Opinion
B223031
09-21-2011
WILLIAM WOODWARD et al., Plaintiffs and Appellants, v. CAPITAL ONE NATIONAL ASSOCIATION, SUCCESSOR BY MERGER TO NORTH FORK BANK, Defendant and Respondent.
Law Offices of Campbell Hugh Greenup, Campbell H. Greenup; Williams & Kilkowski and Lee D. Williams for Plaintiffs and Appellants. McGuire Woods and Susan L. Germaise for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions 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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. SC 105395)
APPEAL from a judgment of the Superior Court of Los Angeles County. Elizabeth A. Grimes, Judge. Affirmed in part, reversed in part and remanded.
Law Offices of Campbell Hugh Greenup, Campbell H. Greenup; Williams & Kilkowski and Lee D. Williams for Plaintiffs and Appellants.
McGuire Woods and Susan L. Germaise for Defendant and Respondent.
INTRODUCTION
Appellants William Woodward and Lee D. Williams entered into a "Participation Agreement" with Capstone Capital, LLC to jointly litigate a bankruptcy action that Capstone filed against John Castellucci. Approximately six years later, Appellants filed a complaint alleging that Capstone violated the Participation Agreement when it, and several other parties, negotiated a settlement of the bankruptcy action without Appellants' knowledge or consent. The complaint asserted 15 causes of action against seven named defendants, including North Fork Bank, who was alleged to be the "principal creditor" and "alter ego" of Capstone.
North Fork Bank's successor in interest, Respondent Capital One National Association, filed a motion to strike five of the 14 claims pled against it pursuant to Code of Civil Procedure section 425.16. In addition, Capital One demurred to every claim in the complaint. The trial court granted the section 425.16 motion and entered an order striking the entire complaint against Capital One. As a result of its ruling, the court deemed Capital One's demurrer moot.
Unless otherwise noted, statutory references are to the Code of Civil Procedure.
On appeal, Woodward and Williams contend that the trial court erred in striking the claims referenced in Capital One's section 425.16 motion because: (1) the claims did not arise from a protected activity within the meaning of section 425.16, and (2) to the extent the claims did arise from a protected activity, Plaintiffs introduced sufficient evidence to demonstrate a probability of prevailing on the claims. In addition, Appellants argue that the trial court erred in striking nine claims that were not referenced in Capital One's motion to strike.
Although we affirm the trial court's decision to strike each claim Capital One referenced in its section 425.16 motion, we reverse its decision to strike the remainder of Appellants' claims against Capital One.
FACTUAL AND PROCEDURAL BACKGROUND
A. Events Preceding the Current Lawsuit
1. The Participation Agreement
In June of 2000, Appellants Lee D. Williams and William Woodward (collectively Plaintiffs) filed a complaint against Capstone Capital LLC and John Castellucci for fraud and breach of contract. While the case was pending, Capstone filed an involuntary bankruptcy petition against Castellucci, captioned In re Castellucci, Case Number SV 01-20176. In addition, Capstone filed a proof of claim against Castellucci and an adverse complaint seeking to deny Castellucci discharge under 11 U.S.C. § 727 and to hold certain debts nondischargeable under 11 U.S.C. § 523 (the Bankruptcy Claims).
In July of 2003, Plaintiffs settled their lawsuit against Capstone. The settlement required the parties to enter into a separate "Participation Agreement" under which Plaintiffs agreed to purchase an interest in: (1) Capstone's Bankruptcy Claims, and (2) a deed of trust Capstone recorded against Castellucci's property, which was located in Malibu, California (the Malibu property). The "Participation Agreement" included the following provisions:
• Plaintiffs would enjoy the same rights and privileges Capstone enjoyed as the result of Capstone's deed of trust against the Malibu property, which had been issued to secure debt totaling approximately $5.2 million.
• Plaintiffs and Capstone would jointly prosecute and manage the Bankruptcy Claims against Castellucci.
• Neither party would settle or dismiss the Bankruptcy Claims without the written consent of the other party.
• Capstone would not attempt to foreclose on the Malibu property, or pursue any civil remedies against Castellucci outside the bankruptcy proceedings without Plaintiffs' consent and opportunity to participate.
The Agreement also described how the parties would divide proceeds "collected from the pursuit" of the Bankruptcy Claims, which included any sale of the Malibu property. Specifically, Plaintiffs were to receive "the first $324,000 of Collected funds," "38% of all Collected Funds exceeding $324,000," and "50% of all Collected Funds exceeding $853,000."
The Agreement included a termination provision stating that "upon 48 hours notice," either party could terminate the Agreement if "such other Party is in material breach of such other Party's obligations hereunder, and has failed to cure such breach within 72 hours of written notice thereof." In the event of termination, the Agreement provided that the "breaching party" would no longer be "entitled to participate in the prosecution of the Claims," but would still receive its share of any funds collected "up to and including the Termination Date."
2. Capstone's foreclosure proceeding against Castellucci
During the Castellucci bankruptcy action, Capstone initiated foreclosure proceedings against the Malibu property, which included the filing of a "Notice of Default and Election to Sell under Deed of Trust." The sale was scheduled to occur in February of 2007.
On November 27, 2006, Castellucci and his wife filed an action in Los Angeles Superior Court to enjoin the sale of the Malibu property on the basis that Capstone had fraudulently obtained its deed of trust (Castellucci state court action). The Castelluccis later amended the complaint to add "North Fork Bank" as a defendant, who was alleged to be a creditor of Capstone.
3. Plaintiffs' termination of the Participation Agreement
On November 10, 2006, Plaintiffs sent Capstone a letter stating that Capstone had materially breached the Participation Agreement by precluding Plaintiffs from their "right to jointly and equally manage the prosecution of the [Castellucci Bankruptcy] Claims in that it has made and is making decisions regarding the settlement of such Claims without asking for or permitting the input and consent of [Appellants]." The letter described several actions that allegedly constituted a material breach of the parties' Agreement, including: (1) negotiating and drafting an agreement that would settle the Bankruptcy Claims; (2) initiating foreclosure proceedings on the Castelluccis' property; and (3) failing to distribute $100,000 that Capstone allegedly obtained from Castellucci. The letter demanded that such deficiencies be cured within 72 hours.
Three days later, Plaintiffs sent a second letter informing Capstone that it had failed to cure the material breaches of the Participation Agreement and, as a result, Plaintiffs had terminated the Agreement and were therefore entitled to sole control of any further prosecution of the Bankruptcy Claims.
4. Capstone and North Fork's settlement of the Bankruptcy Claims
On March 19, 2007, Capstone filed a motion in bankruptcy court to dismiss its Bankruptcy Claims against Castellucci. The motion alleged that all claims pending in the bankruptcy proceedings had been resolved pursuant to settlement between Capstone, North Fork Bank, Castellucci and various Castellucci creditors. Under the terms of the settlement, Capstone and several other parties holding deeds of trust to the Malibu property agreed to reconvey their interests in the property to Castellucci, who would then use the unencumbered property to obtain a loan of $3,750,000 from Washington Mutual. The proceeds of the loan were to be distributed to Capstone and other creditors as settlement payments. Capstone's portion of the settlement proceeds was $930,000.
The settlement further provided that, upon receipt of the settlement proceeds, the parties would seek dismissal of all pending federal and state actions pertaining to the Castellucci property and estate, including Castellucci's state law action seeking to enjoin Capstone and North Fork from foreclosing on the property.
Capstone's motion to dismiss the bankruptcy action stated that Castellucci had made all necessary payments under the settlement and, as a result, the court should dismiss the matter. On April 25, 2007, the bankruptcy court granted the motion and dismissed Capstone's Bankruptcy Claims.
B. Plaintiffs' Complaint
On October 26, 2009, Plaintiffs filed a complaint against Capstone, Capital One National Association, who was a successor of interest to North Fork Bank, Castellucci and other parties who signed the bankruptcy settlement. The complaint included 15 causes of action arising from the settlement, 14 of which were pled against both Capstone and North Fork.
