Privato Security Co. v. Sidman CA6

Filed 8/17/15 Privato Security Co. v. Sidman 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
PRIVATO SECURITY, LLC, H040385
(Monterey County
Plaintiff and Respondent, Super. Ct. No. M123260)
v.
GEORGE SIDMAN,
Defendant and Appellant.
I. INTRODUCTION
Appellant George Sidman founded a company called WebLOQ, Inc. (WebLOQ).
Sidman was chair of the WebLOQ board of directors (Board) before he resigned and
entered into a settlement agreement with WebLOQ in 2011. WebLOQ ceased operations
in 2012 and its assets were assigned to a new company, Privato Security, LLC (Privato).
Privato subsequently filed an action against Sidman alleging that Sidman was liable for
breach of his settlement agreement with WebLOQ. Privato’s complaint included causes
of action for libel, breach of contract, unfair competition, and injunctive and declaratory
relief.
Sidman responded to the complaint by bringing a special motion to strike under
Code of Civil Procedure section 425.16,1 the anti-SLAPP2 statute, which provides that a
1
All further statutory references are to the Code of Civil Procedure unless
otherwise indicated.
cause of action arising from constitutionally protected speech or petitioning activity is
subject to a special motion to strike unless the plaintiff establishes a probability of
prevailing on the claim. (§ 425.16, subd. (b)(1).) The trial court granted Sidman’s anti-
SLAPP motion as to the cause of action for libel and denied the motion as to the other
causes of action.
On appeal, Sidman contends that the trial court erred in denying his anti-SLAPP
motion as to the remaining causes of action because the causes of action for breach of
contract, unfair competition, and injunctive and declaratory relief all arise from
prelitigation communications that are protected under section 425.16, and because
Privato has not shown a probability of prevailing on those causes of action. For the
reasons stated below, we agree and therefore we will reverse the trial court’s order and
direct the court to enter a new order granting Sidman’s anti-SLAPP motion as to all four
causes of action in Privato’s complaint.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. WebLOQ
This action arises from disputes between the founder and former officers of
WebLOQ, including Sidman, Gerald Williams, and Neal R. Smith, that occurred prior to
the company’s dissolution in 2012.
Sidman founded WebLOQ in 2003. Sidman also served as Chairman of
WebLOQ’s Board and was involved in the development of WebLOQ’s email encryption
technology. Smith was WebLOQ’s president, chief executive officer (CEO), and a
member of the Board. Williams served as WebLOQ’s chief financial officer (CFO) and
corporate secretary.
2
“SLAPP is an acronym for ‘strategic lawsuit against public participation.’ ”
(Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal. 4th 728, 732, fn. 1.)
2
Dr. David Milligan was appointed to the WebLOQ Board in 2007. By 2009,
WebLOQ was in financial distress and Dr. Milligan began investing his own funds in the
company. The Board approved several agreements and a promissory note that resulted in
Dr. Milligan’s investments becoming loans that were secured on all of WebLOQ’s assets.
Dr. Milligan’s loans to WebLOQ ultimately totaled more than $2 million. Dr. Milligan
was appointed Chairman of the Board in February 2011.
WebLOQ was unable to improve its financial situation by either finding a buyer
or attracting an investor. Smith, as president and CEO of WebLOQ, sent a letter to
shareholders in December 2011 advising them that it was no longer feasible for WebLOQ
to continue operations. The December 2011 letter also informed shareholders that
Dr. Milligan was intending to foreclose on WebLOQ’s assets as a secured creditor.
Smith sent a follow-up letter to shareholders in February 2012 in which he stated that
Dr. Milligan’s foreclosure of WebLOQ’s assets had been completed. Smith also
requested shareholder approval of the dissolution of WebLOQ.
The WebLOQ assets acquired by Dr. Milligan through foreclosure included the
trademark “Privato” and a WebLOQ subsidiary named Privato Security, Inc. In
January 2012, Dr. Milligan assigned the former WebLOQ assets to a new entity,
Privato, LLC, which he had created for that purpose. At present, Dr. Milligan is the
sole owner of Privato, Smith is Privato’s CEO, and Williams is Privato’s CFO.
B The Settlement Agreement
In 2010, Sidman became concerned that Smith and Williams had authorized
payments for paid time off (PTO) for each other, although WebLOQ had laid off staff
and closed an office due to its financial difficulties. Sidman informed the Board about the
PTO payments to Smith and Williams and sought to establish a company policy
prohibiting such payments.
In the meantime, Smith had become concerned that there was tension between
Sidman and the Board, “primarily centered around unprofessional and often erratic
3
behavior routinely being exhibited by Sidman in the workplace.” According to Smith,
Sidman’s “inappropriate behavior ultimately resulted in the Board of Directors requiring
that Mr. Sidman physically remove himself from the WebLOQ headquarters.”
Sidman resigned from WebLOQ in April 2011. On July 1, 2011, Sidman and
WebLOQ entered into a settlement agreement and release in which Sidman received a
lump sum severance payment of $67,500 in exchange for a release of claims and
agreement to several other express terms.
Pertinent here, paragraph 11 of the settlement agreement provides in part:
“[Sidman] agrees that he shall not directly or indirectly (i) make, or cause, assist,
facilitate or otherwise influence others . . . to make, any negative or disparaging
statements regarding [WebLOQ], its products, services or technologies, or its past or
present officers, directors, employees, agents, affiliates, stockholders, investors,
representatives, customers, partners or suppliers or (ii) act, or cause, assist, facilitate or
otherwise influence others to act, in any other manner that would damage or interfere
with [WebLOQ’s] business, including its contracts and relationships with its customers,
vendors or partners.”
