The Baseball Club Of Tacoma, Llc, Res. v. Sdl Baseball Partners, Llc, Apps.

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
THE BASEBALL CLUB OF TACOMA, NO. 71792-8-1
a Washington limited liability company,
DIVISION ONE
Respondent,
v.
SDL BASEBALL PARTNERS, LLC, a O
Nevada limited liability company, (J
ROBERT J. SCHLEGEL and
ROBERT K. SCHLEGEL, PUBLISHED OPINION
Appellants, FILED: May 4, 2015
and
MIKALTHOMSENand
AARON ARTMAN,
Respondents.
Lau, J. —After purchasing the Tacoma Rainiers minor league baseball team from
SDL Baseball Partners LLC (SDL),1 The Baseball Club of Tacoma (TBCOT) filed a
complaint alleging, among other things, breach of contract and fraud. SDL filed several
counterclaims and third party claims. TBCOT responded with a special motion to strike
We refer to SDL Baseball Partners LLC and the Schegels as SDL in this
opinion.
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these claims under Washington's anti-SLAPP statute.2 The trial court granted the
motion, concluding that the counterclaims and third party claims "tread" on TBCOT's
complaint. But because the thrust or gravamen of SDL's counterclaims and third party
claims relies primarily on alleged prelitigation conduct—rather than TBCOT's
complaint—we conclude that TBCOT failed to establish that SDL's counterclaims were
"based on" protected activity and reverse and remand with instructions to reinstate
SDL's counterclaims and third party claims.
FACTS
This case involves a contract dispute. In 2010, SDL Baseball Partners LLC,
Robert J. Schlegel, and Robert K. Schlegel, decided to sell the Tacoma Rainiers3 and
assets related to the team and stadium. The Baseball Club of Tacoma, led by Mikal
Thomsen (third party defendant below), offered to buy the team, and the parties signed
a purchase and sale agreement on January 31, 2011. Under the agreement, the
purchase price included a $16,500,000 payment to be made at closing and a
percentage of the Rainiers' earnings before interest, taxes, depreciation, and
amortization in the first four fiscal years with the option to extend for an additional fifth
year. These additional payments are known as "Earn-Out" payments.
The agreement also stated that TBCOT "shall rely" on SDL's financial
statements, "which need not be audited." Clerk's Papers (CP) at 511. SDL represented
the truth and accuracy of those statements and warranted that they had been prepared
in conformity with generally accepted accounting principles (GAAP). The agreement
2 Washington Act Limiting Strategic Lawsuits Against Public Participation.
3The "Tacoma Rainiers" is a minor league baseball team that plays in the Pacific
Coast League and is the Triple-A affiliate of the Seattle Mariners.
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required that SDL reimburse TBCOTfor any damages resulting from "any breach of any
representation or warranty made in . . . this Agreement." CP at 396.
After acquiring the Rainiers, TBCOT discovered alleged accounting errors and
errors in SDL's financial statements. For instance, TBCOT claimed that SDL failed to
prepare their financials in conformity with GAAP, as represented in the purchase
agreement, and financial statements misrepresented the financial performance of the
business.
TBCOT filed suit against SDL in July 2012, alleging breach of contract, breach of
implied duty of good faith and fair dealing, fraud, and negligent misrepresentation. SDL
filed their initial answer and counterclaims in August 2012. The counterclaims
requested a declaratory judgment limiting TBCOT's remedy to the terms of the
agreement and alleging that TBCOT's fraud claim was frivolous and advanced without
reasonable cause under RCW 4.84.185. In September 2013, SDL filed an amended
answer and asserted affirmative defenses and counterclaims. SDL also alleged third
party claims against TBCOT officers Mikal Thomsen and Aaron Artman. SDL asserted
five new counterclaims in addition to the two previously alleged—breach of duty of good
faith and fair dealing, fraud (fraud in the inducement, fraud by omission), negligent
misrepresentation, civil conspiracy, and conversion.
In February 2014, TBCOT and third party defendants filed a special motion to
strike SDL's counterclaims4 pursuant to RCW 4.24.525, Washington's anti-SLAPP
statute. TBCOT argued that SDL's "claims are based entirely on TBCOT's filing of this
4In response to the special motion to strike, SDL voluntarily dismissed without
prejudice its counterclaim that TBCOT's fraud claim was frivolous.
