Lavian v. Deutsch CA6 ( 2024 )

Filed 1/4/24 Lavian v. Deutsch CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
TAL LAVIAN, et al., H050065
(Santa Clara County
Plaintiffs and Appellants, Super. Ct. No. 21CV389062)
v.
MARTIN DEUTSCH et al.,
Defendants and Respondents.
TAL LAVIAN, et al., H050529
(Santa Clara County
Plaintiffs and Appellants, Super. Ct. No. 21CV389062)
v.
ZVI OR-BACH et al.,
Defendants and Respondents.
In 2018, Zvi Or-Bach sued his business partner Tal Lavian, seeking over $160
million in damages. The suit backfired. Lavian sought arbitration, and the arbitrator
rejected Or-Bach’s claims, granted Lavian’s, and awarded Lavian over $1 million.
After confirming this award, Lavian, along with VisuMenu, Inc. (VisuMenu) and
Aybell, LLC (Aybell), sued Or-Bach, Or-Ment, LLC and Or-Ment Consulting (“Client
Defendants”) and the attorneys who represented Or-Bach in the 2018 lawsuit against
Lavian: Martin Deutsch, Sosan Akbar, and the Law Offices of Martin Deutsch (“Attorney
Defendants”). The Attorney Defendants filed a motion to strike under the anti-SLAPP
statute, Code of Civil Procedure section 425.16, which the trial court granted, and
judgment was entered in favor of the Attorney Defendants. The Client Defendants
demurred to the claims against them, and the trial court sustained the demurrers, but
granted leave to amend some claims. After those claims were amended, the trial court
sustained a second demurrer, this time without leave to amend, and entered judgment in
the Client Defendants’ favor.
Lavian, VisuMenu, and Aybell (collectively, Plaintiffs) have appealed both
judgments, and we granted their motion to consider the appeals together for oral
argument. In the appeal concerning the Client Defendants, Plaintiffs contend that the
trial court erred in dismissing most of their claims. We agree in part. We conclude that
the trial court correctly dismissed Plaintiffs’ malicious prosecution claim because such a
claim cannot be based on a favorable arbitration award, as Plaintiffs seek to do here.
However, we conclude that the trial court erred in ruling on demurrer that the litigation
privilege bars the claims in the amended complaint and that Client Defendants’
alternative defenses to those claims should be considered by the trial court in the first
instance.
In the appeal concerning the Attorney Defendants, Plaintiffs challenge the
dismissal of their malicious prosecution claim. However, the malicious prosecution
claim against the Attorney Defendants fails for the same reason as the malicious
prosecution claim against the Client Defendants.
We therefore affirm the judgment in favor of the Attorney Defendants but reverse
the judgment in favor of the Client Defendants and remand for further proceedings on the
claims other than malicious prosecution against the latter defendants.
I. BACKGROUND
According to the pleadings, Lavian is a scientist and an inventor who is associated
with the University of California at Berkeley and has over 120 patents and patent
applications. Or-Bach is a businessman and investor. In 2009, the two decided to jointly
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develop a visual menu system for mobile phones. To do so, they formed VisuMenu and
later Aybell.
A. The 2018 Lawsuit and the Arbitration Award
By 2018, relations between Lavian and Or-Bach had deteriorated, and Or-Bach
sued Lavian, VisuMenu and Aybell for breach of fiduciary duty, conversion, trademark
infringement, and unfair competition in Santa Clara County Superior Court. In the
complaint, Or-Bach sought more than $160,000,000 in damages. Lavian and VisuMenu
in turn submitted claims against Or-Bach and Or-Ment, LLC to arbitration, and Or-Bach
resubmitted the claims brought in Superior Court as counterclaims in the arbitration.
The arbitrator ruled against Or-Bach and in favor of Lavian and VisuMenu. The
arbitrator awarded Lavian over $380,000 in compensatory damages and over $350,000 in
fees and costs. Additionally, finding that Or-Bach destroyed opportunities for additional
funding for VisuMenu, instituted a “hugely overreaching $175 million lawsuit,” and
threatened Lavian personally, the arbitrator imposed $100,000 in punitive damages. As
later confirmed, the total award exceeded $1 million.
