Judge: Armen Tamzarian, Case: 23STCV03113, Date: 2023-04-24 Tentative Ruling

Case Number: 23STCV03113    Hearing Date: April 24, 2023    Dept: 52

Tentative Ruling:   

Plaintiffs Melrose Avenue, LLC, et al.’s Notice of Related Case

Defendants Jamal Holdings (US), Inc., 0999849 B.C. LTD d/b/a Hardy Capital Ltd; Innhouse US Investments, Inc., Azim Jamal, Roger Hardy, and Salim Karim move to strike the entire complaint by plaintiffs 9010 Melrose Avenue, LLC, Futura Media, Inc., and Matthew Hermer under Code of Civil Procedure section 425.16.

Courts use a two-step process for resolving anti-SLAPP motions under section 425.16: “First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity.”  (Navellier v. Sletten (2002) 29 Cal.4th 82, 88 (Navellier).)  The defendant must show “the cause of action is based on the defendant’s protected free speech or petitioning activity.”  (Id. at p. 89.) 

Second, once the defendant establishes the first element, courts “must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim.”  (Navellier, 29 Cal.4th at p. 88.)  “[T]he plaintiff need only have stated and substantiated a legally sufficient claim.”  (Ibid., internal quotes and citations omitted.)  “[C]laims with the requisite minimal merit may proceed.”  (Id. at p. 94.)  “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.’ ”  (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821.)

Protected Activity

            Defendants show that all seven of plaintiffs’ causes of action arise from protected activity.  For this step, courts must “ ‘consider the elements of the challenged claim and what actions by the defendant supply those elements and consequently form the basis for liability.’ ”  (Bonni v. St. Joseph Health System (2021) 11 Cal.5th 995, 1009.)

Plaintiffs’ first two causes of action are defamation per se and trade libel.  For both, an essential element is making a false statement about the plaintiff.

            Plaintiffs’ third cause of action alleges breach of the implied covenant of good faith and fair dealing.  Plaintiffs allege the breach was that defendants “made defamatory communications in an attempt to deprive Plaintiffs of the investments that Plaintiffs had negotiated to obtain.”  (Comp., ¶ 51.) 

            Plaintiffs’ fourth cause of action is for breach of fiduciary duty, and the fifth is for aiding and abetting that breach.  The alleged breach was that “Defendants made defamatory statements” and “false statements.”  (Comp., ¶¶ 58, 59.) 

            Plaintiffs’ sixth and seventh causes of action are for intentional interference with prospective economic advantage and with contractual relations.  The actions allegedly constituting the element of wrongful interference were defendants’ “defamatory statements” (Comp., ¶¶ 67, 68, 76) or “false statements” (¶¶ 72, 79). 

            Finally, plaintiffs’ eighth cause of action is for unfair business practices.  Plaintiffs allege defendants violated the “unlawful” prong of the unfair competition law by committing extortion and defamation.  (Comp., ¶ 82.)  This cause of action relies on the others and therefore also arises from defendants’ communications.

All of plaintiffs’ causes of action arise from protected activity.  The anti-SLAPP statute applies to “any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law.”  (§ 425.16(e)(2).) 

Defendants’ statements giving rise to plaintiffs’ causes of action were all made in connection with a judicial proceeding.  The anti-SLAPP statute protects “statements or writings made in connection with litigation in the civil courts.”  (Healy v. Tuscany Hills Landscape & Recreation Corp. (2006) 137 Cal.App.4th 1, 5 (Healy).)  “[A]n action for defamation falls within the anti-SLAPP statute if the allegedly defamatory statement was made in connection with litigation.”  (Ibid.)  “A statement has a sufficient ‘connection’ with anticipated litigation if the person making the statement is engaged in a serious effort to encourage or counsel litigation by another.”  (Bel Air Internet, LLC v. Morales (2018) 20 Cal.App.5th 924, 943 (Bel Air).) 

Plaintiffs’ complaint arises from four communications.  First, the complaint alleges, “Defendants reached out to Plaintiffs, demanding that Defendants jointly, be bought out for $945,000.00.  In support of this, Defendants stated: ‘you don’t want us to cause trouble for the other investors, just pay us.’  And even went as far as stating: ‘if not we will just litigate this, it won’t even cost us anything, we’ve done this before.’ ”  (Comp., ¶ 27.) 