Throughout the opinion, we refer to Capital One and North Fork interchangeably as "North Fork," "Capital One" and "Capital One/North Fork."
Several of these 14 causes of action were pled against various additional defendants. The fifteenth claim, which sought a lien on the Castellucci property, was pled against the Castelluccis only.
The complaint's description of the named defendants asserted that North Fork had become Capstone's "alter ego," and was therefore liable for Capstone's acts with respect to the bankruptcy settlement:
North Fork was a principal creditor of Capstone with contractual or other means of asserting control over the affairs of Capstone. By virtue of its assertion of authority over and control of Capstone as such a creditor, North Fork has been principally responsible for many of the acts of Capstone . . . and has become the alter ego of Capstone . . . .The complaint further asserted that, "some time toward the end of 2005 or the beginning of 2006, North Fork took control of and dominated Capstone's handling of Capstone's obligation under the Participation Agreement."
Under the "General Allegations" portion of the complaint, Plaintiffs alleged that, in October of 2006, Capstone breached the Participation Agreement by "refus[ing] to allow Plaintiffs to jointly manage and prosecute the [Bankruptcy] Claims," initiating foreclosure proceedings against the Castellucci property "without offering Plaintiffs the requisite information and opportunity to participate," and failing to distribute a $100,000 payment obtained from the Castelluccis. Plaintiffs asserted that, as a result of these actions, they had terminated the Participation Agreement as of November 13, 2006, which legally precluding Capstone from participating in any further "prosecution of the Claims and . . . entitled [Plaintiffs] to assert all of Capstone's interests in and to the Claims."
Despite this termination, Capstone, North Fork and others allegedly continued to prosecute the Bankruptcy Claims, which resulted in a "Secret Settlement":
[I]n early 2007, without notice or forewarning of any kind to Plaintiffs and notwithstanding the terms of the Participation Agreement, Capstone, North Fork, [and] . . . the Castelluccis . . . conspired together to secretly settle, and did secretly
settle, the [Bankruptcy Claims] and all other matters between such parties without the knowledge, participation or consent of Plaintiffs . . . The purpose of the conspiracy and the Secret Settlement was to allow the Castelluccis, Capstone and North Fork to reconvey the [deed of trust] without the required consent of Plaintiffs and secretly refinance the [Malibu property] to obtain the funds to accomplish the Secret Settlement, and thereafter pay little or no money to Plaintiffs . . . from the proceeds which the Castelluccis were to receive from, among other sources, refinancing the [Malibu property].
The complaint asserted that, "[a]s part of the Secret Settlement, Capstone and North Fork" had: (1) obtained over $1 million, which they failed to distribute in the manner required under the Participation Agreement; (2) "[s]ecretly reconveyd the [deed of trust] to the Castelluccis, including Plaintiffs' interest therein . . . without informing or obtaining the prior consent of Plaintiffs as required by the Participation Agreement"; and (3) intentionally concealed the existence of the Secret Settlement, the settlement proceeds and the reconveyance of Capstone's deed of trust.
The complaint also alleged that, prior to entering into the Secret Settlement, Capstone and the Plaintiffs had entered into a settlement with Castellucci that "purported to resolve the [Bankruptcy Claims] and all other matters between such parties," which the complaint referred to as the "Known Settlement." Although the Castelluccis allegedly obtained judicial approval for this "Known Settlement," they failed to satisfy the settlement's required terms and the agreement was terminated. Plaintiffs alleged that, following this termination, Capstone and North Fork represented that they were attempting to reinstate the Known Settlement, but in fact were negotiating the Secret Settlement:
Between the termination of the Known Settlement and the making of the Secret Settlement, Capstone, North Fork, [and] the Castelluccis . . . falsely represented to Plaintiffs that they were working to resolve issues in the Known Settlement . . . [and the] Bankruptcy Case, deliberately concealed, suppressed and failed to inform Plaintiffs of the negotiations and making of the Secret Settlement and conspired and secretly agreed among themselves to hide the Secret Settlement and Secret Settlement Proceeds from Plaintiffs. All parties and other participants in the Secret Settlement (i) were aware at the time the Secret Settlement was executed of . . . the terms and provisions of the Participation Agreement; and (ii) conspired to
and did conceal from Plaintiffs the negotiation and making of the Secret Settlement so as to avoid the requirement of Plaintiffs' consent to the [reconveyance of the deed of trust].
The 14 causes of action against Capstone and North Fork included, in relevant part, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, fraud, conversion, inducement to breach contract, interference with prospective economic advantage and civil conspiracy.
The specific allegations within the relevant causes of action are described in our legal analysis below.
C. Capital One's Demurrer and Motion to Strike Pursuant to Civil Code of Procedure Section 425.16
1. Capital One's demurrer and motion to strike
On December 18, 2009, Capital One filed a demurrer to every claim Plaintiffs had pled against it. The demurrer was accompanied by a Request for Judicial Notice requesting that the court take notice of the motion to dismiss the bankruptcy proceedings, which included a copy of the purported "Secret Settlement."
Plaintiffs assert that "North Forks (sic) request for judicial notice was granted by the Court." Although Plaintiffs have not cited any portion of the record that verifies the court granted the request, both parties discuss the motion to dismiss and "Secret Settlement" in their appellate briefs, and neither has objected to our consideration of those documents for the purposes of this appeal.
The same day, Capital One filed a motion pursuant to section 425.16 seeking to strike the "causes of action for fraud and deceit (sixth cause of action), conversion (seventh cause of action), inducement to breach contract (eighth cause of action), intentional interference with prospective economic advantage (ninth cause of action) and conspiracy (tenth cause of action) . . . ." Capital One requested that the court only consider its demurrer to those five claims "in the event [the court] denies [the section 425.16] motion."
On January 8, 2010, Plaintiffs filed an opposition to Capital One's section 425.16 motion, accompanied by a declaration from Plaintiff Lee Williams. Plaintiffs contended that their claims against North Fork did not arise from any protected petitioning activity within the meaning of section 425.16. Rather, according to Plaintiffs:
the activity that gave rise [to its claims] . . . was the undertaking by [North Fork] . . . to cause, encourage, aid or enable Capstone to exclude Plaintiffs from prosecuting the claims pursuant to their agreement, to enter into and implement the Secret Settlement, and to take all the proceeds from the Secret Settlement in violation of Capstone's obligations to Plaintiffs. The actual acts causing the damages from these causes of action was the wrongful conveyance of the trust deed without Plaintiffs' knowledge or consent, and the retention of all the proceeds from the Secret Settlement.
Plaintiffs also argued that, to the extent their claims were subject to section 425.16, they had submitted sufficient evidence to make a prima facie showing that it could prevail on such claims. In support, Plaintiffs cited to the Participation Agreement, the motion to dismiss the bankruptcy proceedings, the Secret Settlement and the Williams Declaration, which alleged that Capstone's CEO told Plaintiffs that North Fork had assumed control over Capstone's litigation of the Bankruptcy Claims. Specifically, the declaration stated that Capstone CEO Joseph Ingrassia had informed Williams that North Fork
assumed control of Capstone's role in the Participation Agreement and the pursuit of the claims against Castellucci pursuant to an agreement that Capstone had with [North Fork], that [North Fork] was funding the pursuit of these claims, and that [North Fork] would get all of Capstone's share of the proceeds from the pursuit of the Claims pursuant to the Participation Agreement.In addition, Williams alleged that the attorneys for both Capstone and North Fork told him that North Fork was paying the legal fees for Capstone's pursuit of the Claims against Castellucci.
Plaintiffs argued that, considered together, the evidence demonstrated that Capstone had breached the Participation Agreement, "conceal[ed] the negotiations preceding the Secret Settlement" and "tak[en] all the proceeds from the Secret Settlement." In addition, the evidence showed "that [North Fork] asserted so much authority over and control of Capstone as to become an alter ego thereof, or to be held liable for its actions as a controlling lender, or for conspiring with Capstone to cause a conversion of Plaintiffs' interests as set forth in the Participation Agreement."