C. Sidman’s Post-Settlement Agreement Communications
After WebLOQ ceased operations and its assets were transferred to Privato in
January 2012, Sidman started communicating with former WebLOQ shareholders.
Sidman sent a five-page “Letter to WebLOQ Shareholders” dated March 14, 2013, that
began: “I am sending you this letter because I feel a deep and continuing obligation to
the investors and other stakeholders whose money and other contributions made
WebLOQ a reality. When WebLOQ was closed in early 2012 it had already become
apparent to a few shareholders that what the company leaders were telling the
stockholders masked the true story. This letter is to inform you of the chain of events and
activities that shifted all WebLOQ assets into an alter-ego company, and resulted in the
loss of your investment when they closed the WebLOQ corporation. [¶] You will learn
4
of the premeditated actions by the company’s officers and directors that we believe
violated their corporate fiduciary obligations; and be offered an opportunity to help set
the stage for appropriate legal action on behalf of the shareholders.”
The March 14, 2013 letter went on to state, among other things, that “[i]n this
case, a minority investor imposed harsh loan terms on the company and then named
himself company Chairman while sitting on both sides of the table. His secured
convertible notes positioned him to simply foreclose at will and seize all assets; which he
did with a flagrant disregard for the priority rights of the other stockholders whose total
investments were two times larger than his inflated debt. He and his two accomplices
deftly sequestered the company’s assets and then shut down the corporation, while
paying for and continuing the WebLOQ shadow operations–to which they later rolled
directly into their successor company. [¶] Like all other investors, he could and should
have purchased stock in WebLOQ, rather than imposing his self-dealing loans. . . [¶] . . .
Instead, he and the company CEO and CFO, in clear violation of Delaware law, placed
their personal interests ahead of all others and manipulated the circumstances to crush the
WebLOQ shareholders and take all the marbles.”
The March 14, 2013 letter also concerned potential litigation, as follows: “We are
now gathering all the documents and other evidence to prepare our case. This case
preparation stage is crucial to determining next steps and the most appropriate type of
legal action. We believe there may be additional supporting information in the hands of
stockholders that would be helpful. . . . As this case comes together we may be seeking
approvals from WebLOQ shareholders and others to join the action as plaintiffs.”
Sidman sent a second letter to WebLOQ shareholders, dated April 16, 2013.
Sidman’s second letter addressed a letter sent to WebLOQ’s former shareholders by
Dr. Milligan’s attorneys that responded to Sidman’s earlier letter of March 14, 2013.
Among other things, Sidman stated in his April 16, 2013 letter that “[m]y letter to you of
March 14th simply chronicled WebLOQ documents sent to shareholders, along with
5
publicly available information regarding Privato. Those documents and the resulting
timeline revealed the secrecy of their actions and the breach of their fiduciary
obligations.” The April 16, 2013 letter concluded: “We are proceeding with case
preparation and anticipate filing in the Federal Court in Delaware. For those who have
indicated an interest in participating as plaintiffs, I will be in touch personally.”
In addition, Sidman started a public website named “WebLOQ Shareholder
Information & Documents” with a webpage that included the following statement: “How
$5 million of WebLOQ shareholder investment, along with all company assets and
patentable technology, were transferred into Privato Security LLC; a company that is
owned privately by three former WebLOQ officers and directors, and was created by
them many months before they closed WebLOQ. [¶] . . . It is in support of case
preparation for appropriate legal action on behalf of the shareholders and others.”
D. The Complaint
The complaint filed in May 2013 by plaintiffs Privato, Smith, and Williams
against defendant Sidman asserted causes of action for libel, breach of contract, unfair
competition (Bus. & Prof., Code, § 17200 et seq.), and injunctive and declaratory relief,
and sought compensatory and punitive damages.
In the libel cause of action, plaintiffs Privato, Smith and Williams alleged that
Sidman’s two letters to WebLOQ’s shareholders, dated March 14, 2013, and April 16,
2013, were false and defamatory because the letters accused plaintiffs of dishonesty and
crimes in their occupations and business.
The other causes of action were brought only by plaintiff Privato. The cause of
action for breach of contract alleged that Sidman had violated the terms of the settlement
agreement that (1) prohibited him from influencing the actions of WebLOQ shareholders;
(2) prohibited him from making negative or disparaging statements about WebLOQ and
its officers and directors; (3) required him to maintain the confidentiality of the
6
settlement agreement; and (4) obligated him to indemnify and hold plaintiffs harmless
under certain circumstances.
The causes of action for unfair competition and injunctive and declaratory relief
alleged that Sidman was liable for sending letters to shareholders and publishing on a
public website “inflammatory statements, misstatements and false accusations about
Privato, its owner, officers and managers,” as well as holding meetings in which Sidman
sought to “negatively influence” former shareholders and potential customers.
E. Sidman’s Section 425.16 Motion
After answering the complaint, Sidman filed a special motion to strike the
complaint under section 425.16. In support of his anti-SLAPP motion, Sidman
contended that the lawsuit was a SLAPP because all causes of action arose from his
prelitigation communications that were protected under section 425.16,
subdivision (e)(2).
Specifically, Sidman argued that the causes of action for libel, breach of contract,
unfair competition, and injunctive relief were all based on the statements he made in the
two letters to WebLOQ shareholders and on his public website, which related to potential
claims for breach of fiduciary duty and the litigation that Sidman anticipated. Sidman
also argued that each cause of action failed on the merits.
