Retirement Housing Foundation v. Cain Brothers CA2/7 ( 2014 )

Filed 1/29/14 Retirement Housing Foundation v. Cain Brothers CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
RETIREMENT HOUSING B239439
FOUNDATION, et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. BC404726)
v. ORDER MODIFYING OPINION;
NO CHANGE IN JUDGMENT
CAIN BROTHERS & CO.,
Defendant and Respondent.
THE COURT:
It is ordered that the opinion filed herein on December 30, 2013, and not certified for
publication, be modified as follows:
On page 12, line 1 of the first paragraph, the opinion incorrectly refers to section
10(b); it should be section 10(a).
Appellants’ petition for rehearing is denied. The foregoing does not change the
judgment.
WOODS, Acting P. J. SEGAL, J. (Assigned)
Filed 12/30/13 (unmodified version)
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
RETIREMENT HOUSING B239439
FOUNDATION, et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. BC404726)
v.
CAIN BROTHERS & CO.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of Los Angeles County.
William F. Highberger, Judge. Affirmed.
Reuben Raucher & Blum, Timothy D. Reuben, Stephen L. Raucher and
Gregory P. Barchie for Plaintiffs and Appellants.
Caldwell Leslie & Proctor, David K. Willingham and Aron Ketchel;
Kaplan Rice, Howard J. Kaplan (pro hac vice) and Justin M. Garbaccio (pro hac vice) for
Defendant and Respondent.
_____________________________
INTRODUCTION
This is an appeal from the trial court’s denial of a special motion to strike a cross-
complaint pursuant to Code of Civil Procedure section 425.16. Leaving to one side the
issue of whether the express indemnity claim alleged in the cross-complaint “arises from”
constitutionally protected activity within the meaning of the “anti-SLAPP” statute (but
assuming arguendo that it does), the cross-complainant satisfied its burden to make a
prima facie showing of facts sufficient to support a judgment in its favor if the evidence
supporting its claim is credited.1 Accordingly, we affirm.
FACTUAL AND PROCEDURAL SUMMARY
Retirement Housing’s Fourth Amended Complaint
In its fourth amended complaint, Retirement Housing Group Foundation and
related entities (Retirement Housing) alleged three breach of contract claims against Cain
Brothers & Company, LLC (Cain Brothers) based on an alleged “Financial Advisory
Agreement,” which, according to Retirement Housing, was comprised of Exhibits A
through C attached to its pleading.2 Cain Brothers filed a demurrer to these causes of
action, and the trial court sustained the demurrer without leave to amend, noting in its
ruling that Retirement Housing’s prior pleadings and attached exhibits demonstrated that
“the only binding contract made was for Cain [Brothers] to act as an underwriter to
[Retirement Housing] to buy [its] debt obligations for portfolio and/or resale to others
and that Cain [Brothers], as an underwriter to [Retirement Housing], was in an
1 “SLAPP” is an acronym for “strategic lawsuit against public participation.”
(Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 815, fn. 1.) Unless
otherwise indicated, all further statutory references are to the Code of Civil Procedure.
2 The plaintiffs are Retirement Housing Group Foundation (Retirement Housing)
and its affiliates Foundation Property Management; Bixby Knolls Towers, Inc.; Gold
Country Health Center, Inc.; Mayflower Gardens Health Facilities, Inc.; Mayflower RHF
Housing, Inc.; Sun City RHF Housing, Inc.; Holly Hill RHF Housing, Inc.; Merritt Island
RHF Housing, Inc.; Martin Luther Foundation, Inc.; Yellowwood Acres, Inc.; Bluegrass
RHF Housing, Inc.; St. Catherine RHF Housing, Inc.; and DeSmet RHF Housing, Inc.
We include them all in our references to Retirement Housing.
adversarial relationship . . . and not a financial adviser, as such, to [Retirement
Housing]. . . .”
Retirement Housing’s remaining claims against Cain Brothers were for
negligence, negligent misrepresentation, breach of fiduciary duty and constructive fraud.
