People v. Potter Handy, LLP ( 2023 )

Filed 12/8/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
THE PEOPLE,
Plaintiff and Appellant,
A166490
v.
POTTER HANDY, LLP, et al., (City & County of San Francisco
Super. Ct. No. CGC-22-599079)
Defendants and Respondents.
The law firm Potter Handy, LLP and several of its attorneys
(collectively, Potter) have filed countless complaints in federal courts in
California alleging violation of the Americans with Disabilities Act of 1990
(ADA). (42 U.S.C. § 12101, et seq.) The district attorneys of Los Angeles and
San Francisco (the People) allege that these ADA complaints contain
standing allegations Potter knows to be false, that Potter files the complaints
as part of a shakedown scheme to extract coerced settlements from small
business owners in California, and that this conduct constitutes an
“unlawful” business practice under our state’s unfair competition law (UCL).
(Bus. & Prof. Code, § 17200 et seq.) As predicate for its charge of
unlawfulness, the People rely on Business and Professions Code section 6128,
subdivision (a) (§ 6128(a)), which makes it a misdemeanor for an attorney to
engage in deceit or collusion with intent to deceive the court or a party, and
on two Rules of Professional Conduct governing lawyers.
1
The question before this court is whether the People’s UCL claim can
survive a demurrer brought on the ground that the litigation privilege
immunizes Potter’s alleged conduct in this case. (Civ. Code, § 47, subd. (b)
(§ 47(b)).) Communications made as part of a judicial proceeding are
generally privileged, so as to afford litigants “ ‘the utmost freedom of access to
the courts without fear of being harassed subsequently by derivative tort
actions.’ ” (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41
Cal.4th 1232, 1241 (Action Apartment).) But this broad principle has
exceptions, and the parties agree that, had the People filed criminal charges
directly under section 6128(a), that case could have proceeded. Courts have
long recognized that the privilege must give way where a statute like section
6128(a) “is more specific than the litigation privilege and would be
significantly or wholly inoperable if its enforcement were barred when in
conflict with the privilege.” (Action Apartment, at p. 1246.) We conclude this
exception does not extend to a UCL claim predicated on violation of section
6128(a) and on Rules of Professional Conduct. Carving out an exception to
the litigation privilege for the People’s UCL claim would not be proper
because the Legislature’s prescribed remedies—prosecution directly under
section 6128(a) and State Bar disciplinary proceedings—remain viable.
The trial court having properly sustained the demurrer without leave
to amend, we affirm.
BACKGROUND
In April 2022, the People filed a complaint against Potter, and we take
the material facts alleged in the complaint as true for purposes of demurrer.
(San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th
266, 276–277 (Webcor).)
2
According to the complaint, every year Potter files “thousands” of
boilerplate lawsuits alleging ADA violations, which falsely assert that
Potter’s clients have standing to maintain their cases in federal court. These
cases also include state-law claims for violating California’s parallel disability
law, the Unruh Civil Rights Act, which authorizes recovery of damages not
available under the ADA. (See Civ. Code, § 52.) Potter files these lawsuits in
federal court in order to circumvent procedural reforms enacted by the
California Legislature to curb abusive claims of this type. (See e.g., Code Civ.
Proc., §§ 425.50 & 425.55.) Potter’s lawsuits are filed on behalf of a few
“[s]erial” plaintiffs against small California businesses with limited
resources, especially businesses owned by immigrants or individuals with
limited English, and Potter pays “little regard to whether those businesses
actually violate the ADA.” In order to invoke federal jurisdiction, they
intentionally include false standing allegations, including “that the Serial
Filer personally encountered a barrier at the business in question, was
deterred or prevented from accessing the business because of it, and intends
to return to the business after the violation is cured.” (Boldface italics
omitted.) With these false allegations, Potter “uses ADA/Unruh lawsuits to
shake down hundreds or even thousands of small businesses to pay it cash
settlements.”
The complaint incorporates these factual allegations into a single cause
of action for violating the UCL by engaging in an “unlawful” business
practice. (Bus. & Prof. Code, § 17200.) According to this pleaded claim,
Potter’s knowing assertion and adoption of false standing allegations violates
three California laws: (1) section 6128(a), the misdemeanor statute aimed at
attorney deceit of the court or a party; (2) Rule 3.1 of the Rules of
Professional Conduct (Rule 3.1), which prohibits attorneys from pursuing
3
non-meritorious claims for the purpose of harassing or maliciously injuring
any person; and (3) Rule 3.3 of the Rules of Professional Conduct (Rule 3.3),
which imposes an affirmative duty on attorneys to correct false statements
and to rectify fraudulent conduct committed during litigation to the extent
permitted by law. In their prayer for relief, the People seek an injunction
restraining the allegedly unlawful business practice; an order requiring
Potter to “restore” all money and property acquired through its unlawful
practice to “every person in interest”; and civil penalties in the amount of
$2,500 for each violation of the UCL proven.
In June 2022, Potter demurred to the complaint on multiple grounds.