In opposition to the anti-SLAPP motion, plaintiffs asserted that the “heart” of their
complaint was not protected speech, but was instead a controversy about the scope and
enforceability of the settlement agreement. Plaintiffs argued that Sidman’s
“inflammatory statements” in his two letters and on the public website alerted them to the
existence of a dispute regarding the terms of the settlement agreement that prohibited
Sidman from making disparaging comments regard WebLOQ and its past or present
officers, directors, or employees. Plaintiffs also argued that they could demonstrate a
probability of prevailing on each of their claims.
7
F. The Trial Court’s Order
In its order of September 4, 2013, the trial court granted Sidman’s anti-SLAPP
motion in part and denied it in part. The court granted the motion as to the cause of
action for libel, finding that the claim was based upon protected speech because the
statements in Sidman’s letters were made in anticipation of litigation and were therefore
protected under section 425.16, subdivision (e)(2). The court also determined that
plaintiffs could not demonstrate a probability of prevailing on their libel claim because
the allegedly libelous statements were inadmissible pursuant to the Civil Code section 47,
subdivision (b) litigation privilege.
The trial court denied the anti-SLAPP motion as to the causes of action for breach
of contract, unfair competition, and injunctive and declaratory relief, finding that those
causes of action did not arise from activities protected under section 425.16. The court
determined that “the actual dispute between the parties is to the validity of the [settlement
agreement] provisions and the parties’ rights and obligations under the [settlement
agreement].” Citing Graffiti Protective Coatings, Inc. v. City of Pico Rivera (2010)
181 Cal. App. 4th 1207, the court also found that with regard to those causes of action,
Sidman’s speech or petitioning activity was “ ‘mere evidence related to liability,’ not the
basis for liability itself. [Citation.]”
III. DISCUSSION
Sidman filed a timely notice of appeal from the trial court’s order. An order
granting or denying a special motion to strike under section 425.16 is immediately
appealable. (§ 425.16, subd. (i); § 904.1, subd. (a)(13); City of Costa Mesa v. D’Alessio
Investments, LLC (2013) 214 Cal. App. 4th 358, 371.)
On appeal, Sidman reiterates his contentions that the trial court erred in denying
his anti-SLAPP motion because the causes of action for breach of contract, unfair
competition, and declaratory and injunctive relief all arise from activity that is protected
under section 425.16, and because plaintiffs do not have a probability of prevailing on
8
their claims.3 We will begin our evaluation of defendants’ contentions with an overview
of section 425.16, the anti-SLAPP statute, followed by a discussion of the applicable
standard of review.
A. Section 425.16
Section 425.16 was enacted in 1992 in response to a “disturbing increase” in
lawsuits brought for the strategic purpose of chilling a defendant’s rights of petition and
free speech. (§ 425.16, subd. (a).)4 SLAPPs are unsubstantiated lawsuits based on
claims arising from defendant’s constitutionally protected speech or petitioning activity.
(Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal. 4th 53, 60; Navellier v.
Sletten (2002) 29 Cal. 4th 82, 89 (Navellier).)
Section 425.16 applies to any 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 Constitution or the California Constitution in connection with a public
issue . . . .” (§ 425.16, subds. (b)(1), (e)(4).) The stated purpose of section 425.16 is to
encourage protected speech by permitting a court to promptly dismiss unmeritorious
actions or claims that are brought “primarily to chill the valid exercise of the
constitutional rights of freedom of speech and petition for the redress of grievances.”
3
We deny Sidman’s request for judicial notice filed May 20, 2014, of his cross-
complaint filed-stamped March 18, 2014, which was not before the trial court at the time
of the September 4, 2013 order that is the subject of this appeal. “It has long been the
general rule and understanding that ‘an appeal reviews the correctness of a judgment as
of the time of its rendition, upon a record of matters which were before the trial court for
its consideration.’ [Citation.]” (In re Zeth S. (2003) 31 Cal. 4th 396, 405.)
4
Section 425.16, subdivision (a) provides: “The Legislature finds and declares
that there has been a disturbing increase in lawsuits brought primarily to chill the valid
exercise of the constitutional rights of freedom of speech and petition for the redress of
grievances. The Legislature finds and declares that it is in the public interest to
encourage continued participation in matters of public significance, and that this
participation should not be chilled through abuse of the judicial process. To this end, this
section shall be construed broadly.”
9
(§ 425.16, subd. (a); Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal. 4th 260, 278
(Soukup).)
Under section 425.16, the trial court evaluates the merits of a possible SLAPP by
“using a summary-judgment-like procedure at an early stage of the litigation.” (Varian
Medical Systems, Inc. v. Delfino (2005) 35 Cal. 4th 180, 192.) The procedures authorized
in the statute allow a defendant to stay discovery before litigation costs mount, obtain
early dismissal of the lawsuit, and recover attorney’s fees. (Kibler v. Northern Inyo
County Local Hospital Dist. (2006) 39 Cal. 4th 192, 197-198.)
A defendant seeking the protection of the anti-SLAPP statute has the burden of
making the initial showing that the lawsuit arises from conduct “in furtherance of [a]
person’s right of petition or free speech under the United States Constitution or the
California Constitution in connection with a public issue . . . .” (§ 425.16, subds. (b)(1),
(e)(4); Navellier, supra, 29 Cal.4th at pp. 87-88.) Once the defendant has shown that
the plaintiff’s claim arises from one of the section 425.16, subdivision (e) categories
of protected activity, the burden shifts to the plaintiff to demonstrate a probability of
prevailing on the claim. (§ 425.16, subd. (b)(1); Navellier, supra, at p. 88.)