Retirement Housing alleged Cain Brothers’ negligence in misrepresenting or failing to
disclose information regarding the purported misconduct of co-defendants ACA
(mismanagement and underwriting of risky, subprime mortgage-backed securities) and
Lehman Brothers (bid-rigging, price-fixing and related misconduct).3 The trial court
directed Cain Brothers to file an answer to these remaining claims. Cain Brothers
answered and filed a cross-complaint for express indemnity.
Cain Brothers’ Cross-complaint for Express Indemnity
In its cross-complaint for express indemnity, Cain Brothers alleges: “At their
core, [Retirement Housing’s] claims against Cain Brothers are based on the allegation
that, until 2007, [it was] kept in the dark about certain risks relating to ACA in
connection with the 1998 ‘plan of refinancing.’ However, numerous documents reveal
that [Retirement Housing was] aware of precisely these risks at all times—both at the
time [it] entered the refinancing plan, and in the years following.”
“Indeed, [Retirement Housing] expressly discussed these risks in [its] Official
Statement for the 1998 refinancing, and agreed to indemnify Cain Brothers for any
expenses incurred if those representations were, or were alleged to be, untrue or
misleading.
“Specifically, in connection with the issuance of the 1998 SAVRS, [Retirement
Housing] authorized an ‘Official Statement’ that included a detailed description of
precisely these risks. Among other things, the Official Statement represented that a
downward revision or withdrawal of the bond insurer’s ratings could adversely affect the
3 We summarized the complex financial transactions underlying this litigation in
connection with a prior appeal. (Ret. Hous. Group Found. v. Fuld (Sep. 11, 2012,
B230243) [nonpub. opn.].) For purposes of this appeal, however, it is unnecessary to
recount the underlying financial transactions in great detail.
market price of the 1998 SAVRS; that the bond insurer ‘does not guaranty’ the ratings on
the 1998 SAVRS; that the Obligated Group’s costs [the “Obligated Group” was defined
in the Official Statement] could ‘increase significantly’ due to an ACA downgrade; and
that there was ‘no assurance’ that ACA’s credit rating (and thus the SAVRS’ credit
rating) would continue for any period of time. A true and correct copy of the Official
Statement is attached hereto as Exhibit 1.
“The Official Statement further provided that the Cain Brothers had no
responsibility to notify the holders of the SAVRS of any proposed changes in such
ratings. ‘The Issuers, the Obligated Group and the Underwriters have undertaken no
responsibility either to bring to the attention of Holders any proposed change in or
withdrawal of such rating or to oppose any such proposed revision or withdrawal.’ The
Official Statement further reiterated that ‘[a]ny such downward change in or withdrawal
of the rating may have an adverse effect on the market price of the 1998 SAVRS.’ (Ex. 1
at 90-91.)
“In the Certificate Purchase Agreement, which was executed in 1998, [Retirement
Housing] expressly agreed to indemnify Cain Brothers against ‘all losses, claims,
damages, liabilities or expenses,’ including legal expenses, caused by any alleged untrue
or misleading statement or material fact contained in the Official Statement. (F[ourth]
A[mended] C[omplaint,] Exhibit D § 10.)
“However, [Retirement Housing’s] claims against Cain Brothers are based on the
proposition that, in fact, representations made in the Official Statement were untrue. That
is, [Retirement Housing has] taken the position that Cain Brothers was required to obtain
a guaranty of ACA’s credit rating; that ACA was required to guaranty its rating; that [it]
did not know of risks relating to ACA’s credit rating; and that [it] did not know of the
consequences of an ACA ratings downgrade. These propositions directly contradict the
express language of the Official Statement.
“Whether or not [Retirement Housing] ultimately prevail[s] on these claims, all
cost incurred by Cain Brothers in defending this action (and any damages for which it
may ultimately be held liable) are therefore attributable to ‘untrue statements or
misleading statements or alleged untrue statements or alleged misleading statements’ of
material fact in the Official Statement.