In its reply papers, North Fork objected to a substantial portion of the Williams Declaration on hearsay grounds, including all of the statements Ingrassia allegedly made to Williams regarding North Fork's assertion of control over Capstone's Bankruptcy Claims.
2. The trial court's order striking all claims pled against Capital One
The day before the hearing on Capital One's demurrer and section 425.16 motion, the trial court issued a tentative decision granting the section 425.16 motion and deeming the demurrer moot. In addition, the court entered an order sustaining the majority of Capital One's evidentiary objections, including objections to all of Ingrassia's statements to Williams.
At the hearing, which was held on January 28, 2010, Plaintiffs' counsel began by addressing the trial court's decision to sustain objections to Ingrassia's statements regarding North Fork's role in the bankruptcy settlement. Counsel, who was the author of the declaration, asserted that "[t]he person who made the statement[s] to me is the Chief Executive Officer of Capstone who is a defendant in this matter, and this would be a statement by a party against interest, . . . and . . . an authorized statement under [Evidence Code section] 1222." Counsel further explained that the evidence was relevant because "the gravamen of our action against North Fork and, hence, Capital One, is the fact that North Fork, in fact, stepped into the shoes of Capstone in all relevant ways with respect to this. And when the conveyance of the trust deed was done, it was done at the insistence of North Fork . . . .
The trial court expressed doubt over whether the declaration, even if admitted in whole, was sufficient to establish that Plaintiffs had a probability of prevailing on their claims against North Fork. In response, Plaintiffs identified three pieces of evidence that showed a likelihood of proving Capstone had breached the parties' Participation Agreement: (1) a copy of the Participation Agreement, (2) a copy of the "Secret Settlement" showing that Capstone settled and released the Bankruptcy Claims, and (3) the Williams Declaration, which stated that Plaintiffs had not received any funds from the settlement as required under the Participation Agreement. North Fork's counsel, however, argued that, regardless of whether such evidence was sufficient to show a probability of prevailing against Capstone, the evidence had "nothing to do with North Fork," who was not a party to the Participation Agreement.
Plaintiffs' counsel insisted that they had "volumes" of additional evidence against North Fork that it had elected not to submit to the court and requested a continuance. The court denied the request:
You have no right to do that. You get one bite at the Anti-SLAPP, because the whole concept behind the legislation was to get rid of these lawsuits as quickly and as inexpensively as possible. [¶] . . . [¶] The statute does not give you any right to a continuation to provide additional evidence that you might have provided at the time the motion was heard.
Plaintiffs thereafter requested an opportunity to argue that its claims were not subject to section 425.16 because they did not arise from a protected activity. The trial court permitted argument on the issue, but noted "We all know exactly what this lawsuit is about. It's about the way the litigation was prosecuted and settled, which has everything to do with the parties' rights to petition courts for relief." When counsel asserted that the complaint was merely about "ordinary business dealings between these parties," the court reiterated that the "case is all about the litigation and the settlement of the litigation."
At the conclusion of the hearing, the trial court granted Capital One's section 425.16 motion to strike and stated that it was "not deciding [the demurrer] on the grounds that [it is] moot." In a subsequent minute order, which adopted the prior tentative decision as "the final ruling," the court explained that Plaintiffs' claims arose from protected activity, and therefore were governed by section 425.16:
Here plaintiffs argue the complaint does not arise from defendants' petitioning the bankruptcy court but arises from defendants' concealment of their settlement of disputes before the bankruptcy court and exclusive retention of the settlement proceeds in derogation of their fiduciary and contractual duties to plaintiff. But plaintiffs' claims arise from defendants' continued prosecution and settlement, with bankruptcy court approval, of
the claims that were the subject of the Participation Agreement, after plaintiffs terminated the Participation Agreement. Defendants' litigation and settlement of the bankruptcy claims is not merely background evidence of activity incidental to plaintiffs' claims but is the gravamen of this lawsuit.
The court further concluded that the Plaintiffs had failed to admit sufficient, admissible evidence to demonstrate a probability of prevailing on their claims:
The court sustains most of defendant's objections to plaintiffs' evidence in opposition to the anti-SLAPP motion. Plaintiffs have not offered sufficient, competent, admissible evidence for this court to find they have a reasonable probability of success on the merits.Although the minute order included what the court described as a "superficial[]" analysis of the arguments Capital One raised in its demurrer, the order stated that the demurrer was deemed "moot."
On February 9, 2010, the court signed Capital One's proposed order, which granted the "Motion . . . to Strike the Complaint . . . pursuant to Code of Civil Procedure § 425.16" and dismissed the entire Complaint as to Capital One:
IT IS HEREBY ORDERED that the Motion is GRANTED. The Court hereby strikes the Complaint as to [Capital One] on the grounds that the Court determined that the Complaint arises from conduct of [Capital One] which constitutes protected activity under Code of Civil Procedure § 425.16, and that Plaintiffs failed to establish a probability that Plaintiffs will prevail on the claim against [Capital One].
Plaintiffs appeal the trial court's order, arguing that: (1) the causes of action Capital One referenced in its motion to strike do not arise from protected petitioning activity within the meaning of section 425.16; (2) to the extent such claims are governed by section 425.16, Plaintiffs introduced sufficient evidence to demonstrate a probability of prevailing on the claims; and (3) the trial court erred in striking the nine causes of action that were not referenced in Capital One's section 425.16 motion.
DISCUSSION
A. Governing Legal Principles and Standard of Review
Section 425.16 is intended "to provide for the early dismissal of unmeritorious claims filed to interfere with the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances." (Club Members for an Honest Election v. Sierra Club (2008) 45 Cal.4th 309, 315.) The section authorizes the filing of a special motion that requires a court to strike claims brought "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 . . . unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." (§ 425.16, subd. (b)(1).)
Section 425.16 "'requires that a court engage in a two-step process when determining whether a defendant's anti-SLAPP motion should be granted. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one "arising from" protected activity. [Citation.] If the court finds such a showing has been made, it then must consider whether the plaintiff has demonstrated a probability of prevailing on the claim.' [Citation.]" (Episcopal Church Cases (2009) 45 Cal.4th 467, 477.)
"An appellate court reviews an order granting an anti-SLAPP motion under a de novo standard. [Citation.] In other words, we employ the same two-pronged procedure as the trial court in determining whether the anti-SLAPP motion was properly granted." (Mendoza v. ADP Screening & Selection Services, Inc. (2010) 182 Cal.App.4th 1644, 1651-1652.)
We divide our legal analysis into two parts. First, we consider whether the trial court properly struck each of the five claims Capital One moved to strike pursuant to its section 425.16 motion. Second, we consider whether the trial court properly struck Plaintiffs' nine additional causes of action, which were not referenced in Capital One's motion.
B. The Trial Court Properly Struck Claims Six Through Ten
Capital One moved to strike five claims pursuant to section 425.16: fraud (sixth cause of action), conversion (seventh cause of action), inducement to breach contract (eighth cause of action), interference with prospective economic advantage (ninth cause of action) and civil conspiracy (tenth cause of action). The trial court concluded that Capital One demonstrated that each of these claims arose from a protected activity within the meaning of section 425.16 and that Plaintiffs failed to introduce sufficient evidence to demonstrate a probability of prevailing on the claims. Plaintiffs contend that the trial court erred in analyzing both prongs of the statutory test.
Capital One's notice of motion and motion to strike states that it moved to strike claims five through ten, rather than six through ten. However, Capital One's memorandum of points and authorities in support of the motion states that it only moved to strike claims six through ten and contains no reference to, or analysis of, Plaintiffs' fifth claim for breach of fiduciary duty. We therefore presume that Capital One's reference to Plaintiffs' fifth cause of action in the notice of motion was a clerical error.
