Judge: Jon R. Takasugi, Case: 23STCV11997, Date: 2023-10-26 Tentative Ruling

Case Number: 23STCV11997    Hearing Date: October 26, 2023    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

            Crusader Insurance’s special motion to strike (anti-SLAPP) Vitar’s cross-complaint is DENIED.

            On 5/26/2023, Plaintiff Crusader Insurance Company (Crusader) filed suit against Aurora Vitar individually and as trustee of the Aurora Vitar Survivors Trust (Vitar), seeking reimbursement. 

            On 7/18/2023, Vitar filed a cross-complaint against Crusader, alleging: (1) breach of written contract; (2) insurance bad faith; (3) intentional misrepresentation; (4) elder abuse; and (5) declaratory relief.

            Now, Crusader moves to specially strike Vitar’s cross-complaint.

Legal Standard

On a special motion to strike pursuant to Code of Civil Procedure (CCP) section 425.16, also known as an anti-SLAPP motion, moving parties have the initial burden to demonstrate that a cause of action is subject to a special motion to strike. (Martinez v. Metabolife Inter. Ins. (2003) 113 Cal.App.4th 181, 186; Fox Searchlight Pictures Inc. v. Paladino (2001) 89 Cal.App.4th 294, 304.) First, the court must determine whether moving parties have made a prima facie showing that the attacked claims arise from a protected activity, including defendants’ right of petition, or free speech, under a constitution, in connection with issues of public interest. (Healy v. Tuscany Hills Landscape & Recreation Corp., (2006) 137 Cal.App.4th 1, 5; Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 278; Code Civ. Proc., § 425.16, subd. (e).) Moving parties can satisfy this burden by showing (1) statements made before legislative, executive or judicial proceedings, or made in connection with matters being considered in such proceedings, or (2) statements made in a public forum, or other conduct in furtherance of the exercise of the constitutional rights of petition or free speech, in connection with issues of public interest. (Code Civ. Proc.,­ § 425.16, subd. (e); Equilon Ent., LLC v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66.) 

If the court finds this showing has been made, it must dismiss the cause of action unless the plaintiff meets its burden to demonstrate a probability of prevailing on the claim. (Code Civ. Proc., § 425.16, subd. (b)(1); Balzaga v. Fox News Network, LLC (2009) 173 Cal.App.4th 1325, 1336.) This means that the plaintiff must state a legally sufficient claim and must then present evidence that substantiates or sustains the claim. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 61; see also Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821 [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”].) 

Factual Background

Aurora Vitar is a real estate investor who owns and manages properties in Southern California. One of her properties included an eighteen-unit apartment building located on 450 S. Benton Way in Los Angeles. This building was the subject of a tenant lawsuit in 2019, based on allegations that Vitar had failed to correct the substandard conditions on the property.

The lawsuit was tendered to Crusader on February 24, 2020. On April 22, 2020, Crusader agreed to defend Vitar, subject to a reservation of rights, and appointed defense counsel, Rick Peterson of Bremer, Whyte, Brown & O’Meara.

In December of 2020, Vitar and her tenants agreed to a mediation. Defense counsel evaluated a reasonable settlement value ($300,000 or less) based on the tenants’ discovery responses and available evidence. At the time, Crusader believed most of the tenants’ damages were not covered under the policy. However, Crusader would fund a reasonable settlement, even if it included what Crusader believed to be noncovered claims.

Following the procedures set forth in Blue Ridge Ins. v. Jacobsen, (2001) 25 Cal.4^th 489, Crusader informed Vitar on December 17, 2020, that it would accept a settlement within the reasonable settlement value ($300,000 or less). If Vitar believed her case was defensible, or if she objected to Crusader negotiating the settlement at $300,000 or less, and subject to a reservation of the right to seek reimbursement from Vitar, Vitar could object to the settlement and take over the defense of the tenants’ lawsuit at her own expense (as outlined in Blue Ridge). (Rindt Dec., Exh. 3).

The tenants ultimately agreed to release Vitar for $290,000. Vitar did not contribute to the settlement amount, and did not opt to assume and mount her own defense, at her own expense.

On December 17, 2020, Crusader sent a letter (the Pre-Litigation Settlement Letter) to Vitar proposing a compromise of its reimbursement claim to Vitar, in an attempt to informally resolve the reimbursement issue.

            Vitar declined the informal offer. As a result, Crusader now seeks reimbursement for what it contends are uncovered claims under the policy, based on its previous reservation of rights.

            In the cross-complaint, Vitar alleges that Crusader acted in bath faith because it created a conflict of interest and required the appointment of independent of Cumis counsel by Crusader for Vitar. (San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc. (1984) 162 Cal.App.3d 358.)

Discussion

            Crusader argues that Vitar’s cross-complaint should be specially struck because each of the causes of action arise out of Crusader’s attempt to negotiate its reimbursement claim and its decision to seek a coverage determination of its settlement payment, and Vitar does not have a reasonable probability of prevailing.

            As for the first contention, filing a lawsuit is fundamentally protected activity for anti-SLAPP purposes. (See Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115) (“The constitutional right of petition . . . includes the basic act of filing litigation”). The California Supreme Court recently clarified that pre-lawsuit settlement negotiations are also protected activity under Section 425.16: “We deal here with a claim arising out of settlement negotiations preceding the filing of any suit. But we nevertheless conclude such negotiations, no less than postfiling settlement negotiations or communications in anticipation of filing, are protected activity for anti-SLAPP purposes.”

            In determining whether Vitar’s claims arise from or are based on protected petitioning activity (in this case, pre-lawsuit settlement negotiations), the Court considers “the principal thrust or gravamen of a plaintiff's cause of action.” (Ramona Unified School Dist. v. Tsiknas (2005) 135 Cal.App.4th 510, 519-20.)