“Consequently, [Retirement Housing is] required by the C[ertificate ]P[urchase
]A[greement] to indemnify Cain Brothers for all ‘losses, claims, damages, liabilities or
expenses’ incurred in defending this action, including all legal expenses.”
Thereafter in its cross-complaint, Cain Brothers recounted the chronology of
events following execution of the Certificate Purchase Agreement. In December 1998,
Cain Brothers alleged, Retirement Housing entered into a “Swap Contract” with Lehman
Brothers in order to obtain a fixed rate on the SAVRS, and Lehman, as counterparty,
accepted the risk of fluctuations in the floating interest rate attached to the SAVRS as set
forth in the Official Statement. According to documents it produced, Retirement Housing
discussed the risks and possible consequences of a possible ACA downgrade with its
board of directors in 1998.
In early 2001, Cain Brothers alleged, both Standard & Poors and Fitch placed
ACA on negative credit watch, indicating ACA’s capital levels were near or below
regulatory minimums and if it did not raise necessary capital, its credit rating would be
downgraded. Retirement Housing was aware of ACA’s ratings issues, its insufficient
capital and its plans to replace much of its municipal bond business with policies
involving mortgage-backed securities which carried higher default expectations. At that
time, Retirement Housing explored the possibility of seeking a replacement or additional
insurer in light of ACA’s problems.
In 2004, ACA was again placed on negative credit watch and Fitch downgraded
ACA’s credit rating. Retirement Housing experienced at least one failed auction and
increased interest rate costs, held extensive discussions regarding the consequences of
ACA’s credit rating issues in 2004 and 2005 and also expressed concerns about
Lehman’s proprietary swap valuation methodology, particularly in light of ACA’s rating
difficulties and the likely cost of terminating the swaps. In mid-2005, Cain Brothers
alleged, Lehman informed Retirement Housing the swaps had a negative valuation of
$15.8 million, representing the cost to terminate the swaps. In late 2007 and 2008,
Retirement Housing then sought to restructure the transaction and to refinance the
SAVRS. Retirement Housing then entered into a “New Swap Contract” with Lehman
and in or about July 2008 completed the refinancing of the SAVRS. Two weeks later,
Lehman declared bankruptcy and failed to make payments under the New Swap Contract.
Cain Brothers then summarized the procedural history of Retirement Housing’s
action, beginning with the filing of its original complaint in December 2008. Initially,
Cain Brothers was not named as a defendant. In its first amended complaint, however,
Retirement Housing added Cain Brothers, ACA and several individuals associated with
Lehman as defendants, alleging (among other things) a “Proposal” Cain Brothers and two
other firms submitted constituted a “written Refinancing Agreement” between
Retirement Housing and Cain Brothers. By the time of its third amended complaint,
the trial court had ruled the “Proposal” created no contract duties and did not give rise to
a financial advisory relationship and that the Certificate Purchase Agreement set forth
only an underwriting relationship and had not been breached. The court granted
Retirement Housing’s request for leave to amend to allege breach of an oral agreement
giving rise to a financial advisory relationship, but by June 2011, the trial court had
sustained without leave to amend all of Retirement Housing’s contract claims against
Cain Brothers.
It its cross-complaint, Cain Brothers denied it had caused or contributed to the
damages Retirement Housing alleged in its Fourth Amended Complaint, but if found
responsible for any part of Retirement Housing’s claimed damages, Cain Brothers alleged
it was entitled to indemnity, based on the express indemnity provision set forth in the
Certificate Purchase Agreement.
Retirement Housing filed a special motion to strike, arguing Cain Brothers’ cross-
complaint arose out of protected activity (Retirement Housing’s filing of its fourth
amended complaint) and Cain Brothers could not establish a probability of prevailing on
its claim for express indemnity. (§ 425.16)
Cain Brothers filed a motion to conduct discovery (seeking to depose Dr. Laverne
Joseph, Retirement Housing’s CEO) pursuant to subsection (g) of section 425.16, and the
trial court granted the motion. Thereafter, Cain Brothers filed its opposition to
Retirement Housing’s special motion to strike.