The complaint also attaches three communications that were allegedly part of “a campaign of defamation for extortionate monetary returns.”  (Comp., ¶ 28, Ex. 2.)  These communications are: an email from defendant Salim Karim to a fellow investor; a letter from defendants Jamal Holdings, Hardy Capital, and Innhouse US Investments to fellow investors; and a letter from individual defendants Jamal, Hardy, and Karim to plaintiff Hermer.

Defendants’ oral statement to plaintiffs (Comp., ¶ 27) and their letter to Hermer (Comp. Ex. 2, pp. 5-6) are statements in connection with anticipated litigation.  The former statement expressly asked plaintiffs to pay defendants or else they “will just litigate this.”  (Comp., ¶ 27.)  That constitutes a prelitigation demand made in connection with anticipated litigation.  (See Malin v. Singer (2013) 217 Cal.App.4th 1283, 1299 (Malin).)

In the letter to Hermer, defendants explain why they believe the financial records show mismanagement of 9010 Melrose Avenue, LLC.  (Comp., Ex. 2, pp. 5-6.) The letter concludes, “It is clear that the activities of you and Futura Media, Inc. constitute fraud, bad faith, willful misconduct and/or gross negligence which requires the indemnification of members for all incurred damages.  We believe it may be appropriate for us to have a call to discuss and resolve our mutual concerns.”  (Comp., Ex. 2, p. 6.)  This, too, constitutes a prelitigation demand to resolve a potential action seeking indemnification or damages.

Defendants’ communications to fellow investors are also protected.  Karim’s email says, “I noticed that you are a YPO member and also an investor in Olivetta,” the restaurant operated by plaintiff 9010 Melrose Avenue, LLC.  “I’m not sure if Azim or Roger has already reached out to you about our lawsuit, but I’d love to chat about what’s going on.  Please let me know if you have time to discuss sometime this week or feel free to call me at your convenience.”  (Comp., Ex. 2, p. 1.)  This email is analogous to the letter in Healy, which was sent “to inform members of the association of pending litigation involving the association.”  (137 Cal.App.4th at p. 6.)  The email is protected as an effort to inform a fellow investor of litigation or to encourage a fellow investor to join in it.

Finally, defendants’ letter to investors begins, “We write further  … in relation to our numerous requests to Matthew Hermer for the financial information of 9010 Melrose Avenue, LLC.”  (Comp., Ex. 2, p. 2.)  It continues, “Mr. Hermer engaged litigation firms to withhold, delay, and deter our lawful requests for this information from us for over months.  These actions left us no other option but, at our own expense, to similarly engage attorneys and seek a court order for the disclosure of the financial records of the company.”  (Ibid.)  The letter explained that the court granted the petition “for the production of and access to all records of the company” as well as “full reimbursement of our legal fees” and “a further monetary penalty.”  (Ibid.)   

The letter then describes and characterizes the “financial documents of the company” that were produced “[a]s a result of our persistent efforts.”  (Comp., Ex. 2, p. 2.)   Following over a page of details about the financial statements, the letter states, “As a result of these finding[s], we intend to enforce our court order to obtain full access and review the books and records of the company including all its accounts, ledgers, income tax returns, activities, affairs, and transactions.”  (Id., p. 4.)  “We further plan to enforce our monetary award issued by the court against the respondents to recover all our incurred legal fees for the petition and penalty fees for the respondents’ non-compliance with their legal and statutory requirements by failing to provide us the requested documents for the company.”  (Ibid.)  “In the interim, we are considering seeking a court order to stop any transactions involving the distribution of funds to certain unknown parties and obtain an order that all such issued amounts be repaid to Olivetta.”  (Ibid.) 

The letter, therefore, centers around discussion of a judicial proceeding: the petition for writ of mandate to enforce members’ rights to inspect 9010 Melrose Avenue, LLC’s records.  (Cohen Decl., Ex. A.)  The letter details what defendants found and their conclusions based on the records they received because they prevailed in their petition.  The letter also refers to an anticipated proceeding to enforce the monetary award or to seek a different court order concerning 9010 Melrose Avenue, LLC. 

