Opinion
NOT TO BE PUBLISHED
APPEAL from a order of the Superior Court of San Diego County No. 37-2009-00098470- CU-PN-CTL, Ronald S. Prager, Judge.
McCONNELL, P. J.
In this malicious prosecution action against attorneys, the issue is whether the trial court erred by denying their special motion to dismiss under the anti-SLAPP (strategic lawsuit against public participation) statute (Code Civ. Proc., § 425.16). Defendants contend plaintiff did not meet her prima facie burden of showing a probability of prevailing on the merits, as there is no evidence they lacked probable cause to prosecute the action or acted with malice. We find no error and affirm the order.
Further statutory references are also to the Code of Civil Procedure unless otherwise specified.
FACTUAL AND PROCEDURAL BACKGROUND
A. Underlying Action
Jae Hee Lee operated a massage and holistic health services business in San Diego called Crystal Spa or Crystal Oriental Spa (Crystal Spa). In November 2005 Lee entered into a contract with Yumi Ito for Ito's purchase of the business for $145,000. Ito had been in the massage business in other California cities from the late 1990's. In 1999 and 2001 she was charged with various crimes arising from her business, including being unlicensed, wearing transparent garments, lewd conduct and prostitution. She was convicted on some charges in each case.
The contract required Lee to transfer business assets to Ito, including Crystal Spa's phone number, and thus Lee gave Ito her cell phone. The agreement does not contain a clause prohibiting Lee from opening a competing business in the area.
Ito entered into a lease with Crystal Spa's landlord, 2705 Garnet, LLC (2705 Garnet). Ito did not immediately open for business. The City of San Diego's (the City) health department required that she rectify problems with the premises, and then she hired a contractor and undertook a major renovation.
For convenience, we take some background facts from an appeal involving 2705 Garnet and Ito. (2705 Garnet, LLC v. Ito (June 12, 2008, D051048) [nonpub. opn.].)
Ito opened for business on February 24, 2006. She did not use the name Crystal Spa or its phone number, either in building signage or advertisements. Rather, she used the name Ginza Spa from its inception. Ito also obtained her own phone number because she was not getting as many calls as expected on the cell phone Lee gave her. Ginza Spa was immediately busy with up to 20 customers per day.
Ito gave her friend Scott Kim a 45 percent interest in Ginza Spa for no consideration. Ito named Kim chief financial officer, but he prepared no financial records and had no idea how much money the business made. Cash paying customers received no receipt. Ito also kept no financial records, and she kept the cash in her home safe. She typically charged $110 per hour for her services, and her tips ran as high as $100 per service.
Before Ito opened Ginza Spa, Lee notified her that she planned to open a new massage business in the area. Ito raised no objection, believing she had no ground to do so. Lee opened her new business in July 2006 in Mira Mesa, after which Ginza Spa's business did notdecline. Ginza Spa continued to have up to 20 customers a day.
In August 2006 Ito, Kim and Ginza Spa sued Lee. Plaintiffs were represented by Philip Shapiro and C. Hartzog Clamon, of the Shapiro & Clamon law firm (Shapiro and Clamon). The third amended complaint (complaint) included causes of action for fraud, conversion, unfair business practices, unfair competition, false advertising, invasion of privacy, conspiracy, and breach of contract. The complaint prayed for actual damages, including the purchase price of the business, statutory treble damages, punitive damages, and injunctive relief.
The complaint named Attorney Jeffrey C. Jackson as an additional defendant, on the theory he acted as Lee's attorney and agent for the sale of Crystal Spa. He was exonerated at trial and is not involved in this appeal.
The gist of the complaint was that Lee had told Ito she intended to leave the San Diego area to open a mortgage company, but instead she stayed here, opened a competing massage business named Crystal Spa, and transferred the Crystal Spa phone number back to herself. The complaint alleged that Lee diverted plaintiffs' customers to herself, and as a result, plaintiffs "were forced to create the new fictitious business name 'Ginza Spa, ' " and they were also forced to obtain new phone numbers and to advertise under the name Ginza Spa "in an effort to compete."
In November 2006 Ito obtained a preliminary injunction that prohibited Lee from using the name Crystal Spa, and ordered her to transfer control of a certain phone number to Ito. Ito and Kim filed supporting declarations that contained false statements. For instance, the declarations stated that after purchasing Lee's business in November 2005 Ito and Kim immediately opened for business under the name Crystal Spa, and when Lee opened her new business in July 2006, Ito and Kim lost all of their customers to Lee and were forced to rename their business Ginza Spa.