After hearing argument, the trial court denied Retirement Housing’s special
motion to strike, concluding not only that Retirement Housing had failed to carry its
initial burden to demonstrate that Cain Brothers’ indemnity cause of action alleged in its
cross-complaint arose from Retirement Housing’s protected activity, but also determined
Cain Brothers had demonstrated a probability of prevailing on the merits of its indemnity
claim.
Retirement Housing appeals.
DISCUSSION
Standard of Review and Applicable Law
The anti-SLAPP statute is aimed at curbing “lawsuits brought primarily to chill the
valid exercise of the constitutional rights of freedom of speech and petition for the redress
of grievances.” (§ 425.16, subd. (a); Jarrow Formulas, Inc. v. LaMarche (2003) 31
Cal. 4th 728, 738-739 (Jarrow).) The statute provides in relevant part: “A cause of action
against a person arising from any act of that person in furtherance of the person’s right of
petition or free speech under the United States or California Constitution in connection
with a public issue shall be subject to a special motion to strike, unless the court
determines that the plaintiff has established that there is a probability that the plaintiff
will prevail on the claim.” (§ 425.16, subd. (b)(1).) An act “in furtherance of” the right
to petition includes “any written or oral statement or writing made before a . . . judicial
proceeding”; “any written or oral statement or writing made in connection with an issue
under consideration or review by a . . . judicial body . . .”; and any “conduct in
furtherance of the exercise of the constitutional right of petition . . . .” (§ 425.16, subd.
(e)(1), (2), (4).) The anti-SLAPP statute applies to cross-complaints as well as to
complaints. (§ 425.16, subd. (h); Jarrow, supra, 31 Cal.4th at p. 735, fn. 2.)
There are two components to a motion to strike brought under section 425.16.
Initially, the party challenging the lawsuit has the threshold burden to show that the cause
of action arises from an act in furtherance of the right of petition or free speech. (Zamos
v. Stroud (2004) 32 Cal. 4th 958, 965; Equilon Enterprises v. Consumer Cause, Inc.
(2002) 29 Cal. 4th 53, 67.) Once that burden is met, the burden shifts to the complaining
party to demonstrate a probability of prevailing on the claim. (Zamos v. Stroud, supra,
32 Cal.4th at p. 965; City of Cotati v. Cashman (2002) 29 Cal. 4th 69, 76 (City of Cotati).)
To satisfy the latter prong, the plaintiff “‘must demonstrate that the complaint is both
legally sufficient and supported by a sufficient prima facie showing of facts to sustain a
favorable judgment if the evidence submitted by the plaintiff is credited.’” (Wilson v.
Parker, Covert & Chidester (2002) 28 Cal. 4th 811, 821; see also DuPont Merck
Pharmaceutical Co. v. Superior Court (2000) 78 Cal. App. 4th 562, 568 [to establish a
probability of prevailing, a plaintiff must substantiate each element of the alleged cause
of action through competent, admissible evidence].) “Only a cause of action that satisfies
both prongs of the anti-SLAPP statute--i.e., that arises from protected speech or
petitioning and lacks even minimal merit--is a SLAPP, subject to being stricken under the
statute.” (Navellier v. Sletten (2002) 29 Cal. 4th 82, 89.)
We independently review the record to determine both whether the asserted causes
of action arise from the defendant’s (or cross-defendant’s) free speech or petition activity,
and, if so, whether the plaintiff (or cross-complainant) has shown a probability of
prevailing. (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal. 4th 260, 269, fn. 3;
HMS Capital, Inc. v. Lawyers Title Co. (2004) 118 Cal. App. 4th 204, 212.)