1. Claims six through ten "arise from " a protected activity
Under the first prong of the statutory test, the "defendant who files a special motion to strike bears the initial burden of demonstrating that the challenged cause of action arises from protected activity. . . . A cause of action does not 'arise from' protected activity simply because it is filed after protected activity took place. [Citation.] Nor does the fact '[t]hat a cause of action arguably may have been triggered by protected activity' necessarily entail that it arises from such activity. [Citation.] The trial court must instead focus on the substance of the plaintiff's lawsuit in analyzing the first prong of a special motion to strike." (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 669-670.) In performing the analysis, "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." (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78.) Stated differently, "it is the principal thrust or gravamen of the plaintiff's cause of action that determines whether the anti-SLAPP statute applies." (Martinez v. Metabolife Internal., Inc. (2003) 113 Cal.App.4th 181, 188 (Martinez).)
"Where a cause of action is based on both protected activity and unprotected activity, it is subject to section 425.16 '"'unless the protected conduct is "merely incidental" to the unprotected conduct.'"' [Citation.]" (Wallace v. McCubbin (2011) 196 Cal.App.4th 1169, 1187 (McCubbin);see also Salma v. Capon (2008) 161 Cal.App.4th 1275, 1287.) "[A]n alleged act is incidental to a claim, and incidental to any unprotected activity on which the claim is based, only if the act is not alleged to be the basis for liability." (McCubbin, supra, 196 Cal.App.4th. at p. 1183; see also Haight Ashbury Free Clinics, Inc. v. Happening House Ventures (2010) 184 Cal.App.4th 1539, 1550 (Haight Ashbury) ["If liability is not based on protected activity, the cause of action does not target the protected activity and is therefore not subject to the SLAPP statute"].)
"'In deciding whether the initial "arising from" requirement is met, a court considers "the pleadings, and supporting and opposing affidavits stating the facts [on] which the liability or defense is based."' [Citation.]" (Martinez, supra, 113 Cal.App.4th at p. 186.)
This case presents two sub-issues regarding the "arising from" requirement: (1) whether claims six through ten reference any activity that is subject to section 425.16, and (2) whether each cause of action "arises from" that protected activity. (See Haight Ashbury, supra, 184 Cal.App.4th at p. 1547 [determining whether causes of action allege any protected activity, and then determining whether claims arise from that protected activity].)
a. The claims reference a protected activity
Claims six through ten all reference, either directly or by incorporation, North Fork's negotiation and execution of the "Secret Settlement," which resolved several adversary actions in the bankruptcy court and four additional state court actions, one of which named North Fork as a defendant. Capital One argues that this settlement activity constitutes protected conduct under section 425.16.
Section 425.16, subdivision (e)(2) defines protected activity to include "statements or writing made in connection with an issue under consideration or review by a . . . judicial body." In Navellier v. Sletten (2002) 29 Cal.4th 82, 90 (Navellier), the California Supreme Court concluded that a defendant's "negotiation and execution of [a] Release" fell "squarely within the plain language" of subdivision (e). More recently, in Seltzer v. Barnes (2010) 182 Cal.App.4th 953 (Seltzer), the court cited and discussed numerous cases holding "that settlement negotiations are an exercise of the right to petition and statements made as part of such negotiations are in connection with the underlying lawsuit for purposes of section 425.16, subdivision (e)(2)." (Id. at p. 963 [citing GeneThera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901; Navarro v. IHOP Properties, Inc. (2005) 134 Cal.App.4th 834, 841-842 (Navarro); Navellier, supra, 29 Cal.4th at pp. 87, 90; Dowling v. Zimmerman (2001) 85 Cal.App.4th 1400, 1418-1420].) Navellier and Seltzer make clear that settlement activity, including the negotiation and execution of a settlement, are protected activities within the meaning of section 425.16.
Plaintiffs, however, argue that the statute does not apply where, as here, settlement activity is alleged to have constituted a breach of a pre-existing contract. Specifically, Plaintiffs argue that North Fork, in its capacity as Capstone's alter ego, "can be sued for breach of the Participation Agreement's prohibition against settling the [Bankruptcy] Claims without the Appellants' written consent without invoking Code of Civil Procedure § 425.16."
The California Supreme Court rejected a similar argument in Navellier, supra, 29 Cal.4th 82. Plaintiffs in Navellier asserted that the defendant had breached a release agreement by filing counterclaims in an underlying federal action. In opposing a section 425.16 motion brought by defendant, plaintiffs argued that the statute did not apply to "'a garden variety breach of contract . . . claim'" that was based not on a protected activity, but rather on the "formation or performance of contractual obligations." (Id. at pp. 90-92) Plaintiffs further argued that the statute "'was not enacted to or intended to protect someone from being sued for breaching his/her agreement not to sue.'" (Id. at p. 91.)
The Court disagreed, explaining:
Nothing in the statute itself categorically excludes any particular type of action from its operation, and no court has the "'power to rewrite the statute so as to make it conform to a presumed intention which is not expressed."' [Citation.] . . . [¶] The logical flaw in plaintiffs' argument is its false dichotomy between actions that target "the formation or performance of contractual obligations" and those that target "the exercise of the right of free speech." [Citation.] A given action, or cause of action, may indeed target both. As the facts in this lawsuit illustrate, conduct 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.(Id. at p. 92.) The Court further concluded that the plaintiffs' breach claim was subject to section 425.16 because "[Defendant] is being sued . . . [for] the affirmative counterclaims he filed in federal court. In fact, but for the federal lawsuit and [defendant's] alleged actions taken in connection with that litigation, plaintiffs' present claims would have no basis. This action therefore falls squarely within the ambit of the anti-SLAPP statute's 'arising from' prong." (Navellier, supra, at p. 90.)
In its appellate brief, Plaintiffs argue that, in fact, Navellier supports their contention that petitioning activity is not subject to section 425.16 if that activity also constitutes a breach of a pre-existing contract. In support, Plaintiffs cite the following language from Navellier:
Indeed, as the statute is designed and as we have construed it, a defendant who in fact has validly contracted not to speak or petition has in effect "waived" the right to the anti-SLAPP statute's protection in the event he or she later breaches that contract.(Navellier, supra, 29 Cal.4th at p. 94.) This language, however, appeared in the Court's discussion of the reason for the second prong of the statutory analysis. Specifically, the Court explained that, while section 425.16 applies to claims asserting that a defendant's petitioning activity breached a pre-existing contract, the statute did not immunize defendants from such claims. Instead, the statute simply required plaintiffs to make a preliminary evidentiary showing that defendants had in fact waived the right to engage in petitioning activity by, for example, "appending the alleged agreement to an affidavit stating the facts upon which the defendant's liability is based." (Ibid.)
In sum, settlement negotiations and other actions taken in furtherance of settlement are governed by section 425.16 even when those activities are alleged to have breached a pre-existing contract or other legal obligation.
b. Claims six through ten "arise from" North Fork's settlement activity
We next determine whether claims six through ten arise from North Fork's settlement activity or whether "the allegations of protected activity are only incidental to a cause of action based essentially on nonprotected activity." (Scott v. Metabolife Internal., Inc. (2004) 115 Cal.App.4th 404, 414 ["if the allegations of protected activity are only incidental to a cause of action based essentially on nonprotected activity, the mere mention of the protected activity does not subject the cause of action to an anti-SLAPP motion"].)
i. Sixth cause of action for "Fraud and Deceit"
Plaintiffs' sixth cause of action alleges that North Fork committed fraud when it failed to "disclose to Plaintiffs the existence of the Secret Settlement prior to its execution" and "concealed and suppressed the negotiation, execution and performance of the Secret Settlement . . . with the intent to deprive Plaintiffs of its rights under the Participation Agreement."
Although Plaintiffs' fraud claim is predicated on North Fork's alleged concealment of settlement activity, rather than on the settlement activity itself, we cannot conclude that such activity is merely incidental to the fraud claim. But for North Fork's negotiation and execution of the settlement, Plaintiffs' fraud claim "would have no basis" because there would have been no settlement activity to conceal. (See Navellier, supra, 29 Cal.4th at p. 90 [§ 425.16 applicable where, "but for the federal lawsuit and [defendant's] alleged actions taken in connection with that litigation, plaintiffs' present claims would have no basis"].)
