Judge: Joseph Lipner, Case: 23STCV20656, Date: 2023-12-21 Tentative Ruling

Case Number: 23STCV20656    Hearing Date: February 1, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Cross-Defendants Heartlung Corporation (“Heartlung”), American Heart Technologies, LLC (“AHT”), Morteza Naghavi, and Naveen Madala (collectively, “Cross-Defendants”) move to strike the seventh, eighth, ninth, tenth, twelfth, thirteenth, fourteenth, and fifteenth causes of action (the “Disputed Counts”) of the First Amended Complaint (“FACC”) filed by Defendants and Cross-Complainants BDI, Inc. (“BDI”) and Matthew Budoff (collectively, “Cross-Complainants”).

The Court GRANTS Cross-Defendants’ motion.

Background

Defendant BDI developed intellectual property protected by multiple patents for the purpose of measuring bone density. The patents were originally owned by the Lundquist Institute at Harbor-UCLA, which sublicensed them to BDI. BDI and Budoff, who worked for BDI, were unable to build an automated bone density measurement software that could be commercialized as it wished.

On May 14, 2021, Heartlung and BDI executed a patent license agreement (the “License Agreement”) which granted Heartlung a worldwide exclusive license to US Patent No. US9119590 and US Patent No.10695022. Heartlung contends that BDI retained the rights to use the patent for clinical and research purposes. Cross-Complainants contend that BDI retained the right to use the licenses for commercial purposes as well. Cross-Complainants contend that Naghavi further promised that Heartlung would develop for BDI an AI product implementing the patents. Cross-Complainants further contend that the parties negotiated a non-exclusive license, but that Cross-Defendants nevertheless drafted a contract stating that the license would be exclusive to undermine that agreement.

On June 15, 2021, Heartlung and Budoff executed a scientific advisory agreement (the “Advisory Agreement”) under which Budoff became a shareholder and advisor of Heartlung. The Advisory Agreement provided for the protection and nondisclosure of confidential and proprietary information.

From July 28, 2021 through February 27, 2023, Budoff worked for Heartlung and received trade secret information regarding Heartlung’s development and commercialization of automated bone density measurement technology.

Around January, 2023, Cross-Complainants allege that the FBI contacted BDI and informed it that Heartlung had misappropriated data in violation of HIPAA.

On January 17, 2023, Budoff sent Heartlung a proposed amendment to the License Agreement that would have allowed BDI to use Heartlung’s bone density measurement technology without paying any fees. Heartlung rejected these changes. On January 24, 2023, Budoff emailed Heartlung stating that the provision in the License Agreement allowing clinical use also covered commercial use.

Around this period of time, Nagavi and Madala sent a number of letters and emails alleging that BDI was in violation of the sublicense and threatening to instigate litigation against BDI.

On March 21, 2023, Budoff resigned from Heartlung’s advisory board.

By April 5, 2023, Heartlung alleges it received reports that BDI was advertising and negotiating the commercial use of bone density measurement technology covered by the License Agreement.

Heartlung filed this action against Defendants on August 28, 2023, alleging (1) specific performance of exclusive licensing agreement; (2) breach of licensing agreement and damages; and (3) misappropriation of trade secrets.

Cross-Complainants filed a cross-complaint. The operative cross-complaint is now the FACC, which raises claims for (1) breach of contract; (2) breach of implied covenant of good faith and fair dealing; (3) breach of implied in fact contract; (4) fraudulent inducement of contract; (5) fraud; (6) breach of implied duty to perform with reasonable care; (7) attempted extortion; (8) business and trade libel; (9) libel; (10) slander; (11) conversion; (12) tortious interference with business relations; (13) negligent interference with business relations; (14) unfair competition in violation of Business & Professions Code, section 17200; (15) common law unfair competition; (16) violation of the Defend Trade Secrets Act; and (17) misappropriation of trade secrets [emphasis added to the Disputed Counts].