Plaintiffs contend all the communications refer only to litigation as “a negotiating tactic or a hypothetical possibility” instead of “future litigation [that] is ‘genuinely contemplated.’ ”  (See Bel Air, supra, 20 Cal.App.5th at p. 940.)  The court rejects this argument.  Defendants’ communications concern both a petition to inspect records that had already been filed and a civil action for damages that was later filed.  Plaintiffs themselves cite the following persuasive authority: “Future litigation arising from the demand letters was clearly theoretical here.  As explained below, there is no evidence that any litigation… arose from the Lawyer Defendants’ demand letters.”  (Diamond Resorts U.S. Collection Development, LLC v. Pandora Marketing, LLC (C.D. Cal. 2021) 541 F.Supp.3d 1020, 1026, quoted in Opp., p. 13.)  Here, the litigation was demonstrably not hypothetical or theoretical.  Defendants had already filed the petition (Cohen Decl., Ex. A) before three of the four alleged communications.  Defendants ultimately filed their complaint for damages a mere 12 hours after plaintiffs filed this action.  (Id., Ex. F.)

Plaintiffs also argue any protected activity is merely evidence related to liability, not the basis for liability.  “ ‘In deciding whether an action is a SLAPP, the trial court should distinguish between (1) speech or petitioning activity that is mere evidence related to liability and (2) liability that is based on speech or petitioning activity.  Prelitigation communications or prior litigation may provide evidentiary support for the complaint without being a basis of liability.  An anti-SLAPP motion should be granted if liability is based on speech or petitioning activity itself.’ ”  (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1065.) 

Here, plaintiffs allege causes of action for defamation and trade libel.  By their very nature, both torts seek to hold defendant liable for their speech.  And as discussed above, all of plaintiffs’ causes of action arise from allegedly defamatory or false statements—i.e., speech. 

Plaintiffs oppose this motion (on both prongs of the anti-SLAPP statute) largely by arguing that defendants’ conduct was extortion.  Extortion, too, is by its nature a communication.  “Extortion … criminalizes the making of threats that, in and of themselves, may not be illegal.”  (Flatley v. Mauro (2006) 39 Cal.4th 299, 326 (Flatley).)  A threat is a communication.  Black’s Law Dictionary defines “threat” as, “A communicated intent to inflict harm or loss on another or on another’s property.”  (Black’s Law Dict. (11th ed. 2019).)

Extortion

Plaintiffs argue defendants’ conduct is not protected activity because it constitutes criminal extortion.  Where “the defendant concedes, or the evidence conclusively establishes, that the assertedly protected speech or petition activity was illegal as a matter of law, the defendant is precluded from using the anti-SLAPP statute to strike the plaintiff’s action.”  (Flatley, supra, 39 Cal.4th at p. 320.)  “If, however, a factual dispute exists about the legitimacy of the defendant’s conduct, it cannot be resolved within the first step but must be raised by the plaintiff in connection with the plaintiff’s burden to show a probability of prevailing on the merits.”  (Id. at p. 316.)

This rule regarding protected activity “applies only to criminal conduct.”  (Bergstein v. Stroock & Stroock & Lavan LLP (2015) 236 Cal.App.4th 793, 806.)  “A long line of cases have concluded in the wake of Flatley that its exception for illegal conduct is a ‘very narrow’ one, one that applies ‘only “where either the defendant concedes the illegality of its conduct or the illegality is conclusively shown by the evidence.” ’ ”  (Optional Capital, Inc. v. Akin Gump Strauss, Hauer & Feld LLP (2017) 18 Cal.App.5th 95, 115, fn. 7.) 

Defendants’ communications to plaintiffs were not criminal extortion.  “Extortion is the obtaining of property or other consideration from another, with his or her consent, … induced by a wrongful use of force or fear, or under color of official right.”  (Pen. Code, § 518(a).)  “Fear, such as will constitute extortion, may be induced by a threat of any of the following: 1. To do an unlawful injury to the person or property of the individual threatened or of a third person.  2. To accuse the individual threatened, or a relative of his or her, or a member of his or her family, of a crime.  3. To expose, or to impute to him, her, or them a deformity, disgrace, or crime.  4. To expose a secret affecting him, her, or them.  5. To report his, her, or their immigration status or suspected immigration status.”  (Pen. Code, § 519.) 

Defendants’ communications did not threaten any of that.  In their alleged oral statement, defendants “went as far as stating ‘if not we will just litigate this, it won’t even cost us anything, we’ve done this before.’ ”  (Comp., ¶ 27.)  The only threat is to file a lawsuit.  That is not extortion.  It is a prelitigation demand for money.  (See Malin, supra, 217 Cal.App.4th at p. 1299 [noting “a critical distinction between” a “demand letter, which made no overt threat to report Malin to prosecuting agencies or the” IRS in contrast with letters with “express threats and others that had no reasonable connection to the underlying dispute”].) 

