and that, as an architect, he did not do any independent geological
work.
More fundamentally, Hyde’s “much ado about nothing” argument fails
to take account of what Boudreau actually found—evidence of multiple active
fault traces, including one to the north of the winery across Arnold Drive, and
another very close to the winery where he did his trenching at the location
Hart identified in 1982, traversing the knoll itself. While we see a number of
problems with Hyde’s argument that Boudreau “found no active fault traces
anywhere near” the winery site shown on the Conforti site plan, the most
basic is that it incorrectly presupposes Boudreau found only one active fault
trace and that that fault trace was hundreds of feet distant from the winery
building. Suffice it to say this portrayal of the evidence is inconsistent with
the RGH Report, which Hyde himself commends to us for an accurate
summary of Boudreau’s findings. RGH, too, found multiple active fault
traces, including one which it identified as the “main trace of the Rodgers
Creek fault” some distance away from the winery site, across Arnold Drive, at
the intersection of the Petaluma formation and the Sonoma volcanics. But
that is not the only fault trace Boudreau and RGH found, nor is it the one
they were focused upon. (Ante, at pp. 6–8, 16, fn. 10.)
D. Malice
The fact that the defendants filed and maintained an action that lacked
probable cause, on this record, raises an inference of malice. While the
absence of probable cause alone is insufficient to establish a prima facie case
of malice (HMS Capital, supra, 118 Cal.App.4th at p. 218; Downey Venture v.
LMI Ins. Co. (1998) 66 Cal.App.4th 478, 498), there is more here because of
ethically questionable decisions by Hyde not to produce the 2005 Due
Diligence Binder in discovery. We conclude that the pattern of discovery
88
misconduct and the manner in which it was carried out solidify Roche’s
showing and make it sufficient to meet his prima facie burden on the issue of
malice.
The Ram’s Gate defendants do not contend on appeal that evidence of
their malice was lacking, but Hyde does. The singular aggressiveness of his
position, in our view, betrays its weakness. Hyde is in the least credible
position to make such a claim, since it was Hyde who discovered the
Boudreau Report in the 2005 Due Diligence Binder before filing the
underlying action. It was Hyde who, as the attorney representing Ram’s
Gate, was responsible for undertaking a reasonable investigation into the
facts before making irresponsible accusations in a pleading. Rather than
acknowledge the possibility of any misjudgment, Hyde doubles down.
The four-and-a-half-year record of withholding discovery, we are told, is
not his fault. Roche, Hyde argues, is to blame because Simon was negligent
in not serving a subpoena seeking production of the JHP Land I client files on
the correct party. And according to Hyde, the only reason the JHP Land I
client files were eventually produced was due to Hardy’s “unethical” decision
to produce materials from that file. He even claims to have no idea why
Hardy failed to produce the Boudreau Report in the spring of 2012, as if his
request of Hardy not to produce the client files of JHP Land I never
happened. Ultimately the sheer brazenness of the posture Hyde assumes
may present credibility issues for the finder of fact to assess, but for now it
adds nothing to the weight of his arguments. If anything, it detracts from
them.
Whatever else happens here, the Ram’s Gate defendants seek to
preserve their ability to argue “[t]here can be no imputation to a client of his
attorney’s misconceived legal analysis so as to void the client’s good faith
89
reliance on his counsel’s advice as providing probable cause.” (Brinkley v.
Appleby (1969) 276 Cal.App.2d 244, 247.) They point out that “nonattorney
defendants can usually demonstrate the existence of probable cause, and thus
avoid liability, by evidence showing that they relied on the advice of counsel
in good faith after full disclosure of the facts.” (Downey Venture v. LMI
Ins. Co., supra, 66 Cal.App.4th at p. 496, fn. 24; see also Sosinsky v. Grant
(1992) 6 Cal.App.4th 1548, 1556 [“ ‘Probable cause may be established by the
defendants in a malicious institution proceeding when they prove that they
have in good faith consulted a lawyer, have stated all the facts to him, have
been advised by the lawyer that they have a good cause of action and have
honestly acted upon the advice of the lawyer.’ ”].) About this, all we need say
is that issues concerning any advice-of-counsel defense by the Ram’s Gate
defendants must be sorted out at trial.
E. Guidance on Remand
“Based on our de novo review, we conclude that, for purposes of prong
two of the anti-SLAPP statute (§ 425.16, subd. (b)(2)), if we credit the
evidence that [Roche] submitted in opposition to [defendants’] anti-SLAPP
motion, including favorable inferences from that evidence[,] . . . [Roche] set
forth a sufficient prima facie showing of facts that he will prevail in proving”
the elements of his malicious prosecution claim. (Kinsella, supra,
45 Cal.App.5th at p. 463.) “By this ruling—indeed, by any statement
contained in this opinion—we express no view as to whether [Roche] will or
will not be able to prove to the satisfaction of a trier of fact any of the three
elements of his cause of action for malicious prosecution.” (Ibid.) By analogy
to injunctive relief, our affirmance of Judge Chouteau’s determination that
Roche is likely to succeed on the merits is no more determinative of the
outcome of this case than an order granting preliminary injunctive relief
90
would be on the question whether permanent injunctive relief should issue
after trial.