B. The Proceedings Below
1. The Complaint
In September 2021, Lavian, VisuMenu, and Aybell sued the Client Defendants
and the Attorney Defendants. Plaintiffs claimed malicious prosecution on the ground that
the 2018 lawsuit was brought without probable cause and with intent to harm Plaintiffs’
financial position and reputation. Plaintiffs also alleged six other claims: intentional
interference with economic relations, negligent interference with contractual relations,
breach of fiduciary duty, defamation and trade libel, unfair competition, and civil
conspiracy. With the exception of the civil conspiracy claim, each of these claims was
based on “instituting the Action”—Or-Bach’s 2018 lawsuit—“initiating and maintaining
the Action,” “fil[ing] the Action,” or “filing and maintaining the Action.”
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2. The April 2022 Order
The Attorney Defendants moved to strike the claims against them under the
anti-SLAPP statute, and the Client Defendants demurred. In an April 19, 2022 order, the
court granted the motion to strike and sustained the demurrer.
The trial court ruled that the claims against the Attorney Defendants arose out of
their representation of the Client Defendants and therefore involved activity protected
under the anti-SLAPP statute. The court further ruled that Plaintiffs had failed to show a
probability of prevailing. In particular, the trial court concluded that Plaintiffs had not
presented sufficient prima facie evidence to support their malicious prosecution claim
and that the litigation privilege barred Plaintiffs’ remaining claims.
In sustaining the Client Defendants’ demurrer, the trial court held that the initial
complaint failed to state a valid cause of action for malicious prosecution because under
the Supreme Court’s decision in Brennan v. Tremco (2001) 25 Cal.4th 310 malicious
prosecution claims cannot be based on contractual arbitration awards. The trial court also
ruled that Plaintiffs could not state a valid claim for civil conspiracy because conspiracy
is a legal doctrine rather than a cause of action. Finally, the trial court sustained
demurrers to Plaintiffs’ remaining claims—for intentional and negligent interference with
economic relations, breach of fiduciary duty, defamation and trade libel, and unfair
competition—because those claims all arose out of communications made in judicial
proceedings and therefore are barred by the litigation privilege.
The trial court dismissed the malicious prosecution and civil conspiracy against
the Client Defendants without leave to amend, but granted Plaintiffs leave to amend the
remaining claims.
3. The Attorney Defendants Judgment
The trial court entered judgment in favor of the Attorney Defendants on April 27,
2022, and Plaintiffs filed a timely notice of appeal from that judgment on May 24, 2022.
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4. The Amended Complaint
The following month Plaintiffs filed an amended complaint. The amended
complaint omitted all the claims against the Attorney Defendants as well as the malicious
prosecution and civil conspiracy claims against the Client Defendants. However, it added
five new paragraphs concerning the Client Defendants’ conduct “[s]ubsequent to the
Arbitration and Judgment.” In them, Plaintiffs alleged that the Client Defendants
“continue to fail to act in the interest” of VisuMenu and Aybell, “continue to fail to
follow their duty of loyalty,” and “continue to engage in a pattern of self-dealing and
conflict of interest.” Plaintiffs also alleged that the Client Defendants “caused the patents
and other intellectual property . . . to expire,” hid assets by assigning patents, and failed
to compensate Lavian for services or reimburse him for expenses that he incurred.
Finally, Plaintiffs alleged that Client Defendants engaged in “continuing sabotage” of
VisuMenu and Aybell, and they had been “maligning” Lavian in order to harm his
academic standing and his expert witness and consulting business.
The amended complaint also replaced the allegations in the original complaint
concerning instituting, filing, and maintaining the 2018 lawsuit with references to the
conduct that allegedly occurred after the arbitration and judgment. For example, the
amended complaint’s intentional interference claim omits the allegation concerning
“maliciously and without probable cause instituting the Action” and adds allegations that
the Client Defendants disrupted Plaintiffs’ economic relationships by “failing to obey
orders of the court in the Action,” “causing the patents and other intellectual property [of
VisuMenu and Aybell] to expire,” and “making it impossible for Plaintiffs to engage in
any further capital raises.” In other claims, the amended complaint similarly replaces
allegations concerning initiating, instituting, filing and maintaining the 2018 lawsuit with
allegations that the Client Defendants continued to falsely accuse Plaintiffs of
improprieties, failed to obey court orders, caused patents to expire, and made it
impossible for VisuMenu to raise further capital.
