Judge: Armen Tamzarian, Case: 24STCV09959, Date: 2024-09-04 Tentative Ruling

Case Number: 24STCV09959    Hearing Date: September 4, 2024    Dept: 52

Defendants’ Special Motion to Strike Complaint & Defendants’ Demurrer

Anti-SLAPP Motion

Defendants Will Abbott, Alexey Mikhaylov, Thomas Rini, 4E Capital LP, and Pharm Capital, LLC specially move to strike the entire complaint by plaintiffs Meridian Capital LLC, M2 Growth Partners IV, LLC, OBM PDG, LLC, Wilmington Investors, LLC, Omar Mangalji, David Mehlman, and Michael Steinberg.

Request for Judicial Notice

            Plaintiffs request judicial notice of two exhibits: the complaint in another action, Case No. 24STCV02587, and the memorandum of points and authorities in support of an application for an attachment order in that action.  The existence and legal effects of these documents (but not the facts stated therein) are subject to judicial notice under Evidence Code § 452(d).  (Steed v. Department of Consumer Affairs (2012) 204 Cal.App.4th 112, 120.)

            The court grants plaintiff’s requests for judicial notice of exhibits 1 and 2.

Legal Standard for Anti-SLAPP Motion

Courts use a two-step process for resolving anti-SLAPP motions under Code of Civil Procedure 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.)

Step One: Protected Activity

Defendants meet their burden of showing the entire complaint seeks to hold them liable for protected activity.  Protected activity includes “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.”  (CCP § 425.16(e)(2).)  This provision is “construed broadly, to protect the right of litigants” and applies to a communication “if it has ‘ “some relation” ’ to judicial proceedings.”  (Healy v. Tuscany Hills Landscape & Recreation Corp. (2006) 137 Cal.App.4th 1, 5.)  “[A] statement is ‘in connection with’ litigation under section 425.16, subdivision (e)(2) if it relates to the substantive issues in the litigation and is directed to persons having some interest in the litigation.”  (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1266.)  This provision also applies to statements in connection with “anticipated litigation.”  (Bel Air Internet, LLC v. Morales (2018) 20 Cal.App.5th 924, 943.)

Each cause of action alleges defendants are liable for the same events.  Plaintiffs and defendants all lent money to non-party Pacific Consolidated Holdings Group, Inc. (PCH).  (Comp., ¶¶ 1-3.)  After PCH “began having difficulty paying all of its debt obligations” (¶ 5), “the Defendants insisted on exclusive repayment to only themselves, demanding that PCH forego all other debt obligations in order to pay the Defendants” (¶ 7).  “PCH’s largest funding source comes through” plaintiff “OBM PDG which receives monthly payments from a group of connected commercial cannabis cultivation companies” referred to as the “PDG Group.”  (¶ 10.)  The complaint alleges, “Defendants went to the PDG Group directly (with whom they have no contractual relationship) and demanded that all future payments OBM PDG was entitled to instead be redirected to Defendants.”  (¶ 11.)

The complaint further alleges that after attempts to restructure PCH (Comp., ¶¶ 57-64), “[f]ormal demand was made on September 25, 2023, from the Defendants’ attorneys at Coppersmith Brockelman, sent to PCH, in which they voiced objections to PCH’s allocation of funds received from the PDG Group” (¶ 67).  “On November 9, 2023, Defendants sent two additional letters to PCH.”  (¶ 69.)  The first “asserted that 4E was ‘lead lender’ under the Restructuring LOI, and was thereby entitled to priority payment.”  (Ibid.)  The second letter “was a notice of default on behalf of 4E and Pharm.”  (¶ 70.) 

These demands and letters were all connected to anticipated litigation: “[O]n January 31, 2024, 4E, Pharm, and Mikhaylov, now represented by Katten Muchin Rosenman LLP (‘Katten’), filed a lawsuit against PCH, Mangalji, Steinberg, Mehlman, Zevo, and Meridian Via Real.”  (Comp., ¶ 76.) 