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lawsuit. . . ," and because defendants could not show a probability of prevailing on their
claims, those claims should be dismissed. The trial court granted the motion to strike,
explaining that "the thrust of the counterclaims and third party complaints do tread on
protected activity, that being the filing of the lawsuit or the out of court complaints that
formed the basis for and are really part and parcel of the lawsuit."5 Report of
Proceedings (RP) (Mar. 14, 2014) at 22. The trial court dismissed SDL's counterclaims
and third party claims with prejudice. As required by statute,6 the trial court ordered
SDL to pay reasonable attorney fees, costs, and a $10,000 penalty to each of TBCOT,
Thomsen, and Artman. SDL appeals.
ANALYSIS7
Standard of Review
We review a trial court's ruling on a special motion to strike pursuant to the anti-
SLAPP statute de novo. Alaska Structures. Inc. v. Hedlund. 180 Wash. App. 591, 597,
323P.3d 1082(2014).
5 We note that the trial court did not have the benefit of our opinion in Alaska
Structures. Inc. v. Hedlund, 180 Wash. App. 591, 323, P.3d 1082 (2014), decided after its
ruling on the motion to strike.
6 The anti-SLAPP statute requires courts to award litigation costs, attorney fees,
and $10,000 to any party that prevails on a special motion to strike. RCW
4.24.525(6)(a)(i)-(ii).
7On January 20, 2015, the Washington Supreme Court heard oral argument in
Davis v. Cox. 180 Wash. App. 514, 325 P.3d 255 (2014). The principle issue, among
others, is the constitutional validity of the anti-SLAPP statute. The Supreme Court also
heard oral argument but stayed three additional anti-SLAPP cases pending a decision
in Davis: Dillon v. Seattle Deposition Reporters. LLC. 179 Wash. App. 41. 316 P.3d 1119
(2014), review granted. 180 Wash. 2d 1009, 325 P.3d 913 (2014), Akrie v. Grant. 178 Wn.
App. 506, 315 P.3d 567 (2014), review granted. 180 Wash. 2d 1008, 325 P.3d 913 (2014),
Hennev.Citv of Yakima. 177 Wash. App. 583, 313 P.3d 1188 (2013) review granted. 179
Wash. 2d 1022 (2014). and Alaska Structures, Inc. v. Hedlund. 180 Wash. App. 591, 323
P.3d 1082 (2014).
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Applicability of the Anti-SLAPP Statute
In response to "Strategic Lawsuits Against Public Participation" or "SLAPPs," the
legislature passed an anti-SLAPP statute aimed at promptly disposing of "lawsuits
brought primarily to chill the valid exercise of the constitutional rights of freedom of
speech and petition for the redress of grievances." Laws of 2010, ch. 118 § 1(a).
Whether a court strikes a claim under the statute depends on a two-step analysis. First,
the "moving party bringing a special motion to strike a claim . . . has the initial burden of
showing by a preponderance of the evidence that the claim is based on an action
involving public participation and petition." RCW 4.24.525(4)(b). A court reviews "the
pleadings, declarations, and other supporting documents to determine whether the
gravamen of the underlying claim is based on protected activity." Hedlund. 180 Wn.
App. at 597. Ifthe moving party fails to "make an initial prima facie showing that the
[non-moving party's] suit arises from an act in furtherance of the [moving party's] right of
petition," the motion to strike should be denied. Hedlund. 180 Wash. App. at 597.
Second, if the moving party is successful, "the burden shifts to the responding party to
establish by clear and convincing evidence a probability of prevailing on the claim. If
the responding party meets this burden, the court shall deny the motion." RCW
4.24.525(4)(b).
As to the first step, SDL relies on Hedlund to argue that private contract disputes
are exempt from the anti-SLAPP statute. We disagree. Nevertheless, we conclude that
TBCOT failed to show that SDL's counterclaims "arisen from an act in furtherance of
[TBCOT's] right of petition." Hedlund. 180 Wash. App. at 597 (emphasis added).
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California courts have noted that a breach of contract claim can constitute protected
activity for purposes of the anti-SLAPP statute:
[P]laintiffs strenuously insist that this is "a garden variety breach of
contract and fraud claim" not covered by [the anti-SLAPP statute].. . .
[W]e have declined to hold 'that [the anti-SLAPP statute] does not apply to
events that transpire between private individuals'....