Ito and Kim signed their declarations on September 28, 2006. One week earlier undercover police officers had raided Ginza Spa and arrested Ito and Kim for supervising an unlicensed masseuse. The following October 6, police conducted a sting operation at Ginza Spa and arrested them for running a house of prostitution. Police found 60 condoms on the premises.
As a result, in October 2006 the City revoked Ito's massage and holistic health practitioner's license. She challenged the revocation administratively, but in January 2007, while the matter was pending, her license expired. She nonetheless continued to operate Ginza Spa.
In February 2007 the San Diego City Attorney gave 2705 Garnet notice Ito was operating a brothel on its premises and it was subject to the penalties set forth in the Red Light Abatement Law (Pen. Code, § 11225, subd. (a)). The city attorney directed 2705 Garnet to remove Ito's business from the property.
In March 2007, 2705 Garnet served a notice to quit on Ito, followed by an unlawful detainer action that alleged Ito's prostitution activities violated the terms of her lease. Ito filed a motion to strike under the anti-SLAPP statute (§ 425.16), arguing her conduct was in furtherance of her constitutional right of free speech. The court denied the motion, and Ito appealed. This court affirmed the order, explaining "the record unequivocally shows 2705 Garnet's unlawful detainer action is based on Ito's alleged use of the premises for acts of prostitution in violation of the terms of the lease. Acts of prostitution are not in any way related to the right of free expression protected by the state and federal Constitutions." (2705 Garnet, LLC v. Ito, supra, D051048.) Shapiro and Clamon represented Ito in that matter.
In August 2007, while Ito was operating without a license and fighting eviction, the police conducted another raid on Ginza Spa. Ultimately the city attorney brought 18 criminal charges against Ito and Kim, including prostitution (Ito) and the operation of a house of prostitution.
In the meantime, Lee moved for summary judgment or summary adjudication. In support of her opposition, and separate statement, Ito submitted a declaration, dated November 14, 2007, that claimed Lee never transferred the name Crystal Spa or any other assets to Ito. Lee's attorney, Robert Fuselier, submitted a responsive declaration that stated Ito's declaration was false. Shortly after the court issued the permanent injunction, Lee met plaintiffs and their attorney, Shapiro, at a cellular phone company and transferred the Crystal Spa phone number to Ito. Fuselier knew this because Shapiro notified him by phone from the cellullar store, and Fuselier was shocked to learn Shapiro was talking with Lee. Further, Fuselier's declaration stated that within a day or two of the phone number exchange, plaintiffs' attorney, Clamon, advised Fuselier that plaintiffs had recorded the names Crystal Spa and Crystal Oriental Spa with the County of San Diego. Attached to Fuselier's declaration was a record from the county recorder showing Ginza Spa Corporation is the recorded owner of the fictitious business names Crystal Oriental Spa and Crystal Spa as of September 7, 2006.
In December 2007 the court denied the motion with the exception of granting summary adjudication on the complaint's invasion of privacy count, and the breach of contract count as to Kim and Ginza Spa since they were not signatories. The court's ruling does not address the information in Fuselier's declaration.
Trial of the underlying action commenced in June 2008. Before trial, Ito dismissed her breach of contract claim. Evidence showed that about a month before trial began, Ito and Kim were convicted in criminal court of all charges against them. In this case, Ito testified she massaged customer's penises, ostensibly to relieve "physical stress or tension, " and from her earlier criminal cases she knew the conduct was illegal. Ito's and Kim's testimony also revealed the perjury in their pretrial declarations. They admitted the facts outlined above, that Ito never operated her business as Crystal Spa or used its phone number after the business opened, and Ginza Spa's business did not decline after Lee opened her new business.
After the close of evidence, the court granted Lee's motion for nonsuit on all remaining causes of action. The court entered judgment in her favor.
B. Malicious Prosecution Action
Lee then sued Shapiro and Clamon for malicious prosecution. A first amended complaint (complaint) alleges Shapiro and Clamon commenced and continued the underlying action "in bad faith and without legal cause of basis."
The complaint also included causes of action for abuse of process and aiding and abetting, but they are not at issue on appeal. The complaint also named Ito, Kim and Ginza Spa, but they are not parties to the appeal.