            Here, Vitar’s cross-claims arises out of Crusader’s attempt to negotiate its reimbursement claim and its decision to seek a coverage determination of its settlement payment. For example, Vitar’s cross-complaint alleges the following:

-         “On December 17, 2020, Crusader . . . notified Cross-Complainant that, in Crusader’s opinion, substantial portions of the damages alleged by plaintiffs in the Rivera action were not covered. Values were assigned to the purportedly covered and non-covered claims, and Crusader demanded Cross-Complainants contribute 86% of any future settlement.” (Cross-Complaint ¶ 11)

-         “Prior to settling the Rivera suit, Crusader arbitrarily determined that Cross-Complainant pay 86% of defense costs and fees and indemnity payments prior to and subsequent to settlement. That demand, coupled with the denial of Cumis counsel representation, breached the policy terms, and were contradicted by applicable case law.” (Cross-Complaint ¶ 18).

-         “By denying Cross-Complaint the full coverage provided in the Crusader policies, and by demanding an 86% settlement contribution from CrossComplainant without the protection of Cumis counsel at mediation, Crusader breached its contracts with Cross-Complaint.” (Cross-Complaint ¶ 20.)

-         “The covenant was breached by, among other things, Crusader’s failure to provide Cross-Complaint with Cumis counsel or notify Cross-Complaint of the existence of a conflict of interest, arbitrary allocation of fees, costs and damages into covered and un-covered claims . . . .” (Cross-Complaint ¶ 23).

-         “Those representations included the representation that a defense would be provided to Cross-Complainant and indemnity paid for covered claims . . . .” (Cross-Complaint ¶ 27.)

In opposition, Vitar cited a number of cases where the Court found that an insured’s bad faith claim against its insurer, based on the failure to provide independent counsel and breach of the duty to defend, was not subject to anti-SLAPP provisions. 

For example, in Miller v. Zurich American Ins. Co. (2019) 41 Cal.App.5th 247, the basis of the suit brought by Miller against Zurich was breach of contract in failing to appoint independent counsel; and bad faith in handling an underlying action. The suit alleged Zurich breached its duty to defend by not providing conflict-free counsel. Zurich filed an anti-SLAPP motion, claiming the actions alleged by the Millers arose from “petitioning activity” and asserted the Millers could not prevail in their suit, as all evidence was protected by the litigation privilege of Civil Code section 47.

The court first recognized the Miller’s claims did not arise from Zurich’s protected activity. In reaching this conclusion, the court observed: “‘[a]lthough a party's litigation-related activities constitute “act[s] in furtherance of a person's right of petition or free speech,” it does not follow that any claims associated with those activities are subject to the anti-SLAPP statute’” (Miller, supra, at p. 257, citing Freeman v. Schack (2007) 154 Cal.App.4th 719, 729–730).)

The court then noted that breach of the implied covenant of good faith and fair dealing may occur through litigation-related communications independent of liability issues in the underlying action. However, there, the gravamen of the claim was the claimed denial of the benefit of panel counsel’s independent professional judgment in rendering legal services to them. As such, what gave rise to liability was not that the defendant spoke, but that the defendant denied the plaintiff a benefit, or subjected the plaintiff to a burden…” (Id.) The court found “the lawsuit concerns a breach of duty that [did] not depend on [Zurich’s] exercise of a constitutional right.” (Id. at pg. 258, citing Chodos v. Cole (2012) 210 Cal.App.4th 692, 702.)

Similarly, in Trilogy Plumbing, Inc. v. Navigators Specialty Ins. Co. (2020) 50 Cal. App. 5th 920 the Court there held that specific bad faith allegations regarding conflicted defense counsel were not protected by the anti-SLAPP statute because the claims asserted did not rely on issues under issues under consideration or review by a judicial body.

Vitar also cited the following cases wherein bad faith claims survived anti-SLAPP motions: RLI Ins. Co. v. Langan Eng’g, Env’t, Surveying & Landscape Architecture, D.P.C. (9th Cir. 2021) 834 F. App’s. 362, 363-64 (citing Park v. Bd. Of Trustees of California State Univ. (2017) 2 Cal.5th 1057, 1065.); Beach v. Harco National Ins. Co. (2003) 110 Cal.App.4th 82, 93-94; and Gallimore v. State Farm Fire & Casualty Ins. Co. (2002)102 Cal.App.4th 1388.

Here, like in Trilogy, Vitar alleges she was represented by conflicted defense counsel, and like in Miller, Vitar alleges she did not receive the benefit of a proper defense from panel counsel. While this case involves litigated-related communications, what gives rise to Crusader’s alleged liability is not that the Crusader spoke, but that Crusader allegedly denied Vitar an owed benefit. In other words, Vitar does not challenge Crusader’s right to seek reimbursement or to engage in settlement negotiations. Rather, Crusader claims “address the manner in which Vitar was treated by Crusader-appointed defense counsel; and the manner in which coverage decisions were made in the absence of independent counsel.” (Opp, 5: 19-21.)

 The Court agrees, based on the analysis of Miller and Trilogy, that Defendant has not met its burden to show Vitar’s claims arise out of protected activity.

This conclusion is further reinforced by the fact that Vitar’s claim is brought as a compulsory cross-complaint. Compulsory cross-complaints “rarely, if ever, qualify as a SLAPP suit arising from petitioning activity.” (Church of Scientology v. Wollersheim (1996) 42 Cal.App.4th 628,651. See also Kajima Engineering & Construction v. City of Los Angeles (2002) 95 Cal.App.4th 921.)

Based on the foregoing, Crusader’s special motion to strike is denied.

It is so ordered.

Dated:  October    , 2023

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.