. . . Nothing in the statute itself categorically excludes any particular
type of action from its operation . . . [CJonduct alleged to constitute breach
of contract may also come within constitutionally protected speech or
petitioning. The anti-SLAPP statute's definitional focus is not the form of
the plaintiff's cause of action, but, rather, the defendant's activity that gives
rise to his or her asserted liability—and whether that activity constitutes
protected speech or petitioning.
Navellierv.Sletten. 29 Cal. 4th 82, 90-92, 52 P.3d 703, 124 Cal. Rptr. 2d 530
(2002).8
Therefore, TBCOT's filing of a complaint in superior court is a protected action
under the statute. The statute protects an "action involving public participation and
petition," which is further defined as "[a]ny oral statement made, or written statement or
other document submitted, in a . . .judicial proceeding . . . ." RCW4.24.525(2)(a).
Further, "It is well established that filing a lawsuit is an exercise of a party's
constitutional right of petition." Chavez v. Mendoza. 94 Cal. App. 4th 1083, 1087, 114
Cal. Rptr. 2d 825 (2001). To hold that private contract disputes are exempt from the
anti-SLAPP statute contradicts the legislature's instruction that it be "construed liberally
to effectuate its general purpose of protecting participants . .. from an abusive use of
the courts." Laws of 2010, Ch. 118, §3.
8 "Washington's 2010 anti-SLAPP statute was patterned after California's anti-
SLAPP statute. Thus, we can look to California cases for aid in interpreting the act."
Spratt v. Toft. 180 Wash. App. 620, 630-31, 324 P.3d 707 (2014) (footnote omitted).
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Although TBCOT's complaint is protected activity for purposes of the anti-SLAPP
statute, SDL may properly file legitimate counterclaims. See, e.g., Navellier. 29 Cal. 4th
at 92-93 ("That contract and fraud claims are not categorically excluded from the
operation of the anti-SLAPP statute does not mean .. . that Sletten therefore cannot be
sued . . . ."). The fundamental inquiry is whether SDL's counterclaims are "based on"
TBCOT's protected activity and therefore within the scope of the anti-SLAPP statute.
"To determine whether a pleaded cause of action falls within the ambit of Washington's
anti-SLAPP statutes, the trial court must decide whether the claim targets activity
involving public participation and petition. To properly do so, the trial court must focus
on the principal thrust or gravamen of the claim." Davis v. Cox. 180 Wash. App. 514, 523,
325 P.3d 255 (2014) (footnote omitted). In evaluating the thrust or gravamen of an
alleged SLAPP, we consider the pleadings and supporting and opposing affidavits,
viewing the facts and all reasonable inferences therefrom in the light most favorable to
the nonmoving party—in this case, SDL. Davis. 180 Wash. App. at 528. Here, the
specific nature of SDL's counterclaims indicates that the thrust or gravamen of the
claims does not target TBCOT's complaint. Rather, SDL properly asserts claims arising
from alleged prelitigation conduct related to the contract.
In support of its special motion to strike, TBCOT relies primarily on SDL's
amended answer. In their amended answer, SDL alleged that the officers of TBCOT
complained about various aspects of the purchase transaction. For example, "[w]hen
the Team did not make as much money as Third Party Defendants expected, they
began to complain that they were misled about the Team's finances . . . ." CP at 117.
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TBCOT relied in particular on paragraphs 16 and 19 of the statement of facts underlying
SDL's counterclaims, which provide in part:
Third Party Defendants [Thomsen and Artman, officers of TBCOT] have
manufactured their complaints about the Team's finances and value in
order to avoid paying Defendants the earn-out as required by the
Purchase Agreement. Third Party Defendants' claims are part of a
scheme orchestrated in order to set up Defendants and avoid paying the
earn-out altogether. . . .
... In short, Third Party Defendants want to use Defendants as
scapegoats with their investors, and they made sure when they bought the
team that they structured the deal in a way that would allow them the
opportunity and means to do just that.
CP at 118-19. TBCOT argues the "complaints" SDL identify in their amended answer
are all found in TBCOT's complaint. TBCOT therefore concludes, SDL's counterclaims
are "based on" TBCOT's protected petitioning activity.