The complaint also alleges defendants are liable for communications sent after that lawsuit began.  It alleges, “Katten, on behalf of the Defendants, sent a letter to the PDG Group on February 12, 2024, falsely asserted authority under the Restructuring LOI and as ‘lead lender.’  It further ‘notified and instructed’ the PDG Group ‘to remit payment of the full amount of each monthly payment of the PDG Notes directly to Lenders, rather than to PCH.’ ”  (Comp., ¶ 78.)  Plaintiffs further allege that defendant “Abbott has personally contacted the PDG Group and/or their counsel on multiple occasions demanding that payment be made to the Defendants (and not to any other PCH creditor).”  (¶ 84.)  These communications are connected to the lawsuit 4E, Pharm, and Mikhaylov filed against PCH and others.  (Comp., ¶ 76.) 

Plaintiffs contend the communications are only evidence supporting liability—rather than the acts for which defendants are liable.  (Opp., p. 9.)  “ ‘[A] claim may be struck only if the speech or petitioning activity itself is the wrong complained of, and not just evidence of liability or a step leading to some different act for which liability is asserted.’  [Citation.]  Thus, in evaluating an anti-SLAPP motion, ‘courts should consider the elements of the challenged claim and what actions by [the] defendant supply those elements and consequently form the basis for liability.’ ”  (Golden Gate Land Holdings LLC v. Direct Action Everywhere (2022) 81 Cal.App.5th 82, 90.)   

Plaintiffs’ opposition repeatedly makes conclusory arguments that protected communications do not supply the elements of the complaint’s causes of action.  For example, plaintiffs argue, “The core of Plaintiffs’ claims lies in Defendants’ wrongful business practices, such as redirecting payments and interfering with contractual relations.”  (Opp., p. 4, citing Comp., ¶¶ 75-79, 90-96.)  But plaintiffs do not actually allege defendants redirected payments.  They allege defendants told others where to direct payments. 

In their opposition, plaintiffs cite two groups of allegations that purportedly consisted of conduct.  (Opp. pp. 4-6.)  The first group concerns a December 12, 2023, letter (¶ 75), filing a lawsuit (¶ 76), and a “campaign of harassment” (¶ 77), which apparently consisted of Katten Muchin Rosenman LLP sending a February 12, 2024, letter to the PDG Group (¶ 78) that “asserted” rights under “the Restructuring LOI” (¶ 79).  The second group concerns a contract between plaintiff OBM PDG and the PDG Group (Comp., ¶¶ 90-91), that defendants knew about it (¶ 92), and that “Defendants sought to disrupt the contractual relationship … by falsely claiming lead lender status and assignment of the PDG Settlement Terms through the Katten Letter and various related communications with the PDG Group” (¶ 93).  Finally, this portion of the complaint alleges defendants knew “their demands in the Katten Letter were likely to interfere with the contractual relationship” (¶ 94) and alleges defendants caused an actual disruption (¶ 95).  All those things—letters, assertions, making claims through communications, and demands—constitute protected activity made in connection with an official proceeding.  Plaintiffs identify nothing specific other than speech that supplies an element of any cause of action. 

The opposition further argues, “Plaintiffs’ lawsuit seeks redress for Defendants’ business-related wrongdoing, specifically their misrepresentations, breaches of contract, and fraudulent conduct.”  (Opp., p. 7.)  Misrepresentations are speech.  As for breaches of contract, the complaint does not allege defendants breached any contract.  But assuming the complaint did so, the opposition argues defendants breached “confidentiality agreements.”  (Id., pp. 5, 7, 9, 12.)  A confidentiality agreement is a binding promise not to speak.  One breaches such an agreement by speaking.  When connected to litigation, any such speech would be protected activity.  (See DaimlerChrysler Motors Co. v. Lew Williams, Inc. (2006) 142 Cal.App.4th 344, 351 [“the mere fact the constitutional speech occurred in violation of a contract dd not by itself preempt the application of the anti-SLAPP statute.  Rather, the issue of breach was to be addressed under the statute’s merits prong”].)  As for “fraudulent conduct,” plaintiffs fail to identify any allegations of fraudulent conduct that did not constitute communications or speech connected to the prior lawsuit. 

Plaintiffs’ opposition relies on conclusory characterizations of the effects of defendants’ “conduct.”  Plaintiffs do not, however, identify any non-communicative act that supplies the elements of their claims.  Plaintiffs therefore do not rebut defendants’ showing that the entire complaint arises from protected activity. 

Step Two: Probability of Prevailing on the Merits

            Plaintiffs do not meet their burden of showing a probability of prevailing on the merits of any of their seven causes of action.