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5. The August 2022 Order
The Client Defendants demurred to the amended complaint, and the trial court
again sustained the demurrer. Plaintiffs argued that the claims in the amended complaint
were not barred by the litigation privilege because the claims do not contain allegations
concerning the 2018 lawsuit and are based instead on “new conduct outside of the
judicial proceeding.” The trial court disagreed. It found that the amended claims were
plead “as continuing conduct, continuing sabotage” and agreed with the Client
Defendants that the claims in the amended complaint “still arose from the 2018
Underlying Action.” Finding it unlikely that Plaintiffs would be able to amend their
complaint to state valid causes of action, the court sustained the demurrer against the
amended complaint without leave to amend.
6. The Client Defendants Judgment
On October 10, 2022, the trial court entered final judgment concerning the Client
Defendants. The judgment states that the “First Amended Complaint is hereby dismissed
with prejudice in its entirety,” and it “further orders that final judgment be entered in
favor of [the Client] Defendants.” On October 20, 2022, Plaintiffs filed a timely notice of
appeal.
II. DISCUSSION
A. Jurisdiction
We begin by addressing a jurisdictional issue. It is not clear from the face of the
judgment in favor of the Client Defendants that the judgment covers the claims for
malicious prosecution and civil conspiracy. The judgment “orders that final judgment be
entered in favor of [the Client] Defendants,” which suggests that the judgment disposes
of all the claims against the Client Defendants. However, immediately beforehand, the
judgment states that the “First Amended Complaint” is dismissed, and it earlier discusses
the claims in the amended complaint without mentioning the malicious prosecution and
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civil conspiracy claims, which were in the original complaint and not included in the
amended complaint. In supplemental briefing, however, the parties agree that the
judgment dismissed Plaintiffs’ suit in its entirety. We therefore interpret the judgment
concerning the Client Defendants to dispose all claims involving those defendants and
therefore to be a final and appealable judgment.
B. The Appeal Concerning the Client Defendants
1. Malicious Prosecution
In their appeal from the judgment in favor of the Client Defendants, Plaintiffs
challenge the dismissal of their malicious prosecution claim. The trial court dismissed
this claim on the ground that it is based on an arbitration award and therefore does not
state a valid claim for malicious prosecution under the Supreme Court’s decision in
Brennan v. Tremco, Inc. (2001) 25 Cal.4th 310 (Brennan). Reviewing this ruling de
novo (see, e.g., McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415), we agree.
In Brennan, the Supreme Court held that, “if [an action] ends in contractual
arbitration, that termination will not support a malicious prosecution action.” (Brennan,
supra, 25 Cal.4th at p. 314.) To prevail on a malicious prosecution claim, “a plaintiff
must demonstrate ‘that the prior action (1) was commenced by or at the direction of the
defendant and was pursued to a legal termination in his, plaintiff’s favor [citations];
(2) was brought without probable cause [citations]; and (3) was initiated with malice.’
[Citations.]” (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871.)
Brennan considered whether an arbitration award can satisfy the first element, the
favorable termination requirement. (Brennan, at p. 313.) The Supreme Court concluded
that an arbitration award cannot. (Id. at p. 314.) In reaching this conclusion, the Court
noted the “trend against creating or expanding derivative tort remedies” such as malicious
prosecution and in favor of remedying litigation-related misconduct through sanctions.
(Ibid.; see also id. at p. 315 [noting the “growing antipathy for litigation spawning
litigation”].) In addition, the court reasoned that permitting malicious prosecution claims
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based on arbitration rulings would defeat one of the key purposes of arbitration:
providing a “relatively quick and inexpensive . . . procedure that the parties may
voluntarily choose to resolve their dispute and avoid further recourse to the courts.
[Citation].” (Id. at pp. 315-316; see also id. at p. 315 [“parties who voluntarily choose
arbitration generally expect and desire that the arbitration will end their dispute”].)
Plaintiffs assert that Brennan is “fundamentally shortsighted” because, among
other things, absent the threat of a malicious prosecution claim parties may “inflict
grievous harm with absolute impunity.” This argument is undercut by the $100,000 in
punitive damages awarded by the arbitrator based in part on defendant Or-Bach’s
“intentional act of bringing a hugely overreaching $175 million lawsuit against Lavian.”
In any event, the Supreme Court’s decisions are binding on us, and we have no authority
to reconsider their wisdom. (See, e.g., Auto Equity Sales, Inc. v. Superior Court of Santa
Clara County (1962) 57 Cal.2d 450, 455.)