Cross-Defendants filed this motion on January 9, 2024. Cross-Complainants filed an opposition and Cross-Defendants filed a reply.

Legal Standard

Code of Civil Procedure section 425.16 requires the court to strike causes of action arising from an act in furtherance of the defendant’s right of free speech or petition unless the plaintiff establishes that there is a probability that the plaintiff will prevail on the claim.

In assessing a defendant’s Code of Civil Procedure section 425.16 special motion to strike, the court must engage in a two-step process. (Shekhter v. Financial Indem. Co. (2001) 89 Cal.App.4th 141, 150.) First, the court must decide whether the defendant has met the threshold burden of showing that the plaintiff’s cause of action arises from the defendant’s constitutional rights of free speech or petition for redress of grievances. (Ibid.) This burden may be met by showing the act which forms the basis for the plaintiff’s cause of action was an act that falls within one of the four categories of conduct set forth in Code of Civil Procedure section 425.16, subdivision (e). 

Once a defendant has met its initial burden and established that the anti-SLAPP statute applies, the burden shifts to the plaintiff to demonstrate a “probability” of success on the merits. (Code Civ. Proc., § 425.16, subd. (b); Equilon Enters. LLC v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.) “[T]he 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.” (Matson v. Dvorak (1995) 40 Cal.App.4th 539, 548, internal quotations omitted.)

Discussion

Protected Activity

To determine the gravamen of an alleged SLAPP, courts look to the factual basis for liability. (Wallace v. McCubbin (2011) 196 Cal.App.4th 1169, 1190, as modified on denial of reh'g (July 26, 2011) disapproved of on other grounds by Baral v. Schnitt (2016) 1 Cal.5th 376.)

          The anti-SLAPP statute applies to a “cause of action again 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 in connection with a public issue.”  (Civ. Proc. Code § 425.16, subd. (b)(1).) The statute defines such acts to include the following:

(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law,

(2) 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,

(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or

(4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest. 

(Code Civ. Proc., §425.16, subd. (e).) 

The Anti-SLAPP statute protects statements and writings made before a legislative, executive, or judicial proceeding. (Code Civ. Proc., §425.16, subd. (e)(1).) “The constitutional right to petition ... includes the basic act of filing litigation....” (Birkner v. Lam (2007) 156 Cal.App.4th 275, 281.) “It is beyond question that the initiation and prosecution of [... a lawsuit is] protected under the anti-SLAPP statute.” (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1017-1018).

All communicative acts performed by attorneys as part of their representation of a client in a judicial proceeding or other petitioning context are per se protected as petitioning activity by the Anti-SLAPP statute. (Cabral v. Martins (2009) 177 Cal.App.4th 471; Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056.) Further,  “communications preparatory to or in anticipation of the bringing of an action or other official proceeding … are equally entitled to the benefits of section 425.16.” (Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115.) California courts have held that pre-litigation communications such as letters threatening to sue are protected activity. (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1266 [letter to employer's customers accusing ex-employee of misappropriation of trade secrets and threatening to file litigation was protected]; CKE Restaurants, Inc. v. Moore (2008) 159 Cal.App.4th 262, 271 [statements made in 60–day notice of intent to sue required by Prop. 65]; Digerati Holdings, LLC v. Young Money Entertainment LLC (2011) 194 Cal.App.4th 873, 887–888 [letter to film distributors asserting that film was not authorized and threatening to sue].) “Counseling others in anticipation of litigation or encouraging others to sue is considered protected prelitigation activity.” (Pech v. Doniger (2022) 75 Cal.App.5th 443, 462.)

“[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, supra, 160 Cal.App.4th at p. 1266; see also Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th 1153, 1167 [statements made by the defendant, who was a court-appointed liquidator in an insolvency proceeding, to the Insurance Commissioner concerning the assets of the insolvent company were protected]. The audience to the statements need not be a party to the proceeding, or even a potential party, but the audience must have some level of specific interest in the litigation. (Contemporary Services Corp. v. Staff Pro Inc. (2007) 152 CA4th 1043, 1055 [email to customers accusing competitor of litigation-related misconduct was protected].)