A. Failure to Present Evidence

            Except the two documents subject to judicial notice, plaintiffs did not submit any admissible evidence with their opposition.  “[A] plaintiff seeking to demonstrate the merit of the claim ‘may not rely solely on its complaint, even if verified; instead, its proof must be made upon competent admissible evidence.’ ”  (Sweetwater Union High School Dist. v. Gilbane Building Co. (2019) 6 Cal.5th 931, 940.)  Several cases have held that granting an anti-SLAPP motion was proper where the plaintiff “failed to offer any admissible evidence to establish a prima facie case.”  (San Diegans for Open Government v. San Diego State University Research Foundation (2017) 13 Cal.App.5th 76, 109 [citing two prior cases].)

            Plaintiffs’ opposition relies solely on the documents subject to judicial notice and on plaintiffs’ unverified complaint—including numerous exhibits they did not attach to the complaint.  In response to the court’s request, after defendants filed their motion to strike, plaintiffs filed an errata to their unverified complaint, attaching the exhibits thereto that were not previously filed.  But exhibits attached to an errata to an unverified complaint are not evidence. 

By themselves, exhibits 1 and 2 to the request for judicial notice do not support any of plaintiffs’ causes of action.  Exhibit 1 only establishes defendants filed a lawsuit against PCH.  Plaintiffs cite exhibit 2 as evidence showing that “while Defendants insisted on securing an interest in PCH’s assets, including the PDG Notes, the necessary security documentation was never finalized or executed, rendering any claims of a secured interest baseless.”  (Opp., p. 12.)  Without evidence defendants claimed a secured interest, exhibit 2 does not constitute prima facie evidence of any element of plaintiffs’ claims.

B. Litigation Privilege

The litigation privilege bars all seven causes of action by plaintiffs against the moving defendants.  “A plaintiff cannot establish a probability of prevailing if the litigation privilege precludes the defendant’s liability on the claim.”  (Digerati Holdings, LLC v. Young Money Entertainment, LLC (2011) 194 Cal.App.4th 873, 888 (Digerati).)  “ ‘[T]he privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that [has] some connection or logical relation to the action.’ ”  (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1241.) 

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.) 

The complaint alleges seven tort causes of action against defendants based on communications they made in relation to the action 4E, Pharm, and Mikhaylov filed in January 2024.  (Comp., ¶ 76; RJN, Ex. 1.)  At the heart of plaintiffs’ suit is their allegation that defendants, though counsel, intentionally made false claims that they were lead lenders entitled to priority over other creditors.  But plaintiffs present no evidence to support that allegation.  Moreover, even if plaintiffs could support this allegation with evidence, the litigation privilege protects the statements made by defendants’ lawyers.

In Digerati, the court held the litigation privilege applied to prelitigation statements made to third parties.  There, a musician had a dispute with a film production film over a documentary film.  (Digerati, supra, 194 Cal.App.4th at pp. 877-878.)  The musician’s attorney “inform[ed] distributors that the film was not authorized and threaten[ed] them with litigation.”  (Id. at p. 886.)  The court concluded those statements were both protected activity under the anti-SLAPP statute (id. at pp. 887-888) and “protected by the litigation privilege” (id. at p. 889).  Digerati is on point.  The alleged statements by defendants’ lawyers asserting defendants were entitled to priority as creditors are analogous to the statement made in Digerati by a musician’s attorney to film distributors.  Both were statements made in connection with a genuinely contemplated or ongoing judicial proceeding. 

None of the cases plaintiffs cite support their position.  The court shall review three of them.

In Mattco Forge, Inc. v. Arthur Young & Co. (1992) 5 Cal.App.4th 392, 406 (Mattco), the court noted the litigation privilege did not apply to certain causes of action, including breach of contract and malicious prosecution.  (Ibid.)  The court further noted that the privilege does not protect “a claim for damages under the Invasion of Privacy Act (Pen.Code, § 630 et seq.), a psychotherapist’s voluntary disclosure during a custody proceeding of a patient’s confidential communications, or … statements made in a judicial proceeding that violate a contractual provision not to disclose a former employer’s trade secrets.”  (Mattco, at p. 406.)  Here, plaintiffs do not assert a breach of contract or malicious prosecution cause of action.  Though the opposition argues defendants breached a confidentiality agreement, plaintiffs neither alleged that in the complaint nor presented any admissible evidence to support such an allegation.  Mattco does not support plaintiffs’ position.