Moreover, the injury caused by North Fork's alleged fraud - the release of the Bankruptcy Claims and the reconveyance of the deed of trust - occurred solely as a result of the execution of the settlement. Thus, without the settlement, Plaintiffs would have suffered no damages, which is a necessary element of fraud. (See Mosier v. So. Cal. Physicians Ins. Exchange (1998) 63 Cal.App.4th 1022, 1045 [resulting damages is an element of fraud].) Because there could be no fraud liability without the act of settlement, North Fork's settlement conduct is not "incidental" to Plaintiffs' fraud claim. (McCubbin, supra, 196 Cal.App.4th at p. 1183 ["[A]n alleged act is incidental to a claim, and incidental to any unprotected activity on which the claim is based, only if the act is not alleged to be the basis for liability"].)
ii. Seventh cause of action for conversion
The seventh cause of action for conversion alleges, in part, that Plaintiffs owned an interest in Capstone's deed of trust to the Castellucci property and, "[o]n or about the date of the Secret Settlement, . . . North Fork . . . took Plaintiffs' Property and converted it to their own use. . . ." Other portions of the complaint, which are incorporated into the conversion claim, explain that "the purpose of the . . . Secret Settlement was to allow the Castelluccis, Capstone and North Fork to reconvey the [deed of trust] without the required consent of Plaintiffs and secretly refinance the Property to obtain the funds to accomplish the Secret Settlement. . . ."
Based on these allegations, Plaintiffs' conversion claim seeks to impose liability for the manner in which North Fork and the other defendants settled the Bankruptcy Claims. The terms of the settlement required Capstone and other parties holding deeds of trust to the Malibu property to reconvey those interests to the Castelluccis, who were then required to use the unencumbered property to secure financing that was to be redistributed back to those parties. The conversion claim is therefore based directly on the execution of the settlement.
iii. Eighth cause of action for "Inducement to Breach Contract"
Plaintiffs' eighth cause of action for inducement to breach contract alleges that North Fork was "informed of the existence and material terms of the Participation Agreement, and that it was a binding and valid executory contract." It further alleges that "[b]y intentionally undertaking the actions set forth above [in the Complaint]," North Fork "induced Capstone . . . to breach the Participation Agreement and enter into the Secret Settlement without Plaintiffs' knowledge or consent . . . " These "actions," which are described in other portions of the Complaint that are incorporated in the eighth cause of action, include the following:
• "Capstone, North Fork, [and] . . . the Castelluccis . . . conspired together to secretly settle, and did secretly settle, the Adversary Action filed in the Bankruptcy Case and all other matters between such parties without the knowledge, participation or consent of Plaintiffs. . . ."
• "All parties and participants in the Secret Settlement . . . conspired to and did conceal from Plaintiffs the negotiation and making of the Secret Settlement so as to avoid the requirement of Plaintiffs' consent to the Unauthorized Reconveyance."
• "North Fork . . . worked in conjunction with [co-defendants] . . . to undertake the actions alleged herein, including without limitation, the Secret Settlement, the Unauthorized Reconveyance and the receipt of the Secret Settlement Proceeds by Capstone and North Fork."
Based on these allegations, it is apparent that the "principal thrust or gravamen," (Martinez, supra, 113 Cal.App.4th at p. 188), of Plaintiffs' eighth cause of action is that North Fork conspired with and induced Capstone to secretly negotiate a settlement of the Bankruptcy Claims, which constituted a breach of the Participation Agreement. As discussed above, settlement negotiations are a protected activity within the meaning of section 425.16. (See Seltzer, supra, 182 Cal.App.4th at p. 963 ["settlement negotiations are an exercise of the right to petition and statements made as part of such negotiations are in connection with the underlying lawsuit for purposes of section 425.16, subdivision (e)(2)"].) Because Plaintiffs' inducement claim is predicated directly on North Fork's settlement negotiations with Capstone and the other co-defendants, it arises from a protected activity.
iv. Ninth cause of action for intentional interference with prospective economic advantage
Plaintiffs' ninth cause of action for intentional interference with prospective economic advantage asserts that "[i]n taking the actions alleged herein, North Fork . . . knew of the Participation Agreement and Known Settlement, and conspired to and did interrupt and interfere with completion of the Known Settlement and the resolution of Plaintiffs' interest in the [Bankruptcy Claims]." The claim continues:
In taking the action herein alleged, North Fork . . . fraudulently misrepresented and suppressed the true facts regarding their intention not to complete the Known Settlement and instead to complete the Secret Settlement, and to exclude Plaintiffs from the Secret Settlement. As a result of the actions of North Fork . . . the Secret Settlement was completed and Plaintiffs were excluded from the Known Settlement and settlement or judgment proceeds to which Plaintiffs would otherwise have been entitled under the [Bankruptcy Claims].
The ninth cause of action is therefore based on two primary acts: (1) North Fork's misrepresentations regarding its intent to complete the Known Settlement, and (2) the negotiation of the Secret Settlement, which extinguished Plaintiffs' interest in the Bankruptcy Claims.
Both of these "acts" are subject to section 425.16. First, claims "concerning allegedly fraudulent statements" made within the context of negotiating a settlement "arise from" a protected activity. (See Navarro, supra, 134 Cal.App.4th at p. 842 [claims "concerning allegedly fraudulent statements within the context of negotiating the stipulated judgment" subject to § 425.16].) This includes promissory fraud claims asserting that the defendant never intended to abide by the terms of a negotiated settlement. (See Navellier, supra, 29 Cal.4th at p. 90 & fn. 6. [promissory fraud claim alleging plaintiff never intended to abide by terms of settlement subject to § 425.16].) Thus, Plaintiffs' assertion that North Fork misrepresented its intent to finalize the "Known Settlement" falls within section 425.16.
Second, the negotiation of a settlement is a protected activity within the meaning of section 425.16. (Seltzer, supra, 182 Cal.App.4th at pp. 963-964.) Therefore, Plaintiffs' claim that North Fork interfered with its contractual rights under the Participation Agreement by "complet[ing] the Secret Settlement" arises from protected activity.
v. Tenth cause of action for conspiracy
Plaintiffs' tenth cause of action for civil conspiracy alleges that:
Defendants entered into one or more agreements or reached understandings between and among themselves, the purpose and intent of which were to breach fiduciary obligations to Plaintiffs, perpetrate a fraud and deceit upon Plaintiffs, convert Plaintiffs' property, induce breach of the Participation Agreement and interfere with Plaintiffs' economic relations relative to the matters alleged herein. Specifically, defendants conspired to misrepresent and suppress facts related to the Participation Agreement, Known Settlement, Secret Settlement, Secret Settlement Proceeds, Property and Unauthorized Reconveyance as alleged herein.
A claim of civil conspiracy is not a separate cause of action, and its only significance is that each member may be held responsible as a joint tortfeasor for torts committed pursuant to the conspiracy, regardless of whether or not he or she directly participated in the act. (See, e.g., Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 574.) Plaintiffs' conspiracy claim merely repeats the same allegations of wrongdoing described in claims six through nine, which we have already determined "arise from" protected activity.
c. Plaintiffs' claims do not arise solely from North Folk's alleged retention of settlement funds
Plaintiffs argue that none of their claims arise from North Fork's settlement activity, but rather from the fact that North Fork precluded Capstone from distributing the proceeds from the settlement in the manner required under the Participation Agreement. In other words, Plaintiffs argue that their claims are based entirely on North Fork's decision to retain all of the settlement proceeds, which occurred only after the settlement activity was completed.
Plaintiffs' sixth (fraud), eighth (inducement to breach contract) and tenth cause of action (conspiracy) do not seek to impose liability for North Fork's retention of the settlement funds. To the extent those claims even reference such conduct, they do so only as a measure of Plaintiffs' potential damages. For example, Plaintiffs' fraud claim states:
As a proximate result of the fraud and concealment of Capstone, North Fork and Does 1-50, Plaintiffs have suffered damages in a sum in excess of $1,000,000, consisting of at least the amount of $1,125,000 less the expenses Capstone is entitled to recoup under the ParticipationThe eighth and tenth claims contain almost identical language.