Pertinent here, Potter argued that the People’s UCL claim is barred by
California’s litigation privilege. (§ 47(b).) 1 In opposing the demurrer, the
People argued that the litigation privilege does not bar this action because
their UCL claim is predicated on violations of a regulatory statute or rule
that is itself exempt from the privilege. (Citing Action Apartment, supra, 41
Cal.4th at p. 1246; Zhang v. Superior Court (2013) 57 Cal.4th 364 (Zhang);
People v. Persolve, LLC (2013) 218 Cal.App.4th 1267 (Persolve).)
In August 2022, the trial court sustained Potter’s demurrer without
leave to amend. The court found that the People’s UCL claim is based on
conduct that falls squarely within the broad privilege, and that no exception
1 As additional grounds for the demurrer, Potter argued that (1) this
action is barred by collateral estoppel because the district attorney of
Riverside County filed essentially the same claim against a different law
firm, which was dismissed on demurrer pursuant to a finding that the
litigation privilege applied (citing People v. Rutherford (Dec 23, 2020,
E073700) [nonpub. opn.]); (2) Potter is immune from liability under the
Noerr-Pennington doctrine (citing e.g. People ex rel. Gallegos v. Pacific
Lumber Co. (2008) 158 Cal.App.4th 950, 964 (Gallegos)); and (3) the UCL
claim is preempted by the ADA. The trial court rejected these contentions
and those aspects of its ruling are not challenged on appeal.
4
to the privilege applies. Following entry of judgment in favor of Potter, the
People filed this timely appeal. 2
DISCUSSION
“ ‘We independently review the superior court’s ruling on a demurrer
and determine de novo whether the complaint alleges facts sufficient to state
a cause of action or discloses a complete defense.’ ” (McBride v. Smith (2018)
18 Cal.App.5th 1160, 1172–1173.) When a demurrer is sustained without
leave to amend, the appellant has the burden to prove there is a reasonable
possibility the defect can be cured. (Webcor, supra, 62 Cal.App.5th at p. 276–
277.) In this case, the People contend the trial court erred in concluding the
litigation privilege bars their UCL claim against Potter, but they do not
contend they can state a cause of action if the privilege does apply. Thus, we
independently review the trial court’s dispositive findings—that conduct
alleged in the complaint is protected by the litigation privilege, and that no
exception to the privilege has been established.
2 Following the trial court, we grant certain requests for judicial notice
filed by both parties, taking notice of (1) unpublished decisions in the
Rutherford case, and (2) documents relating to two federal cases filed by
Potter and dismissed for lack of standing under the ADA. But we deny the
People’s request for judicial notice of additional material relating to ADA
cases Potter filed in federal court. (People ex rel. Lockyer v. Shamrock Foods
Co. (2000) 24 Cal.4th 415, 422, fn. 2 [“any matter to be judicially noticed must
be relevant to a material issue”].) Contrary to the People’s argument in
support of this request, their desire to use the UCL to put a “spotlight” on
Potter’s allegedly abusive litigation tactics is not relevant to our resolution of
this appeal. We note also that the People are supported in their appeal by
amici curiae the Chamber of Commerce of the United States and the
California Chamber of Commerce. Amici curiae express concern about
abusive ADA litigation, but they fail to address whether the litigation
privilege applies to the UCL cause of action at issue in this appeal.
5
I. The Litigation Privilege Reaches Potter’s Conduct
The litigation privilege is codified in section 47(b), which provides that
a “ ‘publication or broadcast’ made as part of a ‘judicial proceeding’ is
privileged.” Where it applies, “[t]his privilege is absolute in nature, applying
‘to all publications, irrespective of their maliciousness.’ [Citation.] ‘The
usual formulation is that the privilege applies to any communication
(1) made in judicial or quasi-judicial proceedings; (2) by litigants or other
participants authorized by law; (3) to achieve the objects of the litigation; and
(4) that [has] some connection or logical relation to the action.’ [Citation.]
The privilege ‘is not limited to statements made during a trial or other
proceedings, but may extend to steps taken prior thereto, or afterwards.’ ”
(Action Apartment, supra, 41 Cal.4th at p. 1241.)
Courts give the litigation privilege a “broad interpretation” in order to
further its principle purpose of protecting “ ‘access to the courts without fear
of . . . derivative tort actions.’ ” (Action Apartment, supra, 41 Cal.4th at
p. 1241.) Our Supreme Court has “emphasized the importance of the
litigation privilege’s absolute protection of access to the courts, while
recognizing that this absolute protection has its costs.” (Id. at p. 1244.) “ ‘[It]
is desirable to create an absolute privilege . . . not because we desire to
protect the shady practitioner, but because we do not want the honest one to
have to be concerned with [subsequent derivative] actions.’ ” (Silberg v.
Anderson (1990) 50 Cal.3d 205, 214 (Silberg).) “ ‘ “[W]hen there is a good
faith intention to bring a suit, even malicious publications ‘are protected as
part of the price paid for affording litigants the utmost freedom of access to
the courts.’ ” ’ [Citation.] Additionally, ‘in immunizing participants from
liability for torts arising from communications made during judicial
proceedings, the law places upon litigants the burden of exposing during trial
6
the bias of witnesses and the falsity of evidence, thereby enhancing the
finality of judgments and avoiding an unending roundelay of litigation, an
evil far worse than an occasional unfair result.’ ” (Action Apartment, at
p. 1244.)