Plaintiffs’ reliance on Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1168 (Oren) is similarly unpersuasive.  There, the court explained, “ ‘The privileges of Civil Code section 47, unlike evidentiary privileges which function by the exclusion of evidence [citation], operate as limitations upon liability.’ ”  (Ibid.)  The court did not address the substantive reach of the litigation privilege.  Oren too fails to support plaintiffs’ position. 

Finally, plaintiffs’ reliance on Flatley v. Mauro (2006) 39 Cal.4th 299 (Flatley) is misplaced.  There, the California Supreme Court held, “[W]here a defendant brings a motion to strike under section 425.16 based on a claim that the plaintiff’s action arises from activity by the defendant in furtherance of the defendant's exercise of protected speech or petition rights, but either 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.”  (Id. at p. 320.)  Here, defendants do not concede, and plaintiffs’ limited evidence did not conclusively establish, that the alleged speech was illegal as a matter of law. 

Moreover, Flatley noted, “In reaching this conclusion, we emphasize that the question of whether the defendant’s underlying conduct was illegal as a matter of law is preliminary, and unrelated to the second prong question of whether the plaintiff has demonstrated a probability of prevailing, and the showing required to establish conduct illegal as a matter of law—either through defendant’s concession or by uncontroverted and conclusive evidence—is not the same showing as the plaintiff’s second prong showing of probability of prevailing.”  (Flatley, supra, 39 Cal.4th at p. 320.)  For the reasons discussed above, defendants met their burden on the first step of the anti-SLAPP analysis.  Flatley expressly did not reach the second step of the analysis.  It does not support plaintiffs’ arguments on their probability of prevailing on the merits.

C. 3rd, 4th, 5th, and 6th Causes of Action

For independent reasons, plaintiffs also show no probability of prevailing on the third and fourth causes of action for breach of fiduciary duty, the fifth cause of action for constructive fraud, or the sixth cause of action for fraudulent concealment.  Breach of fiduciary duty and constructive fraud require “a fiduciary relationship.”  (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1249.)  For fraudulent concealment, plaintiffs allege, “Defendants had a fiduciary duty to disclose material facts to Plaintiffs.”  (Comp., ¶ 135.)  Plaintiffs neither allege sufficient facts nor present prima facie evidence of a fiduciary relationship. 

Generally, the relationship between a borrower and lender “is not fiduciary in nature.”  (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1093, fn. 1.)  The complaint (¶¶ 107, 117) relies on an exception to the general rule: “[A] lender … owes a fiduciary duty to a borrower when it excessively controls or dominates the borrower.”  (Pension Trust Fund for Operating Engineers v. Federal Ins. Co. (9th Cir. 2002) 307 F.3d 944, 955, citing Credit Managers Assn. v. Superior Court (1975) 51 Cal.App.3d 352, 359-361.)  

For the third through fifth causes of action, plaintiffs are not the borrowers.  Like defendants, they also lent money to the same borrower, non-party PCH.  The complaint alleges defendants owed fiduciary duties to that borrower.  (Comp., ¶¶ 108, 118.)  Plaintiffs provide no authority permitting them to sue defendants for breaching fiduciary duties (or for constructive fraud arising from fiduciary duties) owed to someone else.       

For each of the third through sixth causes of action, plaintiffs submitted no admissible evidence other than exhibits 1 and 2 to the request for judicial notice.  Those exhibits provide no support for the assertion that defendants excessively controlled or dominated the borrower or otherwise “had a fiduciary duty to disclose material facts to Plaintiffs.”  (Comp., ¶ 135.)

Demurrer

Defendants Will Abbott, Alexey Mikhaylov, Thomas Rini, 4E Capital LP, and Pharm Capital, LLC also demur to plaintiffs’ complaint.  The demurrer is moot because the court will grant defendants’ anti-SLAPP motion.  

Disposition

            Defendants Will Abbott, Alexey Mikhaylov, Thomas Rini, 4E Capital LP, and Pharm Capital, LLC’s special motion to strike plaintiffs’ complaint is granted.  The court hereby strikes the entire complaint as against defendants Will Abbott, Alexey Mikhaylov, Thomas Rini, 4E Capital LP, and Pharm Capital, LLC without leave to amend.