Similarly, if defendants’ letter made any threat, it was merely a threat of litigation.  The letter concludes, “It is clear that the activities of you and Futura Media, Inc. constitute fraud, bad faith, willful misconduct and/or gross negligence which requires the indemnification of members for all incurred damages.  We believe it may be appropriate for us to have a call to discuss and resolve our mutual concerns.”  (Comp., Ex. 2, p. 6.) 

The letter does not threaten, for example, to report plaintiffs to law enforcement for criminal fraud.  It proposes the parties talk to “resolve” a dispute regarding “indemnification of members for … damages.”  This letter is a far cry from the one in Flatley, which centered around “threats to publicly accuse Flatley of rape and to report and publicly accuse him of other unspecified violations of various laws unless he ‘settled’ by paying a sum of money.”  (39 Cal.4th at p. 329.)  Rather than extortion, defendants’ communications to plaintiffs furthered the “well-established policy in the law to discourage litigation and favor settlement.”  (Kaufman v. Goldman (2011) 195 Cal.App.4th 734, 745.) 

Plaintiffs’ argument about extortion boils down to a protest over the amount of defendants’ demand: “Defendants demanded of Plaintiffs that they be bought out of their investment for $945,000.00—an amount that represented an astounding 210% return on investment.”  (Opp., p. 7.)  Whether a communication is extortion depends on what the speaker threatens to do if the plaintiff does not pay—not on how much money the speaker demands.  These communications were not extortion.    

Probability of Prevailing

            Plaintiffs do not demonstrate a probability of prevailing on any of their causes of action against defendants.  All causes of action arise from communications protected by the litigation privilege.  “For well over a century, communications with ‘some relation’ to judicial proceedings have been absolutely immune from tort liability by the privilege codified as [Civil Code] section 47(b).”  (Rubin v. Green (1993) 4 Cal.4th 1187, 1193.)  The privilege applies to “communications with ‘some relation’ to an anticipated lawsuit.”  (Id. at p. 1194.) 

The litigation privilege “is an absolute privilege and bars all tort cases of action except a claim of malicious prosecution.”  (Geragos v. Abelyan (2023) 88 Cal.App.5th 1005, 1031.)  “The litigation privilege protects even communication made with an intent to harm, so long as the communication is made in ‘relation’ to a pending/ongoing or genuinely contemplated judicial or other official proceeding.”  (Id. at pp. 1031-1032.)  It is ‘not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.’ ”  (Id. at p. 1032.) 

As discussed above, all causes of action arise from defendants’ statements in connection with litigation: the petition to inspect records (Cohen Decl., Ex. A), which defendants had already filed and prevailed on before some of their communications, and a civil action they ultimately filed in February 2023 (id., Ex. F). 

Plaintiffs again rely on the argument that any litigation was only theoretical.  A prelitigation communication is privileged only if it “relates to litigation that is contemplated in good faith and under serious consideration.” (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1251.)  As discussed above, the litigation was demonstrably under serious consideration.  The litigation has materialized.  All the challenged communications concerned two proceedings that had already begun or have since been filed.

Finally, plaintiffs argue the litigation privilege does not apply because defendants committed extortion.  The court rejected this argument above in connection with the first prong of the anti-SLAPP analysis.

Attorney Fees

            In their motion, defendants seek $7,535 in attorney fees and costs.   “[A] prevailing defendant on a special motion to strike shall be entitled to recover that defendant’s attorney’s fees and costs.”  (CCP § 425.16(c)(1).)  Defendants prevailed in striking the entire complaint and are therefore entitled to recover those expenses.

Evidentiary Objections

            Defendants make four objections to the declaration of Matthew Hermer in support of plaintiffs’ opposition.  All four objections are overruled. 

Disposition

            Defendants Jamal Holdings (US), Inc.; 0999849 B.C. LTD d/b/a Hardy Capital Ltd; Innhouse US Investments, Inc.; Azim Jamal; Roger Hardy; and Salim Karim’s special motion to strike plaintiffs’ complaint is granted.  The court hereby strikes the entire complaint without leave to amend. 

Defendants shall recover $7,535 in attorney fees and costs from plaintiffs 9010 Melrose Avenue, LLC, Futura Media Inc., and Matthew Hermer, jointly and severally.