The litigation privilege originated as a defense to liability for
defamation, but it is now recognized as much broader in scope. (Ribas v.
Clark (1985) 38 Cal.3d 355, 364; Action Apartment, supra, 41 Cal.4th at
pp. 1241–1242.) Our Supreme Court first extended the litigation privilege to
various torts other than defamation (ibid.), and then to certain statutory
causes of action. For example, in Ribas the litigation privilege was found to
bar recovery for damages incurred as a result of a witness’s testimony
describing a conversation she had unlawfully overheard. (Ribas, at pp. 364–
365.) The witness had eavesdropped in violation of a statute that both
criminalized and created a civil cause of action for certain invasions of
privacy. (Id. at pp. 358–359, 364–365.) Invoking “the vital public policy” at
the heart of the litigation privilege, the Court concluded that the purpose of
the privilege is “no less relevant to” a statutory cause of action than to a
common law tort, and thus it barred an action brought under the statute.
(Id. at p. 364.) “ ‘The resulting lack of any really effective civil remedy
against perjurers’ ” or eavesdroppers “ ‘is simply part of the price that is paid
for witnesses who are free from intimidation by the possibility of civil liability
for what they say.’ ” (Id. at p. 365.)
Applying these principles here—and putting aside for the moment the
issue of an uncodified exception to the privilege—we conclude that the
People’s UCL action against Potter is barred by the litigation privilege. In
the complaint, the conduct alleged to violate the UCL is the filing of
ADA/Unruh lawsuits in federal court based on false standing allegations, and
7
the use of those lawsuits to coerce settlements. Both types of conduct
constitute communications falling within the broad reach of the privilege and
its absolute protection of access to the courts. (See e.g., Navellier v. Sletten
(2003) 106 Cal.App.4th 763, 770–771 [“Pleadings and process in a case are
generally viewed as privileged communications’’].) Thus, we affirm the trial
court’s initial finding that “[o]n its face the privilege of [section] 47 bars this
action.”
The People do not dispute this point but contend that their case against
Potter can be prosecuted under an exception to the privilege, so to that topic
we next turn.
II. An Exception to the Privilege Is Proper Only as Necessary to
Avoid Irreconcilable Conflict With Another Statute, Not Here
The broad language of section 47(b) would, if applied without exception,
render ineffectual a variety of statutes that regulate conduct occurring in
legal proceedings. Courts have accordingly limited the privilege’s reach
where its application is inconsistent with another, more specific statute.
(Action Apartment, supra, 41 Cal.4th at p. 1246.) For example, “[t]he crimes
of perjury and subornation of perjury would be almost without meaning if
statements made during the course of litigation were protected from
prosecution for perjury by the litigation privilege.” (Ibid., fns. omitted.)
Similarly, the crime defined in section 6128 “evince[s] a legislative intent
that certain attorney conduct not be protected from prosecution by the
litigation privilege.” (Action Apartment, at p. 1246.) Criminal sanctions thus
remain available for perjury, the suborning of perjury, and an attorney’s
deceit of the court or a party. (Ibid.) But this is not a reason also to allow
civil damages or penalties for the same conduct. (See, e.g., Doctors’ Co. Ins.
Services v. Superior Court (1990) 225 Cal.App.3d 1284, 1300 [litigation
privilege has long barred civil claims based on subornation of perjury].)
8
Indeed, courts have cited the availability of criminal and State Bar
disciplinary sanctions as a reason not to exempt certain conduct from the
reach of the litigation privilege. (See, e.g., Silberg, supra, 50 Cal.3d at
pp. 218–219; Hagberg v. California Federal Bank (2004) 32 Cal.4th 350, 371–
372.)
This principle is well illustrated in Rubin v. Green (1993) 4 Cal.4th
1187, 1193 (Rubin), a case concerning attorney misconduct amounting to the
crime of solicitation. (Id. at pp. 1190, 1196.) In Rubin, the owner of a mobile
home park filed a complaint against a law firm, asserting several tort claims
and seeking damages and injunctive relief based on allegations that the firm
was engaged in a pattern of soliciting residents of mobile home parks to
commence frivolous litigation against park owners. (Id. at pp. 1191–1192.)
The case was properly dismissed on demurrer because the conduct alleged in
the complaint was protected by the litigation privilege, our Supreme Court
held, notwithstanding the criminal prohibition on attorneys soliciting
business through an agent. (Id. at p. 1193.) Whether or not the defendants’
acts of discussing park conditions and the possibility of being retained to sue
the park owner, and then filing pleadings in the lawsuit, amounted to
wrongful attorney solicitation, “they were communicative in their essential
nature and therefore within the privilege of section 47(b).” ( Rubin, at
p. 1196.) The alleged torts were distinct from the tort of malicious
prosecution, which is the only common law tort action to which the privilege
does not apply. 3 (Id. at pp. 1193–1194; see also Silberg, supra, 50 Cal.3d at
“Malicious prosecution actions are permitted because ‘[t]he policy of
3
encouraging free access to the courts . . . is outweighed by the policy of
affording redress for individual wrongs when the requirements of favorable
termination, lack of probable cause, and malice are satisfied.’ ” (Silberg,
supra, 50 Cal.3d at p. 216.) The alternative—extending the litigation
9
pp. 215–216.) And other avenues remained for policing the conduct alleged in
the complaint. The Court observed that these alternatives included criminal
prosecution for the misdemeanor offense defined in Business & Professions
Code sections 6152–6153, State Bar discipline for violation of an applicable
rule of professional conduct governing lawyers, and the possible recovery of
attorney fees and costs as the prevailing party in the underlying litigation, all
of which meant the utility of a derivative civil complaint “such as this one is
marginal.” (Rubin, at pp. 1198.)