Agreement . . . plus interest at the legal rate on each respective tranche of Settlement Proceeds received by Capstone and/or North Fork . . . .
When determining whether section 425.16 applies to a particular claim, the analysis turns on the nature of the conduct giving rise to liability, not the remedy that is being sought for that misconduct. (See Marlin v. Aimco Venezia, LLC (2007) 154 Cal.App.4th 154, 162.) The mere fact that Plaintiffs reference the settlement proceeds as a measure of damages does not alter the fact that the conduct for which they seek redress includes protected settlement activity.
Plaintiff's seventh (conversion) and ninth (interference with prospective economic advantage) causes of action do directly reference North Fork's retention of the settlement proceeds. For example, the seventh claim states that North Fork converted Plaintiffs' "Settlement Proceeds Interest," while the ninth claim alleges that North Fork "excluded" Plaintiffs from the "proceeds to which Plaintiffs would otherwise have been entitled under the [Bankruptcy Claims]." Thus, liberally construed, Plaintiffs' seventh and ninth claims are predicated in part on North Fork's post-settlement failure to distribute the proceeds as required under the Participation Agreement.
Where the factual basis for a claim includes both protected and unprotected activity, the claim is subject to section 425.16 if the allegations regarding protected activity "could . . . be the sole and adequate basis for liability under the cause of action." (Haight Ashbury, supra, 184 Cal.App.4th at p. 1551.) Although Plaintiffs' seventh and ninth Claims include allegations regarding North Fork's retention of the settlement proceeds, they are also based in part on protected activity. As discussed above, the seventh claim alleges that North Fork wrongfully converted Plaintiffs' interest in the Capstone deed of trust when it executed the bankruptcy settlement, while the ninth claim alleges that North Fork interfered with Plaintiffs' economic relations when it made misrepresentations regarding its intent to abide by the Known Settlement and then executed the Secret Settlement. In both claims, these protected activities would, if proven, provide a basis for liability separate and apart from North Fork's alleged retention of settlement proceeds. Plaintiffs' seventh and ninth claims are therefore subject to section 425.16. (Haight Ashbury, supra, 184 Cal.App.4th at p. 1551.)
2. Plaintiffs have failed to demonstrate a likelihood of prevailing on claims six through ten
Having concluded that claims six through ten "arise from" protected petitioning activity within the meaning of section 425.16, we next consider whether Plaintiffs have demonstrated a probability that they would prevail on those claims.
"To show a probability of prevailing for purposes of section 425.16, a plaintiff must '"'make a prima facie showing of facts which would, if proved at trial, support a judgment in plaintiff's favor.'"' [Citation.]" (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1010 (ComputerXpress); Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821 [plaintiff "must demonstrate that the complaint is . . . supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited"].) "[T]he plaintiff 'cannot simply rely on the allegations in the complaint.' [Citations.]" (ComputerXpress, supra, 93 Cal.App.4th at p. 1010.) Rather, "'[t]he plaintiff's showing of facts must consist of evidence that would be admissible at trial.' [Citation.]" (Stewart v. Rolling Stone LLC (2010) 181 Cal.App.4th 664, 679.) "Thus, declarations that lack foundation or personal knowledge, or that are argumentative, speculative, impermissible opinion, hearsay, or conclusory are to be disregarded." (Gilbert v. Sykes (2007) 147 Cal.App.4th 13, 26.)
a. Plaintiffs concede that, to prevail against Capital One, it must demonstrate that North Fork exerted control over Capstone
During the hearing on the motion to strike, Plaintiffs' counsel conceded that, to prevail on its claims against Capital One, Plaintiffs would have to prove that North Fork exerted control over Capstone regarding the settlement of the Bankruptcy Claims:
[W]hen all the clutter goes away, the gravamen of our action against North Fork and, hence, Capital One, is the fact that North Fork, in fact, stepped into the shoes of Capstone in all relevant ways with respect to this. And when the conveyance of the trust deed was done, it was done at the insistence of North Fork, it was done for the benefit of North Fork.Plaintiffs' appellate brief reiterates that their claims against Capital One require a "prima facie factual showing of North Fork's liability for the exercise of improper control/alter ego over Capstone."
In the trial court, Plaintiffs argued that three pieces of evidence demonstrated that they had a probability of prevailing against Capital One: (1) a copy of the Participation Agreement, which was entered into between Capstone and Plaintiffs; (2) a copy of the "Secret Settlement," and (3) a declaration from Plaintiff Lee Williams.
Neither the Participation Agreement nor the "Secret Settlement" contain any evidence that North Fork asserted control over Capstone or is otherwise responsible for Capstone's decision to enter into the Secret Settlement and release the Bankruptcy Claims. Plaintiffs, however, argue that "[t]he declaration of Lee Williams establishes . . . [a] prima facie case of alter ego/improper control liability of Respondent over Capstone": Specifically, Plaintiffs point to the following statements made by Williams:
4. . . . Prior to [North Fork's] arrival, Plaintiffs and Capstone jointly participated in prosecuting the [Bankruptcy] Claims . . .
5. Joseph Ingrassia, Capstone's chief executive officer, informed me that [North Fork] assumed control of Capstone's role in the Participation Agreement and the pursuit of the claims against Castellucci pursuant to an agreement that Capstone had with [North Fork], that [North Fork] was funding the pursuit of these claims, and that [North Fork] would get all of Capstone's share of the proceeds from the pursuit of the Claims pursuant to the Participation Agreement.
6. Robert Horn, Capstone's Attorney, informed me that [North Fork] was paying the legal fees for his firm's work in pursuing the Claims against Castellucci.
7. Ralph Priete, [North Fork]'s attorney, informed me that [North Fork] was paying the legal fees for his firm's work in pursuing Claims against Castellucci.
8. Joseph Ingrassia informed me that he had been instructed by [North Fork] to stay out of the negotiations between Plaintiffs and Priete, and between Castellucci and the holders of the Claims pursuant to the Participation Agreement. Thereafter, Ingrassia did not participate in these negotiations. . . .
With the exception of the quoted portion of paragraph 4, North Fork objected to each of the above allegations on hearsay grounds and the court sustained each objection. Plaintiffs, however, argue that "[a]ll of the [e]xcluded Williams' [t]estimony about the statements of Joseph Ingrassia, Ralph Priete and Robert Horn are admissible hearsay testimony and should have been admitted into evidence by the court for the 'truth of the matter asserted. . . ."
Because virtually all of Plaintiff's evidence of "improper control" was struck by the trial court, we must resolve this evidentiary dispute. When reviewing a "ruling by a trial court on the admissibility of evidence, including one that turns on the hearsay nature of the evidence in question," we apply "the abuse of discretion standard of review." (People v. Waidla (2000) 22 Cal.4th 690, 725.)
b. Joseph Ingrassia's statements to Williams regarding North Fork's control over Capstone are not admissible against Capital One
We first consider the statements that Capstone's CEO John Ingrassia allegedly made to Williams regarding North Fork's control of Capstone's litigation and settlement of the Bankruptcy Claims, which appear in paragraphs 5 and 8 of the declaration. Plaintiffs contend that Ingrassia's statements do not constitute hearsay and, to the extent that they do, they fall within exceptions to the hearsay rule.
