Creditors Adjustment Bureau v. J and S Painting CA2/2 ( 2024 )

Filed 10/22/24 Creditors Adjustment Bureau v. J and S Painting CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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has not been certified for publication or ordered published for purposes of rule 8.1115.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 TWO
CREDITORS ADJUSTMENT B334393
BUREAU, INC.,
(Los Angeles County
Plaintiff, Cross-defendant Super. Ct. No.
and Appellant, 22STCV17466)
v.
J AND S PAINTING, INC.,
Defendant, Cross-
complainant and Respondent.
APPEAL from an order of the Superior Court of
Los Angeles County, Anne K. Richardson, Judge. Reversed with
directions.
Law Offices of Kenneth J. Freed, Kenneth J. Freed, Melody
G. Anderson; Gowey Law, Eric A. Gowey; Barron & Newburger
and Timothy P. Johnson for Plaintiff, Cross-defendant and
Appellant.
Jeffrey S. Shinbrot and Jeffrey S. Shinbrot for Defendant,
Cross-complainant and Respondent.
Creditors Adjustment Bureau, Inc. (CAB) filed suit against
J and S Painting, Inc. (J&S). When J&S failed to answer, CAB
secured a default judgment and writ of execution, which it used
to satisfy the judgment from J&S’s bank account. The trial court
later vacated the judgment, finding “excusable neglect,” but did
not order CAB to disgorge the funds it had levied.
J&S cross-complained against CAB for conversion and
negligence, based on CAB’s retention of funds obtained under the
writ of execution. CAB moved to strike the pleading as a
Strategic Lawsuit Against Public Participation (SLAPP). (Code
Civ. Proc., § 425.16.)1 The trial court denied CAB’s motion.
On de novo review, we conclude that J&S’s cross-complaint
must be stricken. CAB was (and is) engaged in First Amendment
petitioning activities arising from its lawsuit against J&S. J&S
cannot prevail on the merits because CAB’s actions fall within
the litigation privilege. J&S’s remedy is to ask the trial court—in
this ongoing litigation—to order CAB to disgorge money levied
from J&S’s bank account. Accordingly, we reverse.
FACTS AND PROCEDURAL HISTORY
CAB’s Judgment and Writ of Execution
J&S had a policy with the State Compensation Insurance
Fund (SCIF). In May 2022, SCIF’s assignee CAB sued J&S for
unpaid insurance premiums, alleging breach of contract and open
book account theories. The court clerk entered default against
J&S in August 2022.
In September 2022, the court entered judgment by default
against J&S for $159,101. After a writ of execution was issued in
1 Undesignated statutory references are to the Code of Civil
Procedure.
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January 2023, CAB levied on J&S’s bank account in the amount
of $98,969.45.
J&S Moves to Vacate the Judgment by Default
In March 2023, J&S moved to set aside the default and
judgment, claiming excusable neglect. (§ 473.) J&S learned of
CAB’s lawsuit in September 2022. It mistakenly believed that no
judgment would be entered or enforced because it was
negotiating with CAB to resolve the dispute, and SCIF was
reducing the debt after an audit. J&S sought relief after CAB
levied on its bank account.
CAB argued that J&S’s neglect was inexcusable. It did not
show that the summons and complaint were improperly served or
a meritorious defense, and waited almost six months after
judgment to seek relief. While this lawsuit was pending, J&S
asked SCIF to reclassify its employees. After an audit, SCIF
reduced J&S’s principal debt from $132,150 to $78,409.
The court granted relief, finding that J&S “neglectfully, but
excusably” believed CAB would not try to collect the debt. It
vacated the default and judgment and quashed “[a]ny writ of
attachment attached to the default judgment.” The trial court
did not order CAB to return funds taken from J&S’s bank
account under the writ of execution.
J&S Cross-complains Against CAB
Instead of returning to the trial court to ask it to amend its
order to quash the writ of execution and order the return of the
money taken under that writ, J&S filed a cross-complaint for
conversion and negligence, alleging the background we have
described above. It demanded return of the $98,969.45 that CAB
took from J&S’s bank account under the writ of execution issued
in the main action.
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CAB Moves to Strike the Cross-complaint
CAB moved to strike J&S’s pleading. (§ 425.16.) It
asserted that the torts J&S alleges arise from CAB’s activity in
judicial proceedings; the litigation privilege bars J&S from
prevailing on its claims. CAB asserted that J&S cannot show the
tort of conversion: The levy on its bank account was made by a
lawful writ of execution. J&S cannot prove negligence: CAB
owed no duty of care and the court did not order return of the
funds.