Having concluded that the litigation privilege barred tort claims for
damages, the Rubin Court went on to consider whether the park owner was
entitled to pursue injunctive and restitutionary relief by way of the UCL.
(Rubin, supra, 4 Cal.4th at p. 1200.) The UCL prohibits any “unlawful,
unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200.)
“By proscribing ‘any unlawful’ business act or practice [citation], the UCL
‘ “borrows” ’ rules set out in other laws and makes violations of those rules
independently actionable.” (Zhang, supra, 57 Cal.4th at p. 370.) A “violation
of another law is a predicate for stating a cause of action under the UCL’s
unlawful prong.” (Berryman v. Merit Property Management, Inc. (2007) 152
Cal.App.4th 1544, 1554.) Although its reach is broad, the UCL “ ‘ “is not an
all-purpose substitute for a tort or contract action.” ’ ” (Zhang, at p. 371.)
“Instead, the act provides an equitable means through which both public
prosecutors and private individuals can bring suit to prevent unfair business
practices and restore money or property to victims of these practices.” (Korea
Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1150.)
privilege to a cause of action for malicious prosecution—would eviscerate this
common-law tort action.
10
Parties may not use the UCL to plead around an absolute barrier to
relief by relabeling a cause of action as a UCL claim. (Zhang, supra, 57
Cal.4th at p. 377.) Accordingly, the UCL “does not permit an action that
another statute expressly precludes.” (Cel-Tech Communications, Inc. v. Los
Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 184 (Cel-Tech).) “If the
Legislature has permitted certain conduct or considered a situation and
concluded no action should lie, courts may not override that determination.
When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the
general unfair competition law to assault that harbor.” (Id. at p. 182.)
Consistent with these now-settled principles, the Rubin Court held that
the plaintiff in that case could “not avoid the bar of section 47(b) by pleading
his claim as one for injunctive relief under the unfair competition statute.”
(Rubin, supra, 4 Cal.4th at p. 1193; see also pp. 1200–1204.) In reaching this
conclusion the Court recognized that the coverage of the UCL is “indeed
sweeping” (id. at p. 1200), but reasoned that “[i]f the policies underlying
section 47(b) are sufficiently strong to support an absolute privilege, the
resulting immunity should not evaporate merely because the plaintiff
discovers a conveniently different label for pleading what is in substance an
identical grievance arising from identical conduct as that protected by section
47(b).” (Id. at p. 1203.)
The parallels between Rubin and the case before us are patent. As in
Rubin, the conduct alleged in this case relates to the filing and prosecution of
antecedent cases, but no tort of malicious prosecution is alleged. The conduct
is said to violate a misdemeanor provision of the Business & Professions Code
and one or more of the State Bar’s Rules of Professional Conduct, but the case
is not proceeding directly under these provisions, and the availability of these
alternate remedies is not a reason to exempt the conduct from the reach of
11
the litigation privilege. The complaint frames a cause of action under the
UCL, and this “ ‘new label’ ” may not be employed to circumvent application
of the litigation privilege. (Rubin, supra, 4 Cal.4th at p. 1202, italics
omitted.)
The People attempt to distinguish Rubin by relying on language in that
decision suggesting that the litigation privilege might not apply if the party
filing a UCL action was not a party to the prior litigation, but was instead a
government entity acting on behalf of the public. (Citing Rubin, supra,4 Cal.4th at pp. 1198, 1203-1204.) However, our Supreme Court has since
made clear that there is no “broad exception” to the litigation privilege for
parties “who did not participate in the underlying litigation.” (Action
Apartment, supra, 41 Cal.4th at p. 1247.) Such an exception “would be
antithetical to the privilege’s purposes,” since “[d]erivative litigation brought
by parties who did not participate in the underlying litigation” would just as
readily “pose an external threat of liability that would deter potential
litigants, witnesses, and others from participating in judicial proceedings.”
(Id. at pp. 1247–1248.)
In Action Apartment, the Court delineated criteria for determining
whether an exception to the litigation privilege can be found. Action
Apartment was a class action lawsuit challenging provisions in a city’s rent
ordinance that prohibited a landlord from maliciously serving a notice of
eviction or bringing an eviction action without a reasonable factual or legal
basis. (Action Apartment, supra, 41 Cal.4th at p. 1237.) The Action
Apartment Court found that the litigation privilege applied and entirely
preempted the provision in the ordinance that penalized bringing an eviction
action. (Ibid.) In the course of its analysis, the Court expressly rejected the
city’s contention—based on “dictum” in Rubin— that there is an exception to
12
the litigation privilege for civil lawsuits filed by someone who was not a party
to the underlying litigation, such as a UCL case brought by “the Attorney
General, district attorneys, certain city attorneys,” or other members of the
public. (Action Apartment, at p. 1247.)