Shapiro and Clamon brought a special motion to strike the complaint under the anti-SLAPP statute (§ 425.16). The court denied the motion, finding Shapiro and Clamon (1) lacked probable cause to commence an action on behalf of Kim and Ginza Spa because they lacked standing; and (2) lacked probable cause to continue the action after Ito and Kim were convicted of running a house of prostitution. The court rejected Shapiro and Clamon's argument that their client's success in obtaining a preliminary injunction and avoiding a defense summary judgment established they had probable cause to bring the action on their clients' behalf. The court found "the evidence suggests... Ito's declarations filed in the underlying action were perjured, and that [Shapiro and Clamon] suborned the perjury. [Citation.] While Defendants cite to portions of the Reporter's Transcript indicating otherwise, this simply raises an issue of disputed fact." The court also found the evidence of subornation showed Shapiro and Clamon acted with malice.
DISCUSSION
I
Legal Principles
A
Anti-SLAPP Statute
In 1992 the Legislature enacted section 426.16, known as the anti-SLAPP statute, to allow a court to dismiss certain types of unmeritorious claims at an early stage in the litigation. (Annette F. v. Sharon S. (2004) 119 Cal.App.4th 1146, 1159.) Section 425.16, subdivision (b)(1) provides: "A 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 or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim."
In deciding an anti-SLAPP motion, the trial court must "engage in a two-step process. 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 such a showing has been made, it then determines whether the plaintiff has demonstrated a probability of prevailing on the claim." (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.) Here, it is undisputed that Lee's malicious prosecution action is subject to anti-SLAPP scrutiny. (See Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 734-735.)
"[T]o establish a probability of prevailing on the claim [citation], a plaintiff responding to an anti-SLAPP motion must ' "state[] and substantiate[] a legally sufficient claim." ' [Citations.] Put another way, 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.] In deciding the question of potential merit, the trial court considers the pleadings and evidentiary submissions of both the plaintiff and the defendant [citation]; though the court does not weighthe credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendant's evidence supporting the motion defeats the plaintiff's attempt to establish evidentiary support for the claim." (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821, italics omitted.)
The court's ruling on a special motion under section 425.16 is subject to our independent review. (Annette F. v. Sharon S., supra, 119 Cal.App.4th at p. 1159.)
B
Malicious Prosecution
The tort of malicious prosecution "is disfavored both because of its 'potential to impose an undue "chilling effect" on the ordinary citizen's willingness to report criminal conduct or to bring a civil dispute to court' [citation] and because, as a means of deterring excessive and frivolous lawsuits, it has the disadvantage of constituting a new round of litigation itself [citation]." (Wilson v. Parker, Covert & Chidestar, supra, 28 Cal.4th at p. 817.) "Three elements must be pleaded and proved to establish the tort of malicious prosecution: (1) A lawsuit was ' " 'commenced by or at the direction of the defendant [which] was pursued to a legal termination in... plaintiff's... favor' " '; (2) the prior lawsuit ' " 'was brought without probable cause' " ''; and (3) the prior lawsuit ' " 'was initiated with malice.' " ' " (Daniels v. Robbins (2010) 182 Cal.App.4th 204, 216.) The latter two elements are at issue here, and we discuss them more in depth below.
II
Analysis
A
Probable Cause
Shapiro and Clamon contend the court erred by finding that an evidentiary issue on the probable cause element precludes resolution by way of an anti-SLAPP motion. We are unpersuaded.
"[T]he probable cause element calls on the trial court to make an objective determination of the 'reasonableness' of the defendant's conduct, i.e, to determine whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable. The resolution of that question of law calls for the application of an objective standard to the facts on which the defendant acted." (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 878.) "Only those actions that any reasonable attorney would agree are totally and completely without merit may form the basis for a malicious prosecution suit." (Zamos v. Stroud (2004) 32 Cal.4th 958, 970.)
Shapiro and Clamon's theory is that their success in nonfinal pretrial proceedings, such as the summary judgment motion, establishes they acted with probable cause. "Under established law, certain nonfinal rulings on the merits may serve as the basis for concluding that there was probable cause for prosecuting the underlying case on which a subsequent malicious prosecution action is based. [Citation.] This principle — utilizing the 'rather lenient standard' of probable cause as enunciated under [Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d. 863] [citation] — is based upon the notion that '[c]laims that have succeeded at a hearing on the merits, even if that result is subsequently reversed by the trial or appellate court, are not so lacking in potential merit that a reasonable attorney or litigant would necessarily have recognized their frivolousness.' " (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1020.)