In opposition, J&S argued that its cross-complaint does not
affect CAB’s exercise of its right to petition. It reasoned that
CAB’s “collection efforts are not the activity that forms the basis
of J&S’s cross-complaint”; instead, “[t]he cross-complaint is based
on CAB’s wrongful refusal to return J&S’s money after the
parties were restored to their pre-Judgment status and after [the
trial court] quashed the writ of attachment.” J&S claimed that
retention of levied funds “is illegal [and] is not constitutionally
protected.” J&S asserted that it can prove conversion and
negligence. Its chief executive declared that the company still
disputes its debt, identifying the amount owed to SCIF at around
$30,000, far less than CAB took from its bank account.
The Trial Court’s Ruling
The court ruled that CAB’s failure to return levied funds to
J&S does not fall within section 425.16 because it did not arise
from protected petitioning activities. CAB should have released
the money, even if the court did not order it. Returning the
money was “implicit” in its order. The court opined, “At some
point, the litigation privilege must come to an end.” It denied
CAB’s anti-SLAPP motion.
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DISCUSSION
Courts must strike causes of action arising from a
defendant’s exercise of First Amendment rights unless the
plaintiff shows a probability of prevailing on the claim. (§ 425.16,
subd. (b)(1).) The law is construed “broadly” (id., subd. (a)) as “a
procedure for weeding out, at an early stage, meritless claims
arising from protected activity.” (Baral v. Schnitt (2016) 1
Cal.5th 376, 384.) Protected activity includes petitioning courts
for redress of grievances. (Flatley v. Mauro (2006) 39 Cal.4th
299, 311–312 (Flatley).) An order denying an anti-SLAPP motion
is appealable. (§ 425.16, subd. (i).) Review is de novo. (Monster
Energy Co. v. Schechter (2019) 7 Cal.5th 781, 788.)
A two-step analysis applies. First, the moving defendant
must show that plaintiff’s claims arise from activity protected by
section 425.16. The second step shifts the burden to the plaintiff
to show a probability of prevailing on the merits. If the showing
is not sufficient to sustain a favorable judgment, the claims are
stricken. (Baral v. Schnitt, supra, 1 Cal.5th at pp. 384, 396;
Olson v. Doe (2022) 12 Cal.5th 669, 678–679.)
CAB’s Actions Arise from Petitioning Activity
The first prong of our analysis focuses on “the defendant’s
activity that gives rise to his or her asserted liability” (Navellier
v. Sletten (2002) 29 Cal.4th 82, 92) and “whether the cause of
action is based on the defendant’s protected free speech or
petitioning activity.” (Id. at p. 89.) An act in furtherance of a
person’s First Amendment rights includes any written or oral
statement or writing made in a judicial proceeding, or “any other
conduct in furtherance of the exercise of the constitutional right
of petition.” (§ 425.16, subd. (e)(1), (4).)
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“Filing a lawsuit is an exercise of a party’s constitutional
right of petition.” (Aron v. WIB Holdings (2018) 21 Cal.App.5th
1069, 1083.) Measures taken to collect on a judgment are
enforcement activities necessarily arising from communications
made in a judicial proceeding. (Rusheen v. Cohen (2006) 37
Cal.4th 1048, 1062–1063 (Rusheen).)
J&S argues that the cross-complaint does not arise from
litigation because CAB’s alleged misconduct occurred after the
court vacated the judgment. We disagree. The cross-complaint
arises from CAB’s levy on J&S’s bank account. Levying on
property is part and parcel of litigation. “There is no doubt the
cross-complaint arises out of the underlying litigation, so it is
subject to the anti-SLAPP statute. The gravamen of the claim is
misconduct in the underlying litigation.” (Booker v. Rountree
(2007) 155 Cal.App.4th 1366, 1370.)
Section 425.16 applies to any activity that conceivably
furthers a defendant’s petition rights unless “as a matter of law,
that activity was illegal and by reason of the illegality not
constitutionally protected.” (Flatley, supra, 39 Cal. 4th at p. 316.)
If a lawyer’s communications “constituted criminal extortion as a
matter of law,” they are unprotected by constitutional free speech
or petition guarantees and section 425.16 does not apply. (Id. at
p. 305.) Here, CAB’s activity was not “conclusively demonstrated
to have been illegal as a matter of law.” (Id. at p. 320.)
“[C]onduct that would otherwise come within the scope of
the anti-SLAPP statute does not lose its coverage . . . simply
because it is alleged to have been unlawful or unethical.”
(Kashian v. Harriman (2002) 98 Cal.App.4th 892, 910–911.) CAB
lawfully levied on J&S’s bank account under a valid writ of
execution. After the court vacated the judgment, J&S could have
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sought a further order directing CAB to relinquish money it
levied. J&S did not do so. The court’s tacit expectation that CAB
would return money levied under the writ does not make CAB’s
failure to do so “criminal” conduct, unlike Flatley. CAB’s
activities fall within the scope of section 425.16.