The Action Apartment Court also clarified that creating exceptions to
the litigation privilege is a legislative function. (Action Apartment, supra, 41
Cal.4th at p. 1247.) For example, while our Supreme Court had previously
observed that the privilege does not apply to crimes such as perjury or an
attorney’s deceit of the court or a party, Action Apartment states that no
“exception for criminal prosecutions is inherent in the litigation privilege.”
(Id. at p. 1246.) Instead, exceptions to the privilege are recognized “based on
irreconcilable conflicts between the privilege and other coequal state laws.”
(Id. at p. 1247.) When another statute “is more specific than the litigation
privilege and would be significantly or wholly inoperable if its enforcement
were barred when in conflict with the privilege,” courts recognize an
exception to the privilege. This is a straight-forward application of the “ ‘rule
of statutory construction that particular provisions will prevail over general
provisions.’ ” (Id. at p. 1246.)
The People home in on an observation in Action Apartment that the
privilege does not protect an attorney from criminal prosecution under
section 6128, arguing that if the privilege does not apply in that context then
it should not apply here, where the People use section 6128 as a predicate for
their UCL claim. We disagree with this logic, which ignores Rubin and the
distinction it draws between criminal prosecution for solicitation (not barred)
and liability in tort or under the UCL for the same conduct (barred). This
logic also ignores that the People elected not to charge Potter with a crime for
violating section 6128, but to bring a civil action under the UCL. “The UCL,
13
unlike other statutes that courts have determined were intended by the
Legislature to withstand the litigation privilege, is not necessarily ‘more
specific than the litigation privilege and would [not] be significantly or wholly
inoperable if its enforcement were barred when in conflict with the
privilege.’ ” (Gallegos, supra, 158 Cal.App.4th at p. 962, quoting Action
Apartment, supra, 41 Cal.4th at pp. 1246–1247.) Moreover, contrary to many
of the People’s contentions in this appeal, the fact that UCL actions brought
by government authorities serve important law enforcement functions “does
not warrant erosion of the absolute litigation privilege.” (Gallegos, at p. 963.)
In Gallegos, the Humboldt County District Attorney brought an action
on behalf of the People, alleging that a lumber company violated the UCL by
making fraudulent representations during administrative proceedings
conducted pursuant to the California Environmental Quality Act (CEQA).
(Gallegos, supra, 158 Cal.App.4th at pp. 955–956.) The appellate court
affirmed that the UCL claim was barred by the litigation privilege. (Id. at
pp. 957–964.) Applying Action Apartment and Rubin, the court observed that
“given the importance of the privilege’s absolute protection of access to official
proceedings, . . . litigants, whatever their identity, should not be permitted to
plead around the privilege absent clear legislative intent.” (Gallegos, at
p. 962.) The court found that the Legislature had not clearly evinced an
intention to override the litigation privilege in enforcement actions brought
by governmental entities under the UCL. (Gallegos, at pp. 961–963.) The
People resisted this conclusion by arguing that an intent to override the
privilege could be gleaned from CEQA, which contains a “savings clause”
preserving the government’s power to bring an action under the UCL on
behalf of the public to enforce CEQA. (Gallegos, at pp. 961, 962.) The
Gallegos court rejected this argument, explaining that CEQA’s savings clause
14
gives governmental entities no new or additional authority, including no
“authority to pierce the litigation privilege.” (Gallegos, at p. 962.)
Gallegos reinforces that the litigation privilege applies in the present
case. It illustrates that the pertinent inquiry is whether the UCL, as the
statute pursuant to which the claim is brought, is fatally undermined by
application of the privilege. (Gallegos, supra, 158 Cal.App.4th at p. 962.)
Here, the People seek an injunction and civil penalties against Potter for
violating the UCL, a statute that has not been shown to evince a legislative
intent to carve out an exception to the litigation privilege. The fact that the
UCL claim borrows section 6128 as its predicate for alleging unlawfulness
does not dictate a different outcome. Section 6128 is an expression of the
Legislature’s intent that the litigation privilege not bar criminal prosecution
against an attorney for engaging in deceit or collusion with the intent to
deceive the court or another party. Section 6128 says nothing about
enforcement actions filed under the UCL, a materially different statute that
is not irreconcilable with the litigation privilege.
III. The People Cannot Avoid the Litigation Privilege Based on the
Predicate for a UCL Claim
The People contend that, because they allege a cause of action under
the “ ‘unlawful’ ” conduct prong of the UCL, the pertinent inquiry is not
whether applying the litigation privilege fatally undermines the UCL, but
whether the privilege can be reconciled with the predicate law(s) upon which
the UCL claim is based. From the fact that the litigation privilege does not
bar criminal prosecution under section 6128 or State Bar disciplinary
proceedings under Rules 3.1 and 3.3, the People would have us conclude it
cannot bar a UCL claim predicated on these authorities. The People find
some support for this argument in Persolve, supra, 218 Cal.App.4th 1267, a
case we consider an outlier.