Retirement Housing appeals from the trial court’s denial of its motion to strike
Cain Brothers’ cross-complaint for indemnity, noting the trial court initially concluded
the indemnity claim involved protected activity. In deciding to grant Cain Brothers’
request to conduct discovery (the deposition of Dr. Laverne Joseph, Retirement
Housing’s CEO) as to the second prong of section 425.16, the trial court observed the
indemnity claim followed closely in time after the filing of Retirement Housing’s
complaint and, presented with no authority to the contrary, concluded the first prong of
section 425.16 had been met. In ruling on the merits of the special motion to strike,
however, the trial court determined (1) Retirement Housing had failed to meet its initial
burden to demonstrate that the cross-complaint’s indemnity claim arose from activity
protected by section 425.16 and also concluded (2) Cain Brothers had carried its burden
to establish a probability of prevailing on the merits of its express indemnity claim such
that the special motion to strike was properly granted on either independent ground.
Because a claim is subject to being stricken pursuant to section 425.16 if and only
if both prongs of the anti-SLAPP statute are satisfied—meaning the claim: (1) arises from
protected speech or petitioning and (2) lacks even minimal merit (Navellier v. Sletten,
supra, 29 Cal.4th at p. 89), we assume for the sake of Retirement Housing’s argument on
appeal that it satisfied its burden of proof as to this first prong of the statute and address
the issue of whether Cain Brothers satisfied its burden on the second prong.
If a challenged cause of action arises from protected petitioning activity, a court
ruling on an anti-SLAPP motion then “‘determines whether the plaintiff [or cross-
complainant] has demonstrated a probability of prevailing on the claim.’” (Jarrow,
supra, 31 Cal.4th at p. 741, citation omitted; Navellier v. Sletten, supra, 29 Cal.4th at p.
93 [to withstand a special motion to strike, a plaintiff must demonstrate that the claims
are legally sufficient]; Grewal v. Jammu (2011) 191 Cal. App. 4th 977, 989 [same].) The
plaintiff must also present competent admissible evidence sufficient to overcome any
privilege or defense to the claim asserted by the defendant. (Flatley v. Mauro (2006) 39
Cal. 4th 299, 323 (litigation privilege Civil Code § 47, subd. (b)).) The plaintiff must
show there is admissible evidence that, if credited, would be sufficient to sustain a
favorable judgment, similar to but not identical to the burden in opposing a summary
judgment motion. (McGarry v. University of San Diego (2007) 154 Cal. App. 4th 97, 108;
and see Weil & Brown, Cal. Prac. Guide: Civ. Proc. Before Trial, supra, ¶ 7:1021.5, pp.
7(II)-56 to 7(II)-57.) The court does not weigh credibility or compare relative strength of
the evidence. The court considers defendant’s evidence only to determine if it defeats
plaintiff’s showing as a matter of law. (Soukup v. Law Offices of Herbert Hafif, supra, 39
Cal.4th at p. 291; Integrated Healthcare Holdings, Inc. v. Fitzgibbons (2006) 140
Cal. App. 4th 515, 522; Overstock.com, Inc. v. Gradient Analytics, Inc. (2007) 151
Cal. App. 4th 688, 699-700.)
In this case, the basis for Cain Brothers’ indemnity cause of action was Retirement
Housing’s alleged refusal to honor its contractual obligations. Cain Brothers’ burden was
to make a prima facie showing of facts supporting its claim for express indemnity, a
cause of action which has three elements: (1) the existence of a valid contract for
indemnity; (2) Cain Brothers’ performance of the contract’s provisions giving rise to the
indemnity claim and (3) a loss for which Cain Brothers is entitled to indemnification.
(Four Star Elec., Inc. v. F & H Constr. (1992) 7 Cal. App. 4th 1375, 1380.)
In its cross-complaint, Cain Brothers sought indemnity from Retirement Housing
pursuant to the express indemnity provision set forth in the Certificate Purchase
Agreement. According the allegations of Cain Brothers’ cross-complaint, Retirement
Housing’s claims against Cain Brothers are based on allegations Cain Brothers was
required to obtain a guaranty of ACA’s credit rating; ACA was required to guaranty its
rating; Retirement Housing did not know of risks relating to ACA’s credit rating; and
Retirement Housing did not know the consequences of an ACA ratings downgrade.