In their reply, Plaintiffs try to distinguish Brennan on the ground that the parties in
that case agreed to arbitration “by contemporaneous stipulation in open court.” Because
this argument was not raised in the opening brief, and Client Defendants did not have the
opportunity to address it in their brief, it has been forfeited and does not need to be
considered. (See, e.g., Raceway Ford Cases (2016) 2 Cal.5th 161, 178; Varjabedian v.
City of Madera (1977) 20 Cal.3d 285, 295, fn. 11.) In any event, the argument is
unpersuasive. Plaintiffs fail to point to anything in the Supreme Court’s reasoning in
Brennan turning on the timing or formation of agreements for private arbitration.
Plaintiffs similarly fail to identify anything in Brennan suggesting that its application
turns on the magnitude of wrongdoing.
2. Litigation Privilege
Plaintiffs also challenge the dismissal of the claims in the first amended complaint.
The trial court ruled that the litigation privilege bars these claims because they arise out
of communications in the 2018 lawsuit. On appeal, Plaintiffs argue that the litigation
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privilege does not apply because the claims in the amended complaint arise out of
conduct “[s]ubsequent to the Arbitration and Judgment.” We agree. Although the
amended complaint contains some allegations concerning the 2018 lawsuit, it asserts
claims that arise at least in part out of conduct independent of that suit.
The litigation privilege, which is codified in section 47 of the Civil Code, “has
been given broad application.” (Silberg v. Anderson (1990) 50 Cal.3d 205, 211.) It
applies to “any communications (1) made in judicial or quasi-judicial proceedings; (2) by
litigants or other participants authorized by law; (3) to achieve the objects of the
litigation; and (4) that have some connection or logical relation to the action. [Citations.]”
(Id. at p. 212.) The privilege is “absolute in nature” and immunizes defendants,
regardless of malice or intent to harm, from liability for all torts except malicious
prosecution. (Id. at pp. 215-216.) The privilege, however, bars a claim only if the injury
alleged in the claim “resulted from an act that was communicative in its essential nature.”
(Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1058.) Thus, “[a] threshold issue in
determining if the litigation privilege applies is whether the alleged injury arises from a
communicative act or noncommunicative conduct.” (Action Apartment Assn. Inc. v. City
of Santa Monica (2007) 41 Cal.4th 1232, 1248.)
The amended complaint alleges injuries that arise from noncommunicative
conduct. For example, in the original complaint, Plaintiffs’ claim for intentional
interference with economic relations was based on the Client Defendants “instituting the
[2018 lawsuit] falsely accusing Plaintiff of improprieties,” allegedly to disrupt Plaintiffs’
ongoing and prospective economic relationships, and Plaintiffs allegedly were damaged
“[a]s a direct and proximate result of these actions.” By contrast, the intentional
interference claim in the amended complaint makes no mention of the 2018 lawsuit.
Instead, the amended complaint alleges that the Client Defendants disrupted Plaintiffs’
ongoing and prospective economic relationships through noncommunicative conduct
such as “failing to obey orders of the court in the Action,” “causing the patents and other
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intellectual property of [VisuMenu and Aybell] to expire,” and “making it impossible for
Plaintiffs to engage in any further capital raises.” Plaintiffs’ negligent interference,
breach of fiduciary duty, defamation, and unfair competition claims similarly make no
mention of the 2018 lawsuit and allege harm from noncommunicative conduct.
There are some allegations in the amended complaint that might be interpreted to
refer to the 2018 lawsuit. For example, in the negligent interference claim, the amended
complaint refers to the Client Defendants “continuing to falsely accuse Plaintiffs of
improprieties,” and the defamation cause of action alleges that “Defendants continue to
repeat and publish to third parties[’] false statements.” It is reasonable to infer that these
continuing accusations and false statements began with the 2018 lawsuit, which accused
Lavian of breaching his fiduciary duties and misappropriating corporate assets.
However, it also is reasonable to infer that the conduct in question began after the 2018
lawsuit in light of the fact that the amended complaint’s indication that this conduct
occurred “[s]ubsequent to the Arbitration and Judgment.” And, in reviewing a demurrer,
the complaint is liberally construed, and “the reviewing court draws inferences favorable
to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209
Cal.App.4th 1228, 1239; see also Skopp v. Weaver (1976) 16 Cal.3d 432, 438 [“A basic
rule commands us to construe the allegations of a complaint liberally in favor of the
pleader.”].) Consequently, at this stage, we cannot infer that the continuing conduct
alleged in the amended complaint refers to the 2018 lawsuit.