15
In Persolve, the district attorney of Kern County filed a UCL action
against a debt collection company and its attorneys, alleging they violated the
UCL by engaging in debt collection practices proscribed by California’s Fair
Debt Collection Practices Act (California Act) (Civ. Code, § 1788 et seq.), and
the Federal Fair Debt Collections Act (Federal Act) (15 U.S.C. § 1692 et seq.).
(Persolve, supra, 218 Cal.App.4th at pp. 1270–1271.) After the trial court
sustained a demurrer to the complaint, finding the litigation privilege barred
the claims, the appellate court reversed. (Persolve, at p. 1271.) The Persolve
court acknowledged the privilege “would generally apply” because the
complaint was based on communications relating to anticipated litigation,
but it allowed the claim to proceed as an exception to the privilege for more
specific, conflicting statutes. (Id. at pp. 1274–1275.) To reach this
conclusion, the court made two related findings.
First, the Persolve court found that an exception to the litigation
privilege applies to cases brought under the California Act or the Federal Act,
reasoning that the exception had been recognized in an earlier decision
holding a debt collector liable for violating the California Act. (Persolve,
supra, 218 Cal.App.4th at p. 1275, citing Komarova v. National Credit
Acceptance, Inc. (2009) 175 Cal.App.4th 324, 340 (Komarova).) Komarova
held that claims brought directly under the California Act are exempted from
the litigation privilege because the alternative would render the California
Act “ ‘significantly inoperable.’ ” (Komarova, at p. 340.) But Komarova also
held that the privilege barred a related emotional distress claim against the
debt collector, as this was “the very sort of derivative suit the privilege is
meant to preclude.” (Id. at p. 343.) Focusing on the first of these holdings,
the Persolve court purported to adopt the reasoning of Komarova and find it
equally applicable to the Federal Act.
16
In the second part of its analysis, the Persolve court extended this
reasoning to a UCL claim. It concluded that the exception to the privilege
found to apply in Komarova also applied to a UCL claim predicated on the
California and Federal Acts. (Persolve, supra, 218 Cal.App.4th at p. 1276.)
The court acknowledged that “certain [UCL] actions are within the scope of
the litigation privilege,” but reasoned that because the California and Federal
Acts are more specific than the litigation privilege and cannot be reconciled
with it, UCL claims based on these statutes are likewise exempt from the
privilege. (Persolve, at p. 1276.) More broadly, the Persolve court opined that
whenever “the ‘borrowed’ statute is more specific that the litigation privilege
and the two are irreconcilable, unfair competition law claims based on
conduct specifically prohibited by the borrowed statute are excepted from the
litigation privilege.” (Ibid.)
In our view, Persolve diverges from controlling authority in articulating
this test. Persolve summarizes Rubin but does not distinguish it. (Persolve,
supra, 218 Cal.App.4th at p. 1276.) And to the extent Persolve’s description
of Rubin suggests a grounds for distinguishing it—that Rubin was “a
retaliatory suit” brought against attorneys for a former litigation adversary
(ibid.), whereas Persolve was brought by a public prosecutor—that distinction
has lost its persuasive power after Action Apartment. (See Action Apartment,
supra, 41 Cal.4th at pp. 1247–1248 [rejecting contention that litigation
privilege does not apply when prosecutor files a UCL case, or when plaintiff
was not a party to prior litigation].) The Persolve court fails to address the
issue Action Apartment identifies as dispositive: whether the Legislature
evinced an intent to carve out an exception to the statutory privilege for the
UCL claim in that case. (Compare Action Apartment at pp. 1246–1247 with
Persolve at pp. 1275–1277.) Instead, the Persolve court immediately shifts
17
focus to the borrowed statute, and assumes that because an exception to the
privilege applies to a cause of action for violating the borrowed statute, a
UCL claim could also be prosecuted under the exception. (Ibid.) But if this
were so, Rubin would have turned out differently. The UCL claim in Rubin
was predicated on alleged violations of the Business & Professions Code that
remained punishable as misdemeanors; yet our Supreme Court determined
that the litigation privilege barred that UCL claim just as it barred other
derivative civil causes of action. (Rubin, supra, 4 Cal.4th at pp. 1196–1198,
1200–1203.)
Although we disagree with Persolve’s approach, 4 we do not necessarily
disagree with its ultimate holding. We cannot dismiss the possibility that a
borrowed statute might contain relevant indicia that the litigation privilege
should not apply in a derivative UCL action. Perhaps Persolve can be
explained on this basis, since the court opined that “[a]pplying the privilege
to unlawful practices based on specific violations of the California Act and the
Federal Act would effectively render the protections afforded by those acts
meaningless.” (Persolve, supra, 218 Cal.App.4th at pp. 1276–1277.) We
question that conclusion in light of (1) the holding in Komarova allowing a
cause of action to proceed directly under the California Act (see Komarova,
supra, 175 Cal.App.4th at p. 340), and (2) a provision in the Federal Act
authorizing the Federal Trade Commission to enforce that statute (see 15
U.S.C. § 1692l). But in any event, this finding distinguishes Persolve from
4 Arguing that courts in the First Appellate District have adopted the
Persolve test, the People misconstrue the cases they cite. (See e.g., Herterich
v. Peltner (2018) 20 Cal.App.5th 1132, 1145-1146 [distinguishing Persolve
without endorsing it]; Feldman v. 1100 Park Lane Associates (2008) 160
Cal.App.4th 1467 [applying litigation privilege in UCL case with no mention
of Persolve].)