In each of the Disputed Counts, the culpable conduct alleged is the same. Cross-Complainants allege that:

92. Cross-Defendants overtly made wrongful threats of civil prosecution and tortious interference (and of inflicting on Cross-Claimants resulting attorney and other legal costs) if [Cross-Complainants] did not submit to Cross-Defendants’ demands. Those threats included making untrue allegations and threats to Dr. Budoff’s partners and superiors at his place of employment, and threats to BDI’s customers, when Cross-Defendants knew (1) that these threatened individuals and entities were not, and are not parties, to Cross-Defendants’ allegations (they were threatened by Cross-Defendants only to coerce [Cross-Complainants]), and (2) that Cross-Defendants’ allegations were untrue and Cross-Defendants’ demands were unfounded or Cross-Defendants should have known that such allegations were untrue and their demands were unfounded.

93. When Cross-Claimants refused to submit to Cross-Defendants’ wrongful demands and unlawful coercion, Cross-Defendants did, in fact, carry through with their threatened acts, which damaged the business and personal reputations of Cross-Claimants.

(FACC ¶¶ 92-93; compare FACC ¶¶ 96-97, 100-101, 104-105, 117-118, 121-122, 125-126, 129-130.)

          Cross-Defendants’ statements to Cross-Complainants threatening litigation are facially protected as statements contemplating litigation. Truth of the statements is not an element of protected activity – it is only necessary that litigation be contemplated in good faith. Here, Cross-Defendants filed the instant action a few months later, over the exact subject matter at issue – the intellectual property dispute.

          Further, statements to Harbor-UCLA and the Lundquist Institute also fall within the ambit of statements in contemplation of litigation. As discussed above, a statement need not be to a party or potential party to the potential litigation to count as a statement in connection with litigation. Harbor-UCLA and the Lundquist Institute are the original owners of the patents at issue here, which were sublicensed to BDI and then further sublicensed to Heartlung. Thus, Harbor-UCLA and the Lundquist Institute have a sufficient involvement in the litigation for the communications to be in connection with litigation. (Contemporary Services Corp. v. Staff Pro Inc., supra, 152 Cal.App.4th at p. 1055 [email to customers accusing competitor of litigation-related misconduct was protected because they have “some involvement” in the litigation]; Neville v. Chudacoff, supra, 160 Cal.App.4th at p. 1266 [letter to employer's customers accusing ex-employee of misappropriation of trade secrets and threatening to file litigation was protected].)

          Thus, the Court concludes that Cross-Defendants’ statements that form the basis of the Disputed Counts are protected.

Probability of Success

California law does not permit liability for filing lawsuits, except in the case of malicious prosecution. (See Civ. Code, § 47.) This “litigation privilege[ ] has been referred to as ‘the backbone to an effective and smoothly operating judicial system.’ [Citation.]” (Silberg v. Anderson (1990) 50 Cal.3d 205, 214-215.) “The litigation privilege is absolute… . [Citation.]” (Kashian v. Harriman (2002) 98 Cal.App.4th 892.) 

The litigation privilege applies to contemplated litigation; however, it “applies only when the communication has some relation to a proceeding that is contemplated in good faith and under serious consideration. The bare possibility that the proceeding might be instituted is not to be used as a cloak to provide immunity for defamation when the possibility is not seriously considered.” (Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 32 [internal citation and quotation marks omitted; emphasis in original].)

As discussed above, Cross-Defendants seriously considered the possibility of litigation, as best evidenced by the fact that they filed the exact litigation that was threatened. Although Cross-Complainants argue that Cross-Defendants’ causes of action are not true, that is not the issue. In Anti-SLAPP analysis, the probability of success prong looks to the probability of success of the challenged claims – in this case, Cross-Complainants’. Here, Cross-Complainants have failed to meet their burden to show that such a probability exists.

The Court therefore grants the Anti-SLAPP motion.