According to Cain Brothers’ allegations in its cross-complaint, these allegations in
Retirement Housing’s fourth amended complaint directly contradict the express language
of the Official Statement and therefore Retirement Housing’s entire case is premised on
the allegation that representations in the Official Statement are false. Quoting the
Certificate Purchase Agreement, Cain Brothers says Retirement Housing agreed to
“‘indemnify and hold harmless’ Cain Brothers ‘against any and all losses, claims,
damages, liabilities or expenses (including legal or other expenses incurred by it in
connection with investigating any claims against it and defending any actions)
whatsoever caused by any untrue statement or misleading statement or alleged untrue
statement or alleged misleading statement of material fact contained in the Official
Statement . . . .’ ([Fourth ]A[mended C[omplaint,] Exhibit D § 10 (emphasis
added).)” According to Cain Brothers, it follows that Retirement Housing must
indemnify Cain Brothers for all costs relating to its defense against these allegations that
representations of material fact in the Official Statement were untrue or misleading, and,
in fact, “Cain Brothers’ defense relies largely on the very facts set forth in the Official
Statement regarding the risks and consequence of an ACA downgrade, and [Retirement
Housing’s] knowledge of these facts.” Cain Brothers presented evidence of considerable
attorney fees and other expenses incurred in defending against Retirement Housing’s
claims.
Retirement Housing’s position is that the express indemnity provision should not
apply under the circumstances of this case. Relying on a notice provision in section
10(b), notwithstanding the apparent breadth of the indemnity provision of section 10(a)
itself (that “to the extent permitted by law[,]” Retirement Housing agreed to indemnify
Cain Brothers in “defending any actions whatsoever”), Retirement Housing argues the
indemnity provision is limited to third party claims. California law is to the contrary.
“[T]he California Supreme Court has defined ‘indemnity’ as the obligation resting on one
party to make good a loss or damage another party has incurred.’ [Citation.] This
definition is not limited to third party claims . . . . Civil Code section 2772 ‘plainly states
that indemnity may apply to either direct or third party claims.’” (Zalkind v. Ceradyne,
Inc. (2011) 194 Cal. App. 4th 1010, 1024, citing Rossmoor Sanitation, Inc. v. Pylon Inc.
(1975) 13 Cal. 3d 622, 628, italics added, further citations omitted.)
Moreover, to the extent Retirement Housing cites section 10(b) in furtherance of
its argument that that section constitutes an exception to the indemnity contemplated
under section 10(a), it necessarily identifies a disputed question of fact at best. When
Retirement Housing’s CEO (Joseph) was deposed, he did not identify any representation
in the Official Statement as one made by Retirement Housing “in reliance upon or in
conformity with written information furnished . . . by the Underwriters specifically for
use therein” such that any exception should apply; in fact, he had no recollection of
receiving any written information from Cain Brothers or having any conversations with
Cain Brothers in this regard at all. He actually testified he “[did] not know” if Retirement
Housing’s own counsel (Latham and Watkins) had prepared the Official Statement he
(Joseph) signed and adopted on behalf of Retirement Housing, and he also testified the
documents were “so complicated” he was not sure “anybody [a]t R[etirement ]H[ousing]”
understood them. (Italics added.) Retirement Housing’s arguments that the indemnity
provision should not apply (because it is Cain Brothers’ fault ACA failed to guaranty its
rating, it (Retirement Housing) did not know of the risks relating to ACA’s credit rating
because Cain Brothers should have, but did not, disclose them and it is Cain Brothers’
fault it (Retirement Housing) did not know the consequences of a ratings downgrade))
contradict the express language of the Official Statement.
Accordingly, Cain Brothers demonstrated that its indemnity cause of action (the
only cause of action alleged in the cross-complaint) had at least “minimal merit” and
therefore was not subject to a special motion to strike. (Navellier v. Sletten, supra, 29
Cal.4th at p. 89.)
Accordingly, the trial court’s order is properly affirmed.
DISPOSITION
The order is affirmed. Cain Brothers is to recover its costs on appeal.
WOODS, J.
We concur:
PERLUSS, P. J.
SEGAL, J.*
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.