Thus, “ ‘[s]ection 425.16 posits . . . a two-step process for determining whether an
action is a SLAPP. First, the court decides whether the defendant has made a threshold
showing that the challenged cause of action is one arising from protected activity. . . . If
the court finds that such a showing has been made, it must then determine whether the
plaintiff has demonstrated a probability of prevailing on the claim.’ [Citation.] ‘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.’ [Citation.]” (Soukup, supra, 39 Cal.4th at pp. 278-
279.)
10
B. The Standard of Review
“Review of an order granting or denying a motion to strike under section 425.16 is
de novo. [Citation.] We consider ‘the pleadings, and supporting and opposing
affidavits . . . upon which the liability or defense is based.’ (§ 425.16, subd. (b)(2).)
However, we neither ‘weigh credibility [nor] compare the weight of the evidence.
Rather, [we] accept as true the evidence favorable to the plaintiff [citation] and evaluate
the defendant’s evidence only to determine if it has defeated that submitted by the
plaintiff as a matter of law.’ [Citation.]” (Soukup, supra, 39 Cal.4th at p. 269, fn. 3.)
Applying this standard of review, we will independently determine from our
review of the record whether any of the three remaining causes of action constitutes a
SLAPP under section 425.16. We will begin by addressing the cause of action for breach
of contract.
C. Breach of Contract
1. Protected Activity
We first consider whether Sidman met his burden to make the threshold showing
that Privato’s breach of contract claim arises from one of the section 425.16,
subdivision (e) categories of protected activity. (§ 425.16, subd. (b)(1); Navellier, supra,
29 Cal.4th at p. 88.) Sidman contends that Privato’s breach of contract claim is a SLAPP
because it is based on protected activity under section 425.16, subdivision (e)(2),
consisting of the two letters he sent to WebLOQ shareholders in anticipation of litigation.
Privato argues to contrary that its breach of contract claim arises from the various
provisions of the settlement agreement that Sidman allegedly violated, and therefore the
claim is based upon a dispute regarding the enforceability and scope of the parties’
settlement agreement, not protected activity.
The California Supreme Court has stated the standard for determining whether
the defendant’s acts, as alleged in the complaint, constitute activity protected under
section 425.16, subdivision (e). “[T]he statutory phrase ‘cause of action . . . arising from’
11
means simply that the defendant’s act underlying the plaintiff’s cause of action must
itself have been an act in furtherance of the right of petition or free speech. [Citation.]
In the anti-SLAPP context, the critical point is whether the plaintiff’s cause of action
itself was based on an act in furtherance of the defendant’s right of petition or free
speech. [Citations.] ‘A defendant meets this burden by demonstrating that the act
underlying the plaintiff’s cause fits one of the categories spelled out in section 425.16,
subdivision (e) . . . .’ [Citations.]” (City of Cotati v. Cashman (2002) 29 Cal. 4th 69, 78
(City of Cotati).)
Section 425.16, subdivision (e) provides in pertinent part: “As used in this
section, ‘act in furtherance of a person’s right of petition or free speech under the United
States or California Constitution in connection with a public issue’ includes: (1) any
written or oral statement or writing made before a legislative, executive, or judicial
proceeding, or any other official proceeding authorized by law, (2) any written or oral
statement or writing made in connection with an issue under consideration or review by
a legislative, executive, or judicial body, or any other official proceeding authorized by
law . . . .”
Since “[t]he filing of lawsuits is an aspect of the First Amendment right of
petition” (Soukup, supra, 39 Cal.4th at p. 291), a claim based on actions taken in
connection with litigation fall “squarely within the ambit of the anti-SLAPP statute’s
‘arising from’ prong. (§ 425.16, subd. (b)(1).” (Navellier, supra, 29 Cal.4th at p. 90,
fn. omitted.) “Thus, statements, writings, and pleadings in connection with civil
litigation or in contemplation of civil litigation are covered by the anti-SLAPP statute,
and that statute does not require any showing that the litigated matter concerns a matter
of public interest. [Citation.]” (Lunada Biomedical v. Nunez (2014) 230 Cal. App. 4th
459, 472 (Lunada).)
In the present case, Privato alleges in its complaint that Sidman breached several
provisions of the settlement agreement “by repeatedly sending letters to shareholders and
12
publishing on a public website inflammatory statements, misstatements and accusations
about the WebLOQ’s successor, Privato, its officers, employees and its managers; by
further taking steps to threaten litigation against Plaintiffs; making misrepresentations
concerning Plaintiffs in order to interfere with Privato’s business and negatively
influence potential investors, potential clients/customers, management and other
interested parties; and by holding meetings and conferences in order to negatively
influence former shareholders, potential clients/customers, potential investors,
management and other interested parties in violation of his legal duties and the
Settlement Agreement, all done in order to gain an unfair business advantage over
Plaintiff, its’ owner, member and managers.”
We determine that the cause of action for breach of contract alleges activity
protected under section 425.16, subdivision (e)(2). Sidman’s two letters to shareholders
and his public website contained statements clearly made in anticipation of litigation. For
example, the March 14, 2013 letter stated: “We are now gathering all the documents and
other evidence to prepare our case. This case preparation stage is crucial to determining
next steps and the most appropriate type of legal action. We believe there may be
additional supporting information in the hands of stockholders that would be helpful. . . .