We disagree. The thrust or gravamen of SDL's counterclaims is based on
prelitigation conduct and any reference to TBCOT's complaint is merely incidental to
those claims. For example, SDL's first counterclaim seeks a declaratory judgment
limiting TBCOT's remedy in the action to the remedies described in the purchase
agreement. In Davis, members of a food cooperative sought a permanent injunction to
prevent cooperative directors from continuing a boycott of Israeli-made products and
divestment from Israeli companies. The directors moved successfully to strike the
members' complaint. To determine the principle thrust or gravamen of the members'
claim, we noted that consideration of the remedy sought is instructive. Because the
nonviolent elements of boycotts are protected by the First Amendment, we concluded
that the principle thrust of the members' lawsuit "is to make the Directors cease in
engaging in activity protected by the First Amendment." Davis, 180 Wash. App. at 530.
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We also concluded the boycott was lawful and an issue of public concern. We affirmed
the trial court's order and concluded that the directors established that the members'
claims targeted protected activity. Unlike in Davis. SDL's claim for declaratory judgment
relief does not target TBCOT's petitioning activity. SDL sought to clarify the scope of
TBCOT's relief based on the agreement.
SDL's other claims arise from alleged conduct independent from the litigation. In
its third counterclaim, SDL alleged that TBCOT "breached its duty of good faith and fair
dealing by operating the Acquired Business in a manner that effectively denies any
additional earn-out consideration to defendant SDL Baseball Partners, LLC." CP at
120. SDL supports this claim by alleging that TBCOT reduced marketing investments
and made excessive distributions to its members. The alleged conduct giving rise to
this claim occurred prior to the litigation. The claim relies on TBCOT's alleged deficient
performance of contractual obligations, not on TBCOT's filing of the complaint.
Similarly, SDL's counterclaims for fraud and misrepresentation are based on
prelitigation conduct. In support of its opposition to TBCOT's special motion to strike,
SDL submitted the declaration of Robert J. Schlegel.9 His allegations formed the basis
for these counterclaims.
Third Party Defendants also made several representations to the
Schlegels which the Schlegels relied on by rejecting other offers, selling
the Team to TBCOT, and structuring the sale with a future "earn-out"
provision. Third Party Defendants represented that SDL Partners would
receive the "earn-out" payments on the terms set forth in the Purchase
Agreement. Had Defendants known that Third Party Defendants never
really ever intended to pay the "earn-out," they would not have sold the
Team to TBCOT. Third Party Defendants also represented and
Defendants expected that Third Party Defendants would run the Team
9 Schlegel is an owner of SDL Partners.
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well, report financial information in good faith, not manipulate the financial
books and records of the Team for their benefit, and deal with them in
good faith and fairly. Defendants also relied on Third Party Defendants'
representations that they would market the Team in order to promote
ticket sales, but instead Third Party Defendants reduced the Team's
marketing budget and marketing efforts, which further impaired the
Schlegels' opportunity to receive their "earn-out" payments. All of these
misrepresentations have damaged the Schlegels because they have
received far less than what TBCOT and Third Party Defendants committed
to pay, as well as what they led the Schlegels to believe would be paid.
CP at 204. Viewing the facts in the light most favorable to SDL, these allegations
demonstrate that the thrust or gravamen of SDL's counterclaims is based on alleged
representations made by TBCOT and TBCOT's subsequent performance of contractual
obligations. The counterclaims do not arise from TBCOT's protected petitioning activity,
but from conduct that allegedly occurred well before any contract litigation. This is
sufficient to survive a motion to strike pursuant to the anti-SLAPP statute. See, e.g.,
Navellier, 29 Cal. 4th at 93 ("[The anti-SLAPP statute] subjects to potential dismissal
only those actions in which the plaintiff cannot 'state[] and substantiatef] a legally
sufficient claim.'. . . [T]he statute poses no obstacle to suits that possess minimal
merit.").
