Judge: Michael J. Strickroth, Case: 2022-01255653, Date: 2023-08-28 Tentative Ruling

Motion to Strike Cross-Complaint

Defendant and Cross-Defendant Platinum Properties Investor Network, Inc.’s (INC) Special Motion to Strike First Amended Cross-Complaint under the Anti-SLAPP Statute (Motion) is DENIED.

The Court SUSTAINS ROI’s Objections to Evidence in Support of Motion, filed under ROA No. 703.

The Court OVERRULES INC’s objections 1-5, 7-8, and 12-18 to Testimony and Evidence in Support of Opposition, filed under ROA No. 744. Objections 6 and 9-11 are SUSTAINED.

The Court declines to rule on ROI’s Objections to Evidence in Support of Reply filed under ROA 756 as such objections are not dispositive to the Court’s ruling on this motion.

ROI’s Request for Judicial Notice in Support Opposition, filed under ROA No. 752, is GRANTED pursuant to Evidence Code section 452, subdivisions (d) and (h).

INC moves for an order striking ROI’s Cross-Complaint, filed 7-21-22, pursuant to the Anti-SLAPP Statute, Code of Civil Procedure section 425.16.

Whether Ruling is Premature Pending Interlocutory Order

Preliminarily, INC argues the Court lacks authority to resolve this motion because the Court is first required to issue an interlocutory order as to Plaintiff’s interpleader claim in this action.

Lincoln National Life Insurance Co. v. Mitchell (1974) 41 Cal.App.3d 16, 19 (Mitchell) states the procedure for interpleader actions is as follows: “[t]he determination of the propriety of interpleader has turned on whether the stakeholder is truly a disinterested party, whose discharge still leaves parties in litigation with substantial rights to be resolved with respect to the property in question. [citation] In California, the interpleader procedure is viewed as two suits in one…“The first step is a trial or hearing by the court on the issue of the plaintiff's right to interplead. If the proof is sufficient (or the right is admitted by failure to object or by stipulation; supra, § 224), the court makes an interlocutory order. This directs the plaintiff stakeholder to deposit the amount or deliver the property, and requires the defendant claimants to interplead and litigate their claims among themselves.” Id.

INC’s reply acknowledges the Court has previously rejected this argument but urges the Court to reconsider. The Court declines to further consider its position. The use of the word “if” in the cited portion of Mitchell only denotes the Court is required to conduct a “trial or hearing” on the right to interplead if the Court wishes to issue an interlocutory order. There is no indication from that sentence that an interlocutory order is necessary before proceeding on an anti-SLAPP motion to a separate (though related) cross-complaint.

Whether the is Motion Moot Due to Filing of FACC

Next, INC argues the Court must consider its motion which addresses the Cross-Complaint filed on 7/21/2022 (rather than the First Amended cross-complaint filed on 8/23/2022) because ROI filed its FACC after forewarning from INC’s counsel that INC was planning to file an anti-SLAPP motion. (Motion, 11:8-13:9.) INC argues the FACC is a sham pleading which should be disregarded. (Id.)

INC’s counsel, James Diefenbach, declares in support of this argument: “On August 23, 2022, I, as counsel for INC, I informed Mr. Heffner that INC was imminently going file this motion to strike. Within several hours, Mr. Heffner filed an amended cross-complaint. Thereafter, Mr. Heffner and I met and conferred again regarding the amended cross-complaint on September 13, 2022, and again through e-mail communications on September 14th and 16th. During those discussions, we agreed to remove one section and that ROI would allow leave to file the Amended Demurrer and Motion to Strike. [¶]  Counsel, as part of a draft motion for sanctions sent to INC, ROI’s counsel stated: “Although ROI disagreed, they did not want to give Platinum any excuse to file their motion and stay discovery. Thus, ROI revised the Filed XC to omit all references to settlement communications…”” (Diefenbach Decl., ¶¶ 3, 5.)

INC primarily relies on Sylmar Air Conditioning v. Pueblo Contracting Services, Inc. (2004) 122 Cal.App.4th 1049, 1055 (Sylmar) in support that ROI’s FACC is inappropriately pleading around an anti-SLAPP motion.

In Sylmar, the cross-complainant filed a first amended cross-complaint 3 days prior to the hearing on the anti-SLAPP motion pursuant to authority granted by Code of Civil Procedure section 472 and argued the anti-SLAPP motion was moot based on the filing of the FACC. Id. at 1053. The Court of Appeal concluded that cross-complainant could not moot the anti-SLAPP motion by filing the FACC because “It is settled that a plaintiff may not avoid liability for attorney fees and costs by voluntarily dismissing a cause of action to which a SLAPP motion is directed.” Id. at 1054 (emphasis original).

The motion also cites JKC3H8 v. Colton (2013) 221 Cal.App.4th 468, 469 (Colton). In Colton, plaintiffs filed a first amended complaint and on the same day, defendants filed an anti-SLAPP motion to strike the first through fifth causes of action of the original complaint. Id. at 472-473. The Court of Appeal concluded the anti-SLAPP motion was rendered moot by the filing of the FAC. Id. at 475. In reaching this conclusion, the Court stated: “so too does an amended complaint render moot an anti-SLAPP motion directed to a prior complaint, with the following caveat: A plaintiff or cross-complainant may not seek to subvert or avoid a ruling on an anti-SLAPP motion by amending the challenged complaint or cross-complaint in response to the motion.” Id. at 477-478. The court in Colton believed there was no evidence that Plaintiff filed the FAC to avoid the anti-SLAPP motion, even though the anti-SLAPP motion. Id. at 478.

In Opposition, ROI relies on Dickinson v. Cosby (2017) 17 Cal.App.5th 655, 676-681 (Dickinson) for the argument that ROI’s filing of its FACC before INC filed its anti-SLAPP motion moots the instant motion.

Dickinson states “When a plaintiff files an amended complaint before the defendant files an anti-SLAPP motion—even by a matter of hours—the amended complaint is effective and the defendant has no right to a hearing on the anti-SLAPP motion directed to the original complaint.” Id. at 677-678.

Therefore, Colton and Dickinson stand for the same argument that an amended complaint will moot an anti-SLAPP motion directed towards the original complaint as long as the amended complaint is filed prior to the anti-SLAPP motion being filed and as long as the amending party does not do so for the purpose of avoiding the anti-SLAPP motion.

The below procedural history is relevant to the Court’s analysis on this argument:

·         First, ROI filed its Cross-Complaint on 7-21-22 under ROA No. 82.

·         On 