As this case comes together we may be seeking approvals from WebLOQ shareholders
and others to join the action as plaintiffs.” Similarly, the April 16, 2013 letter concluded:
“We are proceeding with case preparation and anticipate filing in the Federal Court in
Delaware. For those who have indicated an interest in participating as plaintiffs, I will be
in touch personally.” (See Navellier, supra, 29 Cal.4th at p. 90; see also Neville v.
Chudacoff (2008) 160 Cal. App. 4th 1255, 1267-1268 [former employer’s letter to
customers regarding former employee’s violation of agreement not to contact customers
was protected under section 425.16 as communication in anticipation of litigation].)
However, the cause of action for breach of contract also alleges activity by Sidman
that arguably is not protected under section 425.16, subdivision (e)(2) as actions taken in
13
connection with litigation. (See Navellier, supra, 29 Cal.4th at p. 90.) In particular,
Privato alleges that Sidman breached the settlement agreement by holding meetings and
making misrepresentations in order to “negatively influence” former shareholders and
others.
Where, as here, a cause of action alleges both activity protected under
section 425.16, subdivision (e) and unprotected activity, we apply the “ ‘principal thrust
or gravamen’ test.” (Club Members for an Honest Election v. Sierra Club (2008) 45
Cal. 4th 309, 319 (Club Members).) “The ‘principal thrust or gravamen’ test has been
used to determine whether an action fits within the scope of the anti-SLAPP protection
provided by section 425.16 when a pleading contains allegations referring to both
protected and unprotected activity. [Citation.]” (Ibid.)
Under that test, “when the allegations referring to arguably protected activity are
only incidental to a cause of action based essentially on nonprotected activity, collateral
allusions to protected activity should not subject the cause of action to the anti-SLAPP
statute.” (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal. App. 4th 181, 188.) Thus,
“a defendant in an ordinary private dispute cannot take advantage of the anti-SLAPP
statute simply because the complaint contains some references to speech or petitioning
activity by the defendant. [Citation.]” (Ibid.; accord, PrediWave Corp. v. Simpson
Thacher & Bartlett LLP (2009) 179 Cal. App. 4th 1204, 1219.)
Having carefully reviewed the complaint, we find that the allegations of protected
activity—the statements in letters to shareholders and website statements made in
anticipation of litigation—are not merely incidental to the cause of action for breach of
contract. To the contrary, the “principal thrust or gravamen” of the breach of contract
cause of action is Sidman’s alleged activity of sending letters and creating a website for
the purpose of promoting the participation of former WebLOQ shareholders in a lawsuit
that Sidman intended to bring against former WebLOQ officers and directors for breach
of fiduciary duty. (See Club Members, supra, 45 Cal.4th at p. 319.)
14
Since the letters and website constitute activity protected under section 425.16,
subdivision (e)(2) as statements made in anticipation of litigation (Lunada, supra, 230
Cal.App.4th at p. 472), we determine that Sidman has met his burden to make a threshold
showing that the breach of contract cause of action arises from speech or petitioning that
is protected under the anti-SLAPP statute. (See Navellier, supra, 29 Cal.4th at pp. 93-95
[breach of contract action alleging that the defendant breached a release of claims by
filing claims in court arose from protected activity]; D’Arrigo Bros. of California v.
United Farmworkers of America (2014) 224 Cal. App. 4th 790, 799-800 [breach of
contract claim alleging that defendant union breached agreement with employer arose
from protected activities before the Agriculture Labor Relations Board]; Vivian v.
Laburcherie (2013) 214 Cal. App. 4th 267, 274 [breach of contract claim alleging that
defendant breached a settlement agreement by making disparaging statements in family
court arose from protected activity].)
Since Sidman has satisfied the first prong of the anti-SLAPP statute, we turn to
consideration of the second prong: whether Privato has met its burden to show a
probability of prevailing on its breach of contract claim, since “no cause of action
qualifies as a SLAPP merely because the defendant’s actions conceptually fall within
the ambit of the statute’s initial prong.” (Navellier, supra, 29 Cal.4th at p. 95.)
2. Probability of Prevailing
Sidman argues that Privato cannot show a probability of prevailing on its breach
of contract claim because Privato did not sign the settlement agreement between Sidman
and WebLOQ, and also because the right to enforce the settlement agreement was not
transferred from WebLOQ to Privato. Alternatively, Sidman argues that Privato has not
15
provided evidence that he breached the settlement agreement, since the only evidence
offered in support of his alleged breach is Dr. Milligan’s unsigned declaration.5
Privato responds that it submitted evidence of the documents that transferred
WebLOQ’s assets to Privato, and those documents, when read together, show that Privato
is the successor in interest to WebLOQ and therefore Privato acquired the right to enforce
the settlement agreement with Sidman. WebLOQ also asserts that any ambiguity in the
documents regarding Privato’s acquisition of the right to enforce the settlement
agreement may be clarified by evidence of the parties’ subjective intent.
We begin our analysis by noting that the California Supreme Court in Navellier
ruled that the “merits prong to the statutory SLAPP definition (§ 425.16, subd. (b)(1)) . . .
preserves appropriate remedies for breaches of contracts involving speech by ensuring
that claims with the requisite minimal merit may proceed. [Citations.]” (Navellier,
supra, 29 Cal.4th at p. 94.) In Navellier, the court determined that the defendant’s
threshold showing that the plaintiffs’ breach of contract claim arose from litigation
activity protected under section 425.16 was not dispositive, since the “plaintiffs may
defeat the anti-SLAPP motion by establishing a probability of prevailing on their claim.