18
the present case. The borrowed statute here does not evince a legislative
intent to override the litigation privilege in a case brought under the UCL, or
in any civil case. With section 6128, the Legislature chose a criminal remedy
to redress an attorney’s deceitful and collusive litigation conduct. That
remedy remains available, even as the litigation privilege bars this derivative
civil action under the UCL.
IV. The People’s Remaining Arguments Are Unavailing
None of the other arguments the People make leads us to a different
conclusion. We review them seriatim.
The People contend that permitting a criminal prosecution against
Potter for violating section 6128 while barring a UCL action based on the
same exempt predicate is inconsistent with the “absolute” nature of the
litigation privilege. (Citing Silberg, supra, 50 Cal.3d at p. 216–219.) Not so.
The issue in this case is whether an exception to the privilege applies, not
whether the privilege is absolute when it does apply. By enacting
section 6128, the Legislature evinced its intent that attorneys be subject to
criminal prosecution for certain deceptive conduct relating to judicial
proceedings, regardless of whether such conduct would otherwise be
protected by the litigation privilege. But only to the extent set forth in
section 6128 do we understand the Legislature to have intended an exception
to the litigation privilege. (See Action Apartment, supra, 41 Cal.4th at
p. 1246 [applying canon of statutory construction whereby particular
provisions prevail over general provisions with which they conflict].) There is
nothing inconsistent about concluding section 6128 does not create an
exception to the litigation privilege for actions under the UCL or any other
civil law.
19
In their reply brief, the People make the somewhat inconsistent claim
that there is no significance to section 6128 being a criminal statute, since a
UCL claim can be premised on a violation of a criminal statute. (Citing e.g.,
People v. E.W.A.P., Inc. (1980) 106 Cal.App.3d 315, 320.) But Potter’s
demurrer was sustained because the unlawful conduct alleged in the
complaint is protected by the litigation privilege, not because the People used
a criminal law as a predicate for alleging violation of the UCL. And we
decline to extend the exception to the privilege that applies in a prosecution
under section 6128, not because that would be a criminal case, but because it
would be a case brought directly under the statute, whereas this case is not.
(See Komarova, supra, 175 Cal.App.4th at pp. 340, 343 [exception to the
litigation privilege applies to claim brought under civil statute but not to tort
claim based on similar conduct].) The contours of section 6128 evince a
legislative intent to carve out an exception to the privilege for criminal
violations, but not to create an exception from the privilege for cases seeking
to hold a defendant civilly liable for the same conduct.
Also in their reply, the People warn against a “ ‘heads-I-win-tails-you-
lose’ paradox” that would make it “impossible ever to bring an unlawfulness
prong case.” The People correctly observe that where the predicate statute
for a UCL unlawfulness claim is barred by the litigation privilege, the UCL
claim, too, must fail. (Citing Cel-Tech, supra, 20 Cal.4th at p. 182.) And
where instead the predicate statute is exempt from the privilege, courts have
used the predicate statute’s survival as a reason not to exempt the UCL claim
from the litigation privilege. (See, e.g., Rubin, supra, 4 Cal.4th at p. 1198.)
The point is well taken and suggests that a UCL claim will rarely, if ever, be
exempt from the litigation privilege. But we see nothing absurd about this
result. “The litigation privilege ‘has been referred to as “the backbone to an
20
effective and smoothly operating judicial system.” ’ ” (Action Apartment, at
pp. 1247–1248.) Courts should not lightly exempt from its application a case
where, on its face, the litigation privilege applies.
Taking a different tack, the People contend that we should find an
exemption from the litigation privilege for this UCL claim because without
the enforcement power of the UCL, section 6128 itself would be rendered
“significantly or wholly inoperable.” The People reason that prosecuting
criminal violations of section 6128 is not practicable because “ ‘investigative’ ”
tools available in felony cases or in civil litigation are unavailable for a
misdemeanor prosecution; venue rules and practicalities would require
“dozens or even hundreds of separate . . . cases in different counties”; and
then only misdemeanor penalties would be available. We think this account
overstates the difficulty of prosecuting a successful case under section 6128,
even as it understates the results that could be achieved thereby. For
example, we see no reason the People could not combine multiple crimes
occurring within a county into a single case and, if successful in its
prosecution, obtain restitution for all of the named victims in the case. (Pen.
Code, § 954 [“accusatory pleading may charge two or more different offenses
connected together in their commission”]; id., § 1202.4, subd. (a) & (f) [court
must order restitution in most cases where a victim suffered economic loss as
a result of defendant’s conduct].) But in any event, the People’s argument
overlooks that the Legislature chose to make violation of section 6128 a
misdemeanor. If the People are dissatisfied with that remedy they can seek
legislative reform. Their preference for enforcing a penal law through a UCL
action is not proof that the Legislature intended to create an exception to the
litigation privilege to afford them this option.