Roche is now entitled to proceed to trial. (Bergman, supra,
129 Cal.App.4th at p. 18 [determination that malicious prosecution plaintiff
met her prima facie burden under Code Civ. Proc., § 425.16, subd. (b)(1) is
law of the case, barring summary judgment against her, unless defendant
later comes forward with “additional or different evidence that would, as a
matter of law, conclusively negate plaintiff’s prima facie case”].) Although
our decision resolving these appeals will prevent the defendants from
“reargu[ing] the proposition that [Roche] has not presented sufficient
evidence to go before a trier of fact” (Bergman, supra, at p. 21), what we hold
here “will have no impact on the trial of this matter” (ibid.) as to matters of
fact. Roche still must “prove [his] case for malicious prosecution by a
preponderance of the evidence” (ibid.), and “[u]pon the commencement of the
trial, the impact of the law of the case doctrine will simply disappear” (ibid.),
other than to provide guidance as to the applicable law. (Cf. Crespin v. Coye
(1994) 27 Cal.App.4th 700, 708 [appellate rulings on review of a preliminary
injunction may become law of the case in subsequent proceedings in the same
case where court of appeal decides issues of law presented on undisputed
facts]; Los Angeles v. Los Angeles Bldg. & Const. Trades Council (1952)
109 Cal.App.2d 81, 87 [same].)
At trial, the court must first address as a preliminary matter the
applicability of the fraud or perjury exception to the interim adverse
judgment rule. Since fraud or perjury is not a substantive element of Roche’s
malicious prosecution claim, and has procedural consequences only, any fact-
finding that is necessary in connection with it is for the court to undertake,
approaching the inquiry procedurally—by phasing the trial, for example—in
91
whatever manner it deems most fitting. Based on the six volumes and 2,500
pages of appendices submitted to this court, it appears to us that Roche has
met his prima facie burden to show discovery misconduct that is sufficiently
serious, pervasive and impactful to trigger the fraud or perjury exception.
Still, we recognize the possibility that the record may be incomplete in some
respects and that the defendants may have something more, or different, to
say by way of explanation or mitigation. What we have said about the
defendants’ conduct, and especially Hyde’s, is harsh; it is intended to be, as
would befit a final determination that the prima facie showing Roche has
made out is true. But we emphasize once again that we have not made a
final determination of these discovery misconduct issues at this procedural
stage of the litigation. We leave that to the trial court, where the events we
have discussed occurred.
Should the trial proceed to the merits of the malicious prosecution
claim, the element of lack of probable cause will also be for the court to
decide, subject to a preliminary determination of certain factual questions by
the trier of fact prior to the ultimate legal determination of probable cause.
The differing positions Hyde and Ram’s Gate have taken in these appeals on
the issue of whether Hardy ever possessed the Boudreau Report underscore
the need for this preliminary fact-finding. (Ante, at pp. 42–43, fn. 21.) We
also note that Roche argues lack of probable cause on two levels. First, he
argues that John had possession of the Boudreau Report in 2005. If that is
true, and Hyde knew it, it would decisive. But Roche also contends that even
if the Ram’s Gate principals were ignorant of the Boudreau Report as of the
closing date, Hyde, objectively, should have known better than to counsel the
bringing of a claim. He was legally incorrect that none of the seismic
information revealed in the Boudreau Report could be imputed to Ram’s
92
Gate, but the ultimate question of lack of probable cause may come down to
just how wrong he was. Was his view of the imputation issue so flawed that
no reasonable attorney would have proceeded or continued to proceed on the
basis he did?
To evaluate Roche’s lack of probable cause arguments at both levels, it
will be important to assess the state of Hyde’s knowledge of the pertinent
facts not only when the lawsuit was filed, but as it was being pursued. The
extent of his awareness of who had actual possession of the Boudreau Report
prior to the closing, and at what point in time possession of the document
changed hands, are all questions that may be central to this analysis.
Legally, as we have explained, it is sufficient to charge the Ram’s Gate
principals with knowledge of information in the hands of their attorneys, but
the objective reasonableness of the position Hyde took in premising a suit
against Roche on the position his clients could avoid any such imputation
may depend, in part, on what Hyde knew of the facts that would drive the
case for imputation. He claims he made an “assessment” of this critical issue,
which suggests he had a factual basis for his ultimate judgment. Perhaps he
did; or perhaps the arguments we see from him concerning the 2005 Due
Diligence Binder were developed after the fact, as appears to have been the
case with his effort to explain away his continuing violation of Judge Daum’s
February 2012 production order in hindsight, which would suggest he was
intent on achieving a result, heedless of the law.
There may be a number of other preliminary questions of fact that will
need to be explored. It is for the trial court to determine exactly what must
be examined and how to frame all of the issues to be tried for decision along
with the other elements of Roche’s malicious prosecution claim, while
preserving its exclusive role in deciding the ultimate issue of probable cause.
93
IV. DISPOSITION
The trial court’s order of January 31, 2017, denying defendants’ anti-
SLAPP motions is affirmed. Roche shall recover his costs on appeal.
STREETER, J.
WE CONCUR:
POLLAK, P. J.
BROWN, J.
94
Trial court: Sonoma County Superior Court
Trial judge: Honorable René Auguste Chouteau
Counsel for defendant and appellant Hinshaw & Culbertson
Thomas F. Hyde: Edward F. Donohue
Jared W. Matheson
Counsel for defendants and appellants Arnold & Porter Kaye Scholer
Ram’s Gate Winery, LLC et al.: Steven L. Mayer
Sean M. SeLegue
Jonathan W. Hughes
John S. Throckmorton
Counsel for plaintiff and respondent: Beyers Costin Simon
Bob Haroche
Peter L. Simon
Steven J. Bleasdell
Roche v. Hyde A150459 / Roche v. Ram’s Gate A150462
95