[Citation.]” (Navellier, supra, 29 Cal.4th at p. 95, fn. omitted.)
“To establish a probability of prevailing, 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.’ [Citations.]” (Soukup, supra, 39 Cal.4th at p. 291.) “The showing must be
made through ‘competent and admissible evidence.’ [Citations.] Thus, declarations that
lack foundation or personal knowledge, or that are argumentative, speculative,
5
We recognize that Sidman has argued on appeal that the two letters to WebLOQ
shareholders and the webpage attached to the unsigned declaration of Dr. Milligan are
inadmissible. For purposes of our analysis, we will assume, without deciding, that the
letters and webpage are admissible evidence.
16
impermissible opinion, hearsay, or conclusory are to be disregarded. [Citation.]”
(Gilbert v. Sykes (2007) 147 Cal. App. 4th 13, 26.) “ ‘[T]he plaintiff “cannot simply rely
on the allegations in the complaint” [citation] . . . .’ [Citation.]” (Alpha & Omega
Development, LP v. Whillock Contracting, Inc. (2011) 200 Cal. App. 4th 656, 664.)
Accordingly, Privato had the burden to make a prima facie showing of facts,
supported by admissible evidence, that is sufficient to support each element of its breach
of contract cause of action. (See Soukup, supra, 39 Cal.4th at p. 291.) The elements of a
cause of action for breach of contract are: “(1) the existence of the contract,
(2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and
(4) the resulting damages to the plaintiff. [Citation.]” (Oasis West Realty, LLC v.
Goldman (2011) 51 Cal. 4th 811, 821.)
The issue raised in this appeal, however, is whether Privato, as a nonsignatory to
the settlement agreement between Sidman and WebLOQ, has the right to enforce the
settlement agreement. Privato acknowledges that “there exists some ambiguity . . .
regarding whether the documents transferring WebLOQ’s interests to Privato include the
[settlement agreement] among those interests transferred.” Privato further acknowledges
that although it “maintains that all [the] transfer documents, collectively, unambiguously
transfer to Privato all contract and all rights arising from any WebLOQ contract,
including the [settlement agreement], to the extent that there may be any ambiguity on
the subject, evidence reflecting the parties’ subjective intent on the issue is relevant and
appropriately considered by this Court. It should also be noted that such ambiguity may
be dispelled once the parties are allowed to commence discovery in this case.”
We determine that Privato has not met its burden to establish a probability of
prevailing on its breach of contract claim in the absence of a prima facie showing that it
has the right to enforce the settlement agreement as a nonsignatory to the agreement.
(Navellier, supra, 29 Cal.4th at p. 95.) Privato implicitly concedes that the documents
pertaining to Privato’s acquisition of WebLOQ’s assets do not expressly address the
17
settlement agreement between WebLOQ and Sidman. Privato also acknowledges that the
transfer documents are arguably ambiguous with respect to Privato’s right to enforce the
settlement agreement made between Sidman and WebLOQ. Moreover, our review of the
record shows that Privato did not submit any evidence regarding the parties’ subjective
intent as to whether the transfer of WebLOQ’s assets to Privato included the right to
enforce the settlement agreement between Sidman and WebLOQ.
Since we have determined that Sidman met his burden to make a threshold
showing that Privato’s breach of contract claim arose from litigation-related activity
protected under section 425.16, subdivision (e)(2), and Privato failed to met its burden to
show that it had a probability of prevailing on the breach of contract claim, we conclude
that Sidman’s anti-SLAPP motion should be granted as to the cause of action for breach
of contract. We reiterate that “ ‘[o]nly 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.’ [Citation.]”
(Soukup, supra, 39 Cal.4th at pp. 278-279.)
D. Unfair Competition
Sidman contends that Privato’s unfair competition cause of action is also based
upon his protected activity of sending letters to WebLOQ shareholders that enlisted their
support in litigation. He also contends that Privato cannot show a probability of
prevailing because the unfair competition cause of action is barred by the litigation
privilege set forth in Civil Code section 47, subdivision (b) (hereafter, section 47(b)).
Alternatively, Sidman argues that Privato cannot show a probability of prevailing since
he is not a business and his act of sending letters to WebLOQ shareholders does not
constitute a business practice.
Privato argues that its unfair competition claim is not barred by the section 47(b)
litigation privilege since the privilege is not unlimited. Additionally, Privato argues that
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Sidman’s sending of letters to WebLOQ shareholders constitutes an unfair business
practice.
1. Protected Activity
In its unfair competition cause of action, Privato alleges that Sidman is liable for
unfair business practices under Business and Professions Code section 17200 et seq. for
(1) “[r]epeatedly sending letters to shareholders and publishing on a public website
inflammatory statements, misstatements and false accusations about Privato, its owner,
officers and managers;” (2) “[t]hreatening litigation against Plaintiffs in order to create
leverage and extort the company in an unfair manner;” (3) “[m]aking misrepresentations
concerning Plaintiffs in order to interfere with the company’s business and negatively
influence former shareholders, potential investors/purchasers, potential clients/customers,
management and other interested parties;” (4) “[h]olding meetings and conferences in
order to negatively influence former shareholders, potential investors/purchasers,
potential clients/customers, management and other interested parties in violation of his
legal duties and obligations under the Settlement Agreement, all done in order to gain an
unfair business advantage over Plaintiff, its’ member and managers.”