The court found against Shapiro and Clamon on the issue, on the ground there is evidence Ito committed perjury in conjunction with pretrial proceedings and the attorneys suborned the perjury. "The principle that a favorable interim ruling on the merits will establish probable cause is subject to an exception in instances in which that ruling was procured by fraud or perjury perpetrated by the plaintiff (the malicious prosecution defendant)." (Paiva v. Nichols, supra, 168 Cal.App.4th at pp. 1025-1026; Wilson v. Parker, Covert & Chidester, supra, 28 Cal.4th at p. 817.)
"Every person who willfully procures another person to commit perjury is guilty of subornation of perjury, and is punishable in the same manner as he would be if personally guilty of the perjury so procured." (Pen. Code, § 127.) The elements of the crime are "(a) perjury actually committed by the witness (person suborned); (b) inducement (procurement) of the perjury by the defendant (suborner); and (c) knowledge or belief by the defendant that the testimony would be false." (2 Witkin and Epstein, Cal. Criminal Law (3d ed. 2000) Crimes Against Governmental Authority, § 79, p. 1176.) "[A]n attorney may not 'knowingly allow a witness to testify falsely, " and "[a]n attorney who attempts to benefit his client through the use of perjured testimony may be subject to criminal prosecution (Pen. Code, § 127) as well as severe disciplinary action [citation]." (In re Branch (1969) 70 Cal.2d 200, 210-211.) "In general, a lawyer 'is entitled to rely on information provided by the client.' [Citation.] If the lawyer discovers the client's statements are false, the lawyer cannot rely on such statements in prosecuting an action." (Daniels v. Robbins, supra, 182 Cal.App.4th at p. 223.)
Shapiro and Clamon assert there is no evidence of perjury or subornation of perjury. They claim that even if Ito committed perjury, they were merely relying on information she provided them. The evidence amply supports the court's findings, and we need not repeat the facts outlined above pertaining to numerous falsehoods in Ito's declarations, and the information in Fueslier's declaration indicating Shapiro and Clamon knew of false statements in Ito's November 14, 2007 declaration in opposition to Lee's summary judgment motion. At the hearing on the anti-SLAPP motion, Shapiro and Clamon's attorney conceded that Ito's trial testimony conflicted as to whether statements she made in one or more declarations were false and whether Shapiro and Clamon were involved. The attorney argued the evidence of their involvement was too weak to justify not granting the anti-SLAPP motion. We cannot quarrel with the court's finding that there is a triable issue of fact.
Shapiro and Clamon also assert the fraud and perjury exception to the general rule on pretrial successes is inapplicable because Lee complained of Ito's perjury during the summary judgment motion, and the court nonetheless denied most of the relief she requested. Further, Shapiro and Clamon claim the fraud and perjury exception is inapplicable because the court's ruling on the motion does not indicate it relied on Ito's declaration. Shapiro and Clamon cite Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1052, for the proposition that "where, as here, claims of fraud or perjury are litigated unsuccessfully before a fact finder in an underlying case, those same claims cannot be relied on to establish the absence of probable cause in a subsequent malicious prosecution suit."
We decline to decide the issue, however, because even if Shapiro and Clamon had probable cause to commence the underlying action and engage in pretrial proceedings, the court's ruling is proper. The evidence raises an evidentiary issue as to whether at some point, facts developed that showed they lacked probable cause to continue the action. "Malicious prosecution... includes continuing to prosecute a lawsuit discovered to lack probable cause." (Zamos v. Stroud, supra, 32 Cal.4th at p. 973.) "Malicious prosecution 'is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice.' [Citations.] Continuing an action one discovers to be baseless harms the defendant and burdens the court system just as much as initiating an action known to be baseless from the outset." (Id. at p. 969.) " 'It makes little sense to hold attorneys accountable for their knowledge when they file a lawsuit, but not for their knowledge the next day.' " (Ibid.) " 'Holding attorneys liable for the damages a party incurs as a result of the attorneys prosecuting civil claims after they learn the claims have no merit also will encourage voluntary dismissals of meritless claims at the earliest stage possible.' " (Ibid.)