J&S Cannot Show a Probability of Prevailing
J&S must show a probability of prevailing on its claims to
defeat the motion to strike. (Equilon Enterprises v. Consumer
Cause, Inc. (2002) 29 Cal.4th 53, 67.) Though “minimal merit” is
needed to survive an anti-SLAPP motion (Navellier v. Sletten,
supra, 29 Cal.4th at p. 89), J&S cannot make the minimal merit
showing here because its tort claims are barred by the litigation
privilege. (Civ. Code, § 47, subd. (b).)
The privilege applies to communications made by litigants
in judicial proceedings to achieve the objectives of the litigation,
having “some connection or logical relation to the action.”
(Silberg v. Anderson (1990) 50 Cal.3d 205, 212.)
“ ‘[C]ommunications with “some relation” to judicial proceedings’
are ‘absolutely immune from tort liability’ by the litigation
privilege [citation]. It is not limited to statements made during a
trial or other proceedings, but may extend to steps taken prior
thereto, or afterwards.” (Rusheen, supra, 37 Cal.4th at p. 1057.)
This absolute privilege gives litigants “the utmost freedom of
access to the courts without fear of being harassed subsequently
by derivative tort actions.” (Silberg, at p. 213.)
The privilege applies to acts “committed fraudulently or
with malice” while collecting on a judgment. (O’Keefe v. Kompa
(2000) 84 Cal.App.4th 130, 135 [improper levy on a bank account
during an appeal is privileged].) “[A]pplying for a writ [of
execution] is privileged. The privilege extends to torts arising
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from the privileged statement or publication. As such, not only
does the privilege protect the application for the writ of
execution, it also extends to the act of carrying out the directive
of the writ.” (Brown v. Kennard (2001) 94 Cal.App.4th 40, 50.)
Rusheen v. Cohen is instructive. Cohen obtained a default
judgment and writ of execution, and levied on Rusheen’s
property. (Rusheen, supra, 37 Cal.4th at pp. 1052–1054.)
Rusheen cross-complained against Cohen for taking a default and
executing on the judgment without proper service of process.
Cohen filed an anti-SLAPP motion, arguing that his conduct was
privileged. (Id. at p. 1054.) Our Supreme Court agreed, holding
that the cross-complaint was based on Cohen’s communicative
acts in filing allegedly perjured declarations to obtain a default
judgment; Cohen’s “postjudgment enforcement efforts,” including
the writ of execution and levying, were “noncommunicative
actions which are necessarily related” to his communicative acts
in securing the default. (Id. at p. 1052.)
Although Rusheen involved a cross-complaint for abuse of
process, not for conversion and negligence, the same reasoning
applies. The gravamen of J&S’s cross-complaint is that CAB’s
valid levy on J&S bank accounts became wrongful after the court
vacated the judgment. However, a levy made under a valid
statute is privileged. (Olszewski v. Scripps Health (2003) 30
Cal.4th 798, 831–832 [defendant’s allegedly unlawful seizure of
funds under a statutory lien was privileged].)
Only malicious prosecution claims are exempt from the
litigation privilege. (Rusheen, supra, 37 Cal.4th at p. 1057;
Olszewski v. Scripps Health, supra, 30 Cal.4th at p. 830.) J&S’s
conversion and negligence claims fall within it. CAB’s levy under
a valid writ of execution had a “connection or logical relation” to
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its default judgment. (Silberg v. Anderson, supra, 50 Cal.3d at
p. 212.) The privilege did not evaporate when the court vacated
the default and judgment after finding excusable neglect. Even if
the court viewed CAB’s retention of money as unethical—because
returning the money was “implicit” in its order—it is still
privileged. Seizing bank funds to satisfy a judgment is privileged
“even if, as alleged, wrongful and harmful.” (O’Keefe v. Kompa,
supra, 84 Cal.App.4th at p. 135.)
As a consequence of J&S’s failure to ask the trial court to
amend its order, quash the writ of execution, and direct the
return of its money, J&S exposed itself to CAB’s anti-SLAPP
motion by filing a cross-complaint. J&S’s remedy was, and still
is, to seek relief in the main action. (Rusheen, supra, 37 Cal.4th
at p. 1064 [“nontort remedies for the allegedly wrongful conduct
[include] moving to recall and quash the writ of execution”].)
Suing over CAB’s levy is not a remedy: CAB’s collection efforts
fall within the absolute privilege of Civil Code section 47, which
“limit[s] derivative tort claims arising out of litigation-related
misconduct” by “favoring sanctions within the original lawsuit.”
(Rusheen, at p. 1063.)
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DISPOSITION
The order denying appellant’s motion to strike is reversed.
The case is remanded to the trial court with directions to strike
respondent’s cross-complaint under Code of Civil Procedure
section 425.16. Appellant is entitled to recover its costs on
appeal.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
ASHMANN-GERST, J.
HOFFSTADT, J.
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