Invoking the sham-pleading doctrine, the Client Defendants contend that the
allegations in the original complaint should be considered, and the claims in the amended
complaint barred on the basis of those allegations. This argument sweeps too far.
“Under the sham-pleading doctrine, a plaintiff cannot avoid allegations that are
determinative to a cause of action simply by filing an amended complaint which omits
the problematic facts or pleads facts inconsistent with those alleged in the original
complaint.” (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1248.) However, the
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doctrine “was not intended to preclude plaintiffs from providing additional and
non-contradictory allegations.” (LeaseQuip, Inc. v. Dapeer (2002) 103 Cal.App.4th 394,
404, fn. 6.) Plaintiffs’ amended complaint adds allegations concerning conduct
“[s]ubsequent to the Arbitration and Judgment,” which do not contradict the allegations
in the original complaint. Moreover, even if considered, the allegations omitted from the
original complaint do not undermine the validity of the new claims in the amended
complaint. As a consequence, the sham pleading doctrine does not apply here.
The Client Defendants also argue that Plaintiffs are collaterally estopped from
asserting the claims in the amended complaint because those claims repeat “the same
allegations and accusations that were already determined in the arbitration.” This
argument has some merit. For example, the amended complaint alleges that Plaintiffs
allowed patents to expire, and the arbitration award similarly considered whether
Plaintiffs “allow[ed] some of the valuable [p]atents to unwind for lack of fulfilling
obligations” to the United States Patent and Trademark Office. The Client Defendants,
however, do not identify the particular allegations in the amended complaint that were
considered in the arbitration award, much less explain how the requirements of collateral
estoppel are satisfied. We decline to consider this issue in the first instance and instead
leave it for the trial court to consider. Similarly, we leave Plaintiffs’ judicial estoppel
argument to the trial court to consider in the first instance.
C. The Appeal Concerning the Attorney Defendants
In the appeal from the judgment concerning the Attorney Defendants, Plaintiffs
challenge only dismissal of their malicious prosecution claim against the Attorney
Defendants. In so doing, Plaintiffs do not dispute that the malicious prosecution claim
concerns activity protected under the anti-SLAPP statute. Instead, Plaintiffs argue that
they established a probability of prevailing on their malicious prosecution claim. In
making this argument, however, Plaintiffs contend that the arbitration award satisfies the
favorable termination requirement. As shown above, that is incorrect: Under the
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Supreme Court’s decision in Brennan v. Tremco, an arbitration award cannot satisfy that
requirement. (Brennan, supra, 25 Cal.4th at p. 314.)
Plaintiffs object that neither the trial court nor the Attorney Defendants argued that
their malicious prosecution claim against the Attorney Defendants fails because an
arbitration award cannot satisfy the favorable termination requirement. That is true, but
we may affirm a trial court ruling on any purely legal ground as long as the parties have
been given an opportunity to brief that ground. (See, e.g., Intengan v. BAC Home Loans
Servicing LP (2013) 214 Cal.App.4th 1047, 1052 [“We will affirm the ruling [sustaining
a demurrer] if there is any ground on which the demurrer could have been properly
sustained. [Citation.]”); see also Tsemetzin v. Coast Federal Savings & Loan Assn. (1997)
57 Cal.App.4th 1334, 1341, fn. 6 [an issue of law not previously raised may be
considered “as long as the parties have been given a reasonable opportunity to address
it”].) Here, Plaintiffs have had ample opportunity to brief this issue. They briefed the
issue in their appeal concerning the Client Defendants, and in the appeal concerning the
Attorney Defendants we requested supplemental briefing on the issue, which Plaintiffs
submitted. In that briefing, Plaintiffs asserted that application of Brennan might turn on
the facts of the claims against the Attorney Defendants. As shown above, that is
incorrect. (See Brennan, supra, 25 Cal.4th at p. 314 [“if [an action] ends in contractual
arbitration, that termination will not support a malicious prosecution action”].)
III. DISPOSITION
In case No. H050065, the judgment is affirmed. In case No. H050529, the
judgment is reversed, and the matter is remanded to the trial court with directions to
vacate the August 30, 2022 order sustaining the demurrer to the claims in the amended
complaint. In both appeals, the parties shall bear their own costs on appeal.
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______________________________________
BROMBERG, J.
WE CONCUR:
____________________________________
GROVER, ACTING P.J.
____________________________________
LIE, J.
H050065
Lavian et al. v. Deutsch et al.,
H050529
Lavian et al. v. Or-Bach et al.