The gravamen of the underlying action was that Lee wrongfully competed with Ito, Kim and Ginza Spa, thereby causing damages. About a month before trial began, however, Shapiro and Clamon knew their clients had been convicted of running a house of prostitution. A trier of fact could reasonably find that no reasonable attorney would have proceeded to trial, as there was no potential for proving Lee unfairly competed. The parties were not trying to attract the same type of customers. The general rule pertaining to success on nonfinal pretrial matters does not protect attorneys who persist in prosecuting an action after they gain actual knowledge of its frivolousness.
Without citation to the record, Lee asserts that Shapiro and Clamon represented Ito and Kim in their criminal proceedings. In their reply brief, Ito and Kim do not deny this. During the hearing on the anti-SLAPP motion, the court stated Shapiro and Clamon "were involved in this thing up to their ears from day one, including the defense of the criminal case, administrative hearings, the whole thing."
The court's ruling on probable cause is proper. "When there is a dispute as to the state of the defendant's knowledge and the existence of probable cause turns on resolution of that dispute, ... the jury must resolve the threshold question of the defendant's factual knowledge or belief." (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at p. 881.)
We also reject Shapiro and Clamon's contention that the trial court's denial of Lee's motion for attorney fees in the underlying action conclusively establishes they had probable cause to prosecute it. Lee sought fees under Code of Civil Procedure section 2033.420, subdivision (a), which provides that if a party fails to admit the truth of a matter in response to a request for admission, the requesting party may seek to recover fees incurred in proving the truth of the matter. The court denied fees on the ground that Lee failed to specify the fees incurred in proving the truth of each of the requested admissions. The court also found that it "cannot find that all of the 19 broadly worded requests were so 'cut and dried' that plaintiffs could not, in good faith, believe they would prevail on at least some of the issues at trial." This court affirmed the ruling, explaining: "In light of our conclusion that Lee failed to adequately demonstrate that she incurred attorney fees recoverable pursuant to section 2033.420, we need not address her contentions that plaintiffs had no reasonable basis for pursuing any of their claims against her. If Lee is correct in this assertion, the proper procedural mechanism to obtain redress would seem to be a malicious prosecution action." (Kim v. Lee (July 13, 2009, D053890) [unpub. opn.].) Again, there is evidence that at the time of trial Shapiro and Clamon lacked probable cause to continue the action. Any probable cause they may have had during discovery is unrelated.
B
Malice
Shapiro and Clamon also contend the court should have granted their anti-SLAPP motion because there is no evidence they acted with malice. We conclude the contention lacks merit.
Malice is defined as "either actual hostility or ill will on the part of the defendant or a subjective intent to deliberately misuse the legal system for personal gain or satisfaction at the expense of the wrongfully sued defendant." (Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 498-499.) "[T]he commission of the tort of malicious prosecution requires a showing of an unsuccessful prosecution of a criminal or civil action, which any reasonable attorney would regard as totally and completely without merit [citation], for the intentionally wrongful purpose of injuring another person." (Id. at p. 499.)
" 'Since parties rarely admit an improper motive, malice is usually proven by circumstantial evidence and inferences drawn from that evidence.' " (Daniels v. Robbins, supra, 182 Cal.App.4th at p. 225.) "A lack of probable cause is a factor that may be considered in determining if the claim was prosecuted with malice [citation], but the lack of probable cause must be supplemented by other, additional evidence." (HMS Capital, Inc. v. Lawyers Title Co. (2004) 118 Cal.App.4th 204, 218.) "Additional proof of malice can consist of evidence a party knowingly brings [or continues] an action without probable cause." (Daniels v. Robbins, supra, at p. 226.) "[M]alice formed after the filing of a complaint is actionable." (Ibid.)
The court reasonably found that evidence suggesting Shapiro and Clamon suborned client perjury is sufficient to show a subjective intent to deliberately misuse the legal system for personal gain or satisfaction at Lee's expense. Further, there is evidence Shapiro and Clamon knowingly continued prosecuting the action without probable cause. A trier of fact could conclude that by the time of trial, no reasonable attorney would have continued as the action lacked even arguable merit. The matter is not subject to resolution through an anti-SLAPP motion.
DISPOSITION
The order is affirmed. Lee is entitled to costs on appeal.
WE CONCUR: BENKE, J., IRION, J.