We find that the “principal thrust or gravamen” of the unfair competition cause of
action, like the breach of contract cause of action, is Sidman’s alleged activity of sending
letters and creating a website for the purpose of obtaining the participation of former
WebLOQ shareholders in a lawsuit that Sidman intended to bring against former
WebLOQ officers and directors for breach of fiduciary duty. (See Club Members, supra,
45 Cal.4th at p. 319.) Having previously determined that Sidman’s letters to former
WebLOQ shareholders and his website constitute activity protected under section 425.16,
subdivision (e)(2) as statements made in anticipation of litigation (Lunada, supra, 230
Cal.App.4th at p. 472), we similarly determine that Sidman has met his burden to make
a threshold showing that the unfair competition cause of action arises from speech or
petitioning that is protected under the anti-SLAPP statute. (See Navellier, supra,
19
29 Cal.4th at pp. 93-95; but see City of Alhambra v. D’Ausilio (2011) 193 Cal. App. 4th
1301, 1307-1308 [City’s declaratory relief action arose from a controversy regarding the
scope and enforceability of its settlement agreement with the plaintiff employee, not his
protected activity].)
2. Probability of Prevailing
We next consider whether Privato can meet its burden to show that it has a
probability of prevailing on its unfair competition claim, beginning with Sidman’s
contention that the claim is barred by the litigation privilege codified in section 47(b).
(See Navellier, supra, 29 Cal.4th at p. 95.) “The litigation privilege is also relevant to
the second step in the anti-SLAPP analysis in that it may present a substantive defense
a plaintiff must overcome to demonstrate a probability of prevailing. [Citations.]”
(Flatley v. Mauro (2006) 39 Cal. 4th 299, 323 (Flatley).)
Section 47(b) provides in part: “A privileged publication or broadcast is one
made: [¶] . . . [¶] . . . In any (1) legislative proceeding, (2) judicial proceeding, (3) in any
other official proceeding authorized by law, or (4) in the initiation or course of any other
proceeding authorized by law . . . .” “ ‘The principal purpose of [the litigation privilege]
is to afford litigants and witnesses [citation] the utmost freedom of access to the courts
without fear of being harassed subsequently by derivative tort actions. [Citations.]’ ”
(Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal. 4th 1232, 1241
(Action Apartment).)
“In its application to communications made in a ‘judicial proceeding,’
section 47(b) is not limited to statements made in a courtroom. Many cases have
explained that section 47(b) encompasses not only testimony in court and statements
made in pleadings, but also statements made prior to the filing of a lawsuit, whether in
preparation for anticipated litigation or to investigate the feasibility of filing a lawsuit.
[Citation.]” (Hagberg v. California Federal Bank (2004) 32 Cal. 4th 350, 361
(Hagberg).) However, “[a] prelitigation communication is privileged only when it relates
20
to litigation that is contemplated in good faith and under serious consideration.
[Citations.]” (Action Apartment, supra, 41 Cal.4th at p. 1251.)
In Rubin v. Green (1993) 4 Cal. 4th 1187 (Rubin), our Supreme Court addressed
the issue of whether the litigation privilege of section 47(b) barred an unfair competition
claim. The plaintiff in Rubin was a co-owner of a mobile home park, who sued a park
resident and her attorneys after they sent the co-owner a letter complaining of defects in
park operation and giving notice of their intention to sue him. (Rubin, supra, at p. 1191.)
The amended complaint included an unfair competition claim alleging that the defendant
attorneys had a pattern of meeting with mobile home park residents for the purpose of
soliciting their participation in litigation against the park owner. (Id. at p. 1192.) The
court determined that defendant’s alleged acts came within the scope of the litigation
privilege, stating that “we can imagine few communicative acts more clearly within the
scope of the privilege than those alleged in the amended complaint, that is, meeting and
discussing with [mobile home park] residents park conditions and the merits of the
proposed failure-to-maintain lawsuit, and filing the complaint and subsequent pleadings
in the litigation.” (Id. at p. 1195.)
Having determined that the attorney defendants were protected from tort liability
by the section 47(b) litigation privilege, the Rubin court next considered whether the
defendants were also protected from liability under the unfair competition statute,
Business and Professions Code section 17200. As the Supreme Court later confirmed in
Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th
163 (Cel-Tech), the court in Rubin “ ‘rejected the claim that a plaintiff may, in effect,
“plead around” absolute barriers to relief by relabeling the nature of the action as one
brought under the unfair competition statute.’ [Citation.]
The Cel-Tech court further stated that in Rubin “[w]e found ‘the conduct of
defendants alleged in the complaint’ came ‘within the scope of [Civil Code]
section 47(b),’ and thus was ‘absolutely immune from civil tort liability . . . . If the
21
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).’ [Citation.]” (Cel-Tech,
supra, 20 Cal.4th at p. 182.) In other words, “[a] plaintiff may thus not ‘plead around’ an
‘absolute bar to relief’ simply ‘by recasting the cause of action as one for unfair
competition.’ [Citation.]” (Ibid.)
Our Supreme Court therefore concluded in Rubin that the “plaintiff’s tack of
pleading his claim under the unfair competition statute does not override the litigation
privilege in this case . . . .” (Rubin, supra, 4 Cal.4th at p. 1204; see also People ex. rel.
Gallegos v. Pacific Lumber Co. (2008) 158 Cal. App. 4th 950, 958-964 [unfair
competition action against lumber company alleging that company made misstatements
and submitted false data in California Environment Quality Act proceedings was barred
under section 47(b) litigation privilege].)