In fact, both the trial court and TBCOT's counsel correctly noted that at least
some of SDL's counterclaims could have been brought independently.10 RP (Mar. 14,
10 SDL's act of filing its counterclaims is protected activity under the anti-SLAPP
statute because the "constitutional right of petition encompasses ... the basic act of
filing litigation." Navellier, 29 Cal. 4th at 90. We note that TBCOT's theory in this case
would endorse a race to the courthouse. For example, if SDL had filed a lawsuit first
alleging that TBCOT manipulated the level of earnings to avoid earn out payments
(under a breach of duty of good faith and fair dealing theory) and TBCOT
counterclaimed that through its lawsuit, SDL sought to avoid the result of its own
misrepresentation of finances and sale value, under TBCOT's standard, TBCOT would
be subject to anti-SLAPP consequences—having its counterclaims stricken and fees
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2014) at 13-14. At oral argument before this panel, TBCOT suggested that whether
SDL's claims could be brought independently is irrelevant because the mere fact that
SDL brought these claims in reaction to TBCOT's complaint is itself evidence that the
counterclaims are based on protected petitioning activity. We disagree. "[T]he mere
fact that an action was filed after protected activity took place does not mean the action
arose from that activity for the purposes of the anti-SLAPP statute. Moreover, that a
cause of action arguably may have been 'triggered' by protected activity does not entail
that it is one arising from such." Navellier, 29 Cal. 4th at 89 (citation omitted).
In sum, SDL's counterclaims are based on allegations that TBCOT made
misrepresentations during the negotiation process and failed to sufficiently perform its
contractual obligations. Accordingly, we conclude TBCOT failed to establish that SDL's
counterclaims "achieve the objective of a SLAPP suit—to interfere with and burden
[TBCOT's] exercise of [its] rights." Navellier. 29 Cal. 4th at 93. TBCOT's motion to
strike hinges almost entirely on SDL's mere references to TBCOT's complaint in SDL's
amended answer. A review of SDL's counterclaims indicate that these references are
incidental to the thrust of the counterclaims. These counterclaims encompass alleged
prelitigation conduct. As we explained in Dillon v. Seattle Deposition Reporters, LLC,
179 Wash. App. 41,316P.3d 1119(2014). review granted. 180Wn.2d 1009, 325 P.3d
913(2014):
and penalties imposed. Adoption of TBCOT's standard is contrary to the case authority
discussed above and renders any legitimate counterclaims subject to an anti-SLAPP
motion to strike. The unique remedies available under this statute are not merely
another weapon in the arsenal of litigation.
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"[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.". . .
. . . [W]hen 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.
Dillon. 179 Wash. App. at 71-72 (guoting Martinez v. Metabolife Int'l. Inc.. 113 Cal. App.
4th 181, 188, 6 Cal. Rptr. 3d 494 (Cal. App. 2003)). Here, as in Dillon, the references to
TBCOT's complaint are collateral allusions irrelevant to the gravamen of SDL's
counterclaims.
Because we conclude that under the circumstances here, TBCOT failed to meet
its initial burden of showing by preponderance of the evidence that SDL's counterclaims
are based on protected activity, we do not address the second prong—whether SDL
can show a probability of prevailing on their counterclaims by clear and convincing
evidence.11 Our ruling is limited to the conclusion that TBCOT fails to meet its initial
burden under the anti-SLAPP statute and does not preclude the trial court from
determining the sufficiency of SDL's counterclaims on appropriate motions including
summary judgment. See, e.g., Hedlund, 180 Wash. App. at 603. The trial court erred in
striking SDL's pleadings under the anti-SLAPP statute.
Finally, the anti-SLAPP statute awards mandatory fees and costs to the
prevailing party. RCW 4.24.525(6). "[W]here a prevailing party is entitled to attorney
11 TBCOT relies on Albergo v. Immunosvm Corp.. 2011 WL 197580 (S.D. Cal,
Jan. 20, 2011). There plaintiffs claimed they were induced to enter into contracts. They
filed suit alleging, among other claims, fraud and fraud in the inducement. Defendants
counterclaimed alleging four claims including fraud. Albergo is not persuasive. As
discussed above, under Washington law, the thrust or gravamen of SDL's
counterclaims relate to matters that implicate prelitigation conduct and any reference to
TBCOT's complaint is merely incidental to those claims.
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fees below, they are entitled to attorney fees if they prevail on appeal." Sharbono v.
Universal Underwriters Ins. Co.. 139 Wash. App. 383, 423, 161 P.3d 406 (2007).
Because we reverse the trial court's order granting TBCOT's special motion to strike,
we also reverse the trial court's award of attorney fees, costs, and mandatory statutory
penalties.
CONCLUSION
We reverse and remand with instructions to reinstate SDL's counterclaims and
third party claims.
WE CONCUR:
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