Under Evidence Code section 1200, "'Hearsay evidence' is evidence of a statement that was made other than by a witness while testifying at the hearing and that is offered to prove the truth of the matter stated. [¶] Except as provided by law, hearsay evidence is inadmissible."
i. Ingrassia's statements are not admissible as nonhearsay evidence of state of mind
Plaintiffs argue that Ingrassia's statements do not qualify as hearsay because they were not offered for the truth of the matter asserted. Rather, according to Plaintiffs, the statements were offered to prove Ingrassia's state of mind; more specifically, to show that Ingrassia "belie[ved] that (i) North Fork had assumed control of Capstones['] role in the Participation Agreement; (ii) North Fork was funding the pursuit of the [Bankruptcy] Claims; (iii) North Fork would receive all of Capstones['] settlement proceeds under the Participation Agreement: and (iv) he had been instructed by North Fork to stay out of the negotiations." Plaintiffs' description of Ingrassia's "state of mind" - that he believed the things he was saying were true - demonstrates that the evidence is in fact being offered to prove the truth of the matter asserted: that North Fork assumed control of Capstone. Indeed, Plaintiffs have not identified any reason Ingrassia's statements would be relevant other than to show North Fork had actually assumed control of Capstone's Bankruptcy Claims. (See, e.g., People v. Ortiz (1995) 38 Cal.App.4th 377, 389 [state of mind evidence must be "relevant to be admissible - the declarant's state of mind must be in issue"].) If accepted, Plaintiffs' contention that evidence is not hearsay when it is introduced to show that the declarant believed the truth of the matter asserted would effectively eviscerate the hearsay rule.
Moreover, to the extent that Ingrassia's statements were admissible to demonstrate his "state of mind," it would be admissible for that purpose only, and not to demonstrate that North Fork was actually asserting control over Capstone. (See Ortiz, supra, 38 Cal.App.4th at p. 389 ["declarations used as circumstantial evidence of the declarant's mental state . . . is not received for the truth of the matter stated and can only be used for the limited purpose for which it is offered].) We therefore reject Plaintiffs' contention that Ingrassia's statements do not qualify as hearsay when introduced for the express purpose of demonstrating that North Fork had assumed control of Capstone.
ii. Ingrassia's statements are not admissible against Capital One as a party admission
Plaintiffs next argue that Ingrassia's statements constitute a party admission under Evidence Code section 1220, which states:
Evidence of a statement is not made inadmissible by the hearsay rule when offered against the declarant in an action to which he is a party in either his individual or representative capacity, regardless of whether the statement was made in his individual or representative capacity.
For the purposes of Capital One's section 425.16 motion, Ingrassia's statements were offered against Capital One/North Fork, not Capstone. Therefore, the statements do not qualify as party admissions because they were not offered against the declarant (Capstone).
Plaintiffs' contention that Ingrassia's statements qualify as party admissions against Capital One/North Fork is predicated on the assumption that a defendant's statement is admissible against a co-defendant under Evidence Code section 1220. Plaintiffs fail to cite any authority in support of this proposition, which conflicts with the language of the statute. Evidence Code section 1220 plainly states that it applies only when the evidence is "offered against the declarant in an action to which he is a party . . . ." Because Capital One was not the declarant, Evidence Code section 1220 does not apply.
Statements of a defendant may, of course, be admitted against a co-defendant under the co-conspirator hearsay exception, which applies if the following conditions are satisfied:
(a) The statement was made by the declarant while participating in a conspiracy to commit a crime or civil wrong and in furtherance of the objective of that conspiracy;(Evid. Code, § 1223.) Plaintiffs have never argued that Ingrassia's statements are admissible against North Fork under Evidence Code section 1223 or attempted to make a prima facie showing of the existence of a conspiracy. (See People v. Jeffery (1995) 37 Cal.App.4th 209, 215 ["'prima facie evidence of a conspiracy is required to permit the trial court to admit evidence under the coconspirator's exception'"].) Moreover, it seems very unlikely that statements Ingrassia made to Williams regarding North Fork's control of the Bankruptcy Claims could be construed as having been made "in the furtherance of the objective" of any conspiracy between North Fork and Capstone.
(b) The statement was made prior to or during the time that the party was participating in that conspiracy; and
(c) The evidence is offered either after admission of evidence sufficient to sustain a finding of the facts specified in subdivisions (a) and (b) or, in the court's discretion as to the order of proof, subject to the admission of such evidence.
iii. Ingrassia's statements are not admissible against Capital One under Evidence Code section 1224
Plaintiffs next contend that Ingrassia's statements are admissible against Capital One under Evidence Code section 1224, which states:
When the liability, obligation, or duty of a party to a civil action is based in whole or in part upon the liability, obligation, or duty of the declarant, . . . evidence of a statement made by the declarant is as admissible against the party as it would be if offered against the declarant in an action involving that liability, obligation, duty, or breach of duty.Evidence Code section 1224 operates under principles of derivative liability and "'contemplates situations in which "the obligation or duty" of a third person is "'"an essential operative fact in establishing the cause of action or defense involved"; e.g., where . . . the party has assumed responsibility for obligations of the declarant (guarantor, surety . . .).' [Citation.]" (Brown v. Surety Co. of Pacific (1981) 122 Cal.App.3d 614, 618-619.) The exception is based on the assumption that where two parties share "the same interest and motive and means of obtaining knowledge, admissions are reliable." (1 Witkin, Cal. Evidence (4th ed. 2000) Hearsay, § 128, p. 835.)
Plaintiffs argue that Capstone's statements are admissible against North Fork/Capital One because North Fork was operating as Capstone's alter ego, and, as a result, its liability was derived from the duties and obligations of Capstone. However, Plaintiffs have failed to introduce any foundational evidence - other than the hearsay statements at issue - that North Fork was in fact Capstone's alter ego or was otherwise liable for Capstone's conduct. (See People v. Livaditis (1992) 2 Cal.4th 759, 778-779 ["'if a hearsay objection is properly made, the burden shifts to the party offering the hearsay to lay a proper foundation for its admissibility under an exception to the hearsay rule'"]; People v. Morrison (2004) 34 Cal.4th 698, 724 ["The proponent of [hearsay] . . . testimony has the burden of establishing . . . the foundational requirements for its admissibility under an exception to the hearsay rule"].) A party may not rely on inadmissible hearsay statements to establish that a hearsay exception applies to those very same statements.
iv. Ingrassias's statements are not admissible against North Fork under Evidence Code section 1250
Finally, Plaintiffs argue that Ingrassia's statements to Williams are admissible under Evidence Code section 1250, subdivision (a)(2), which states: "[E]vidence of a statement of the declarant's then existing state of mind . . . is not made inadmissible by the hearsay rule when: [¶] . . . [¶] [t]he evidence is offered to prove or explain acts or conduct of the declarant." Paragraph 8 of the Williams declaration states that, after North Fork became involved in the bankruptcy action, Ingrassia stopped participating in the litigation of the Bankruptcy Claims. Plaintiffs argue that all of Ingrassia's prior statements regarding North Fork's control over Capstone are admissible to demonstrate why Ingrassia stopped participating in the litigation.
Plaintiffs attempt to introduce Ingrassia's statements under Evidence Code section 1250 is contrary to the rule that "[h]earsay statements really meant to establish past events should not be admitted under the guise of showing the declarant's state of mind." (1 Jefferson, Cal. Evidence Benchbook (4th ed.) § 14.9, p. 245.) Here, Ingrassia's statements regarding North Fork's conduct are clearly intended to show that North Fork did in fact assume control of Capstone. As a result, such testimony is not admissible under section 1250. (See People v. Whitt (1990) 51 Cal.3d 620, 643, fn. 13 ["statements recounting past events are an implicit expression of the declarant's belief or memory that such events occurred, and are inadmissible for their truth under Evidence Code section 1250"].)
c. The remaining evidence is insufficient to show a probability of prevailing
Without Lee Williams' statements describing what Ingrassia said about North Fork's role in controlling the litigation of the Bankruptcy Claims, the only remaining evidence against North Fork/Capital One consists of the following: (1) before North Fork became involved in the case, Capstone cooperated with Plaintiffs in jointly litigating the Bankruptcy Claims; (2) the attorneys for Capstone and North Fork informed Plaintiffs that North Fork was paying the legal fees for Capstone's pursuit of the Bankruptcy Claims; (3) at some point thereafter, Capstone stopped cooperating with Plaintiffs in prosecuting the Bankruptcy Claims; (4) North Fork was named as a co-defendant in a state court lawsuit in which Castellucci sought to enjoin Capstone from foreclosing on his property; (5) North Fork was a party to the "Secret Settlement."
For the purposes of this appeal, we assume without deciding that all of this remaining evidence was admissible against Capital One/North Fork.