The decision in Rubin and as discussed in Cel-Tech guides our analysis here. The
acts alleged in Privato’s complaint come within the scope of the section 47(b) litigation
privilege since, as we have discussed, the gravamen of Privato’s claims against Sidman is
his prelitigation communications with former WebLOQ shareholders. (See Hagberg,
supra, 32 Cal.4th at p. 361; Cel-Tech, supra, 20 Cal.4th at p. 182.) Privato cannot
overcome the section 47(b) litigation privilege that applies to its claims against Sidman
by pleading the claims as an unfair competition cause of action. (See Cel-Tech, supra, at
p. 182.) For that reason, we determine that the section 47(b) litigation privilege precludes
Privato from demonstrating a probability of prevailing on its unfair competition claim
(Flatley, supra, 39 Cal.4th at p. 323) and Sidman’s anti-SLAPP motion should be granted
as to the unfair competition cause of action.
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E. Injunctive and Declaratory Relief
Sidman contends that the cause of action for injunctive and declaratory relief
should be stricken for the same reason that Privato’s breach of contract claim fails: that
Privato cannot show that it has standing to enforce the settlement agreement between
Sidman and WebLOQ. Sidman also contends that Privato cannot obtain injunctive relief
since injunctive relief is a remedy, not a cause of action, and Privato has not shown that it
has a right to any remedy.
Privato again argues that its claims arise from the parties’ dispute regarding the
scope and enforceability of the settlement agreement, and not from any protected activity.
Where, as here, the subject of a special motion to strike is a cause of action for
declaratory relief, the defendant must show that the actual controversy underlying the
cause of action arises from protected activity within the meaning of section 425.16,
subdivision (e). (City of Cotati, supra, 29 Cal.4th at pp. 78-80.)
Privato’s declaratory relief cause of action repeats verbatim the allegations in its
other causes of action regarding Sidman’s conduct, including his letters to WebLOQ
shareholders and his webpage. The declaratory relief action also alleges that “[p]laintiff
has demanded that Defendant cease his actions in violation of the Settlement Agreement
and to further cease from damaging and disparaging Plaintiffs and from causing . . .
damage to the business affairs and reputation of Privato.” We have previously
determined that the gravamen of Privato’s claims against Sidman is his prelitigation
communications with former WebLOQ shareholders (Sidman’s letters and webpage),
which constitute protected activity under section 425.16, subdivision (e)(2). Sidman’s
anti-SLAPP motion therefore made the requisite threshold showing that the declaratory
relief cause of action arises from protected activity.
To survive Sidman’s anti-SLAPP motion, Privato had the burden of introducing
“ ‘ “substantial evidence that would support a judgment of [declaratory] relief made in
the plaintiff's favor.” [Citations.]’ [Citation.]” (Lunada, supra, 230 Cal.App.4th at
23
p. 479, fn. omitted.) Privato cannot meet that burden because, as we have previously
determined, its claims against Sidman are precluded by the section 47(b) litigation
privilege that applies to prelitigation communications. (See Cel-Tech, supra, 20 Cal.4th
at p. 182.)
We also determine that Privato cannot state a cause of action for injunctive relief.
“Injunctive relief is a remedy and not, in itself, a cause of action, and a cause of action
must exist before injunctive relief may be granted. [Citation.]” (Shell Oil Co. v. Richter
(1942) 52 Cal. App. 2d 164, 168 (Shell Oil); see also County of Del Norte v. City of
Crescent City (1999) 71 Cal. App. 4th 965, 973 [a permanent injunction is attendant to an
underlying cause of action].)
As we have discussed with regard to the causes of action for breach of contract,
unfair competition, and declaratory relief, Privato cannot establish a probability of
prevailing on any of the causes of action asserted in its complaint. In the absence of a
viable cause of action, Privato may not obtain injunctive relief. (See Shell Oil, supra,
52 Cal.App.2d at p. 168.) Therefore, Sidman’s anti-SLAPP motion should be granted as
to the cause of action for injunctive and declaratory relief.
F. Conclusion
For the reasons stated above, we determine Sidman has made a threshold showing
that the causes of action for breach of contract, unfair competition, and injunctive and
declaratory relief arise from speech or petitioning activity protected under section 425.16,
subdivision (e)(2) and Privato has not demonstrated a probability of prevailing on any of
the causes of action. We therefore conclude that Sidman’s anti-SLAPP motion should be
granted as to the causes of action for breach of contract, unfair competition, and
injunctive and declaratory relief. (See Soukup, supra, 39 Cal.4th at pp. 278-279.)
Having reached that conclusion, we need not address Sidman’s claims of evidentiary
error.
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We further conclude that the trial court erred in granting the anti-SLAPP motion
only as to the cause of action for libel and in denying the motion as to the other causes of
action. Therefore, we will reverse the September 4, 2013 order and direct the court to
enter a new order granting the motion as to the all four causes of action in the complaint
pursuant to section 425.16.
IV. DISPOSITION
The September 4, 2013 order granting the special motion to strike in part and
denying the motion in part is reversed. The matter is remanded to the trial court with
directions to enter a new order granting the motion to strike as to all four causes of action
in the complaint pursuant to Code of Civil Procedure section 425.16, and to conduct
proceedings as appropriate to determine costs and reasonable attorney fees, including
attorney fees on appeal, to be awarded to appellant. (See Paiva v. Nichols (2008)
168 Cal. App. 4th 1007, 1038.)
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___________________________________________
BAMATTRE-MANOUKIAN, ACTING P.J.
WE CONCUR:
__________________________
MIHARA, J.
__________________________
MÁRQUEZ, J.