21
In a related argument, the People contend that Rule 3.1 and Rule 3.3
would be rendered significantly inoperable if the litigation privilege bars this
action. These rules were designed to govern attorney discipline by the State
Bar. (Antelope Valley Groundwater Cases (2018) 30 Cal.App.5th 602, 621.)
As the trial court found, nothing in either rule evinces a legislative intent to
create an exception to the litigation privilege in a UCL case. On appeal, the
People cite People ex rel. Herrera v. Stender (2012) 212 Cal.App.4th 614, 633,
which stands for the unexceptional proposition that a UCL claim can be
based on violation of a professional conduct rule. Herrera has nothing to do
with the litigation privilege and does not support the People’s contention that
an exception to the privilege should be found here. Moreover, the People fail
to consider that State Bar disciplinary proceedings are, like criminal
prosecutions, examples of remedies “aside from a derivative suit for
compensation” that may “help deter injurious publications during litigation.”
(Silberg, supra, 50 Cal.3d at p. 218–219.) In other words, the State Bar’s
authority to enforce the rules of professional conduct is a reason for
preserving the privilege in a civil action challenging the same conduct.
(Rubin, supra, 4 Cal.4th at p. 1198.)
Turning to policy considerations, the People argue that applying the
litigation privilege in this case would not advance the policy of protecting free
access to the courts, since attorneys would still contemplate the threat of
criminal sanctions under section 6128. This argument stands in some
tension with the People’s contention that criminal sanctions are not, as a
practical matter, available. But in any event, we are not free to ignore a
statutory privilege on the ground that its effects are blunted by an exception
to the privilege that the Legislature carved out when it adopted section 6128.
22
Disputing that policies underlying the privilege should take
precedence, the People argue that “this case is hardly the first in which the
UCL has been enlisted to prevent unlawful or abusive litigation tactics.” The
People rely on two UCL cases, neither of which contains any discussion of or
reference to the litigation privilege. (Robinson v. U-Haul Co of California
(2016) 4 Cal.App.5th 304, 309–309 [including covenant not to compete in
dealer contracts violated the UCL]; Law Offices of Mathew Higbee v.
Expungement Assistance Services (2013) 214 Cal.App.4th 544, 548 [attorney
had standing to allege that defendant’s unlawful practice of law violated the
UCL].)
Equally unavailing is the People’s reliance on Barquis v. Merchants
Collection Assn. (1972) 7 Cal.3d 94, which held that a complaint against a
debt collection company for knowingly filing lawsuits in the wrong
jurisdiction stated a valid claim for abuse of process, and that the alleged
conduct could be enjoined under Civil Code section 3369. (Barquis, at p. 103–
104.) Characterizing Civil Code section 3369 as “the predecessor to the
current UCL,” the People contend that Barquis is “instructive” because it
illustrates that the UCL is sufficiently broad to enjoin “unlawful ‘misfiling’
practices,” such as those alleged here. Barquis is not instructive because that
case does not consider the litigation privilege at all. Indeed, our Supreme
Court has since declined to follow Barquis and other cases that “upheld
actions for abuse of process involving allegedly improper collection practices
without addressing the applicability of the litigation privilege.” (Rusheen v.
Cohen (2006) 37 Cal.4th 1048, 1059.)
Pointing out that policy concerns cut “both ways,” the People argue that
“[j]ust as there is a policy in favor of open access to the courts, so too is there
a policy against fraudulent or collusive conduct intended to ‘deceive the court
23
or any party.’ ” (Quoting § 6128(a).) We agree and in no way condone the
conduct alleged in the People’s complaint. But the People’s contention does
not support their claim of error. The Legislature took account of pertinent
public policy concerns by making it a crime for an attorney to engage in
fraudulent or collusive conduct intended to deceive the court or any party, not
by carving out an exception to the litigation privilege for UCL cases aimed at
this conduct.
DISPOSITION
The judgment is affirmed.
TUCHER, P.J.
WE CONCUR:
PETROU, J.
RODRÍGUEZ, J.
24
Trial Court: City & County of San Francisco Superior Court
Trial Judge: Hon. Curtis E.A. Karnow
Counsel: Brooke Jenkins, District Attorney (San Francisco),
Matthew L. McCarthy, Assistant Chief District
Attorney, Daniel Amador, Managing Attorney, Gabriel
Markoff and Matthew Beltramo, Assistant District
Attorneys; George Gascón, District Attorney (Los
Angeles), Hoon Chun, Head Deputy District Attorney,
and Lesley Klein, Assistant Head Deputy District
Attorney, for Plaintiff and Appellant
Eimer Stahl and Robert E. Dunn for the Chamber of
Commerce of the United States of America and the
California Chamber of Commerce as Amici Curiae on
behalf of Plaintiff and Appellant
Callahan & Blaine, David J. Darnell and Gaurav K. Reddy
for Defendants and Respondents
People of the State of California v. Potter Handy LLP, et al. (A166490)
25