Based on these limited facts alone, it would be wholly speculative to conclude that North Fork was Capstone's alter ego. None of this evidence actually shows that North Fork was controlling Capstone's actions, or otherwise forced Capstone to breach the Participation Agreement by settling the Bankruptcy Claims. Indeed, apart from Ingrassia's statements, there is no evidence that North Fork was even aware of the Participation Agreement.
Apart from Ingrassia's statements, the only evidence that North Fork was aware of the Participation Agreement appears in Paragraph 12 of the Williams Declaration, which states: "Each of these Defendants entered into the Secret Settlement with full knowledge of (and copies of) the Participation Agreement." The trial court affirmed Capital One's objection to Paragraph 12 on foundational and hearsay grounds. Plaintiffs' appellate briefs do not reference or discuss the trial court's decision regarding Paragraph 12, and we therefore treat the issue as forfeited. (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852 ["When an appellant fails to raise a point . . . we treat the point as waived"].) Moreover, the trial court was correct in rejecting the evidence because the declaration does not explain how Williams knew that North Fork and the other defendants were aware of the Participation Agreement. (See Evid. Code, § 702 [witness testimony is "inadmissible unless [the witness] has personal knowledge of the matter"].) Williams' general allegation that he had "personal knowledge of the facts herein," which appears in paragraph one of the declaration, was not sufficient. (See Snider v. Snider (1962) 200 Cal.App.2d 741, 754 [affiant's statement he has personal knowledge of all facts within the affidavit "has no redeeming value and should be ignored" where "the facts stated [in an affidavit] do not themselves show it"].)
We therefore affirm the trial court's ruling that Plaintiffs failed to introduce sufficient evidence to demonstrate a probability of establishing that North Fork assumed control of Capstone, which, as Plaintiffs concede, was a necessary predicate to prevailing against Capital One on claims six through ten.
Because we conclude that the trial court properly excluded Ingrassia's statements regarding North Fork, we need not address whether those statements would, if admissible, be sufficient to make a prima facie showing that North Fork was liable for Capstone's alleged breach of the Participation Agreement. Nor do we need address Capital One's argument that Plaintiffs' claims are barred under the litigation privilege.
C. The Trial Court Erred in Striking Claims That Were Not Referenced in Capital One's Motion to Strike
We next consider whether the trial court properly struck Plaintiffs' nine remaining causes of action against Capital One, none of which were referenced in Capital One's motion to strike.
1. Procedural summary
Capital One filed a demurrer to all 14 claims Plaintiffs pled against it. In addition, Capital One filed a motion to strike pursuant to section 425.16 requesting that the trial court strike Plaintiffs' sixth through tenth causes of action. The memorandum of points and authorities accompanying Capital One's motion argued that each of those specific claims "arose from" a protected activity. The motion and the accompanying memorandum did not reference the nine additional claims Plaintiffs pled against Capital One.
Despite the limited scope of Capital One's section 425.16 motion, the trial court struck all 14 claims in the complaint. The court's order granting Capital One's motion made clear that it was striking the claims pursuant to section 425.16:
The Court hereby strikes the Complaint as to [Capital One] on the grounds that the Court determined that the Complaint arises from conduct of Defendant which constitutes protected activity under Code of Civil Procedure § 425.16, and that Plaintiffs failed to establish a probability that Plaintiffs will prevail on the claim against Defendant.At the hearing on Capital One's motion, the court clarified that, in light of its ruling on the section 425.16 motion, it was not deciding Capital One's demurrer because the court deemed it "moot." The trial court's subsequent minute order likewise stated that the demurrer was moot.
2. The trial court erred in striking claims that were not referenced in Capital One's section 425.16 motion
Under section 425.16, a trial court may only strike a claim if it determines that "the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. The moving defendant's burden is to demonstrate that the act or acts of which the plaintiff complains were taken 'in furtherance of the [defendant]'s right of petition or free speech . . . . [Citation.] 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.) In this case, Capital One did not attempt to satisfy the first prong of the statute in regards to claims one through five, or claims eleven through fourteen. Indeed, as explained above, it did not even move to strike those claims under the statute. Accordingly, there was no basis for the trial court to conclude that Capital One satisfied its initial statutory burden in relation to those claims.
A trial court may not strike a claim pursuant to section 425.16 on its own motion, with no prior notice to either party. (See Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1125 [§ 1010 and Cal. Rules of Court, [rule 3.110, former] rule 311 require a notice of motion stating the grounds on which a party seeks relief and, "[a]s a general rule, . . . the trial court may consider only the grounds stated in the notice of motion"].) Permitting a trial court to do so would raise significant due process problems. (Cf. Reid v. Balter (1993) 14 Cal.App.4th 1186, 1193 ["plaintiffs were not given notice that their case would be dismissed if they failed to appear for the status conference . . . . Therefore, dismissal was a clear violation of plaintiffs' due process rights"]; Juge v. County of Sacramento (1993) 12 Cal.App.4th 59, 70 ["when the trial court grants a summary judgment motion on a ground of law not explicitly tendered by the moving party, due process of law requires that the party opposing the motion must be provided an opportunity to respond to the ground of law identified by the court and must be given a chance to show there is a triable issue of fact material to said ground of law"].)
Capital One, however, asserts that we may not review the trial court's dismissal of claims one through five and eleven through fourteen because "any appeal as to the ruling with respect to the Demurrer has been waived by Appellants as no Notice of Appeal was timely filed as to the Trial Court's ruling with respect to the Demurrer." Capital One contends that the trial court's ruling consisted of two "severable" portions: one portion struck claims six through ten pursuant to section 425.16, and the other portion dismissed the remaining claims pursuant to Capital One's demurrer. According to Capital One, "the Notice of Appeal filed by Appellants addressed the Trial Court's Order solely in connection with the SLAPP motion and did not address and/or include the holding with respect to the Demurrer."
The record does not support Capital One's characterization of the trial court's ruling. As described above, the order granting Capital One's motion, which was prepared by Capital One's counsel, specifically stated that the court was striking the entire complaint as to Capital One "on the grounds that . . . the Complaint arises from conduct of Defendant which constitutes protected activity under Code of Civil Procedure § 425.16, and that Plaintiffs failed to establish a probability that Plaintiffs will prevail on the claim." The order contains no language indicating that the trial court sustained the demurrer or intended to dismiss the action on that ground. Moreover, during the hearing and in its subsequent minute order, the court informed the parties that it was not deciding Capital One's demurrer because it had been rendered moot.
Capital One's contention that the trial court decided the demurrer is based on language in the trial court's tentative order (later adopted as the "final ruling of the court"), which appears to address, in summary fashion, some of the arguments asserted in Capital One's demurrer:
As for the legal sufficiency of the complaint, most, if not all, the causes of action are protected by the litigation privilege. Moving defendant was not a party to any contract with plaintiffs, and plaintiffs have not adequately plead (sic) alter ego or any other basis for liability on contract-based causes of action. Plaintiffs have not alleged any facts to support a breach of fiduciary duty cause of action against moving defendant. The fraud allegations are too general and conclusory to survive.However, during the hearing, the trial court specifically clarified this language, stating "I sort of superficially addressed the demurrer, but, essentially, I'm . . . not deciding [the demurrer] on the ground that [it] is moot." Moreover, the minute order specifically states that the court decided to "deem [the] demurrer . . . moot." These statements, combined with the fact that the signed order striking the entire complaint specifically relies on section 425.16, and makes no reference to the demurrer, demonstrate that the trial court did not rule on the demurrer.
Because Capital One did not move to strike claims one through five or eleven through fourteen in its section 425.16 motion, nor make any showing that such claims arose from protected activity, the trial court erred in striking those claims.
DISPOSITION
The trial court's order striking the complaint pursuant to section 425.16 is reversed. On remand, the trial court is directed to enter a new order granting Capital One's motion to strike as to Respondents' sixth through tenth causes of action. The parties may proceed on all further causes of action. Appellants shall recover their costs on appeal.
ZELON, J. We concur:
PERLUSS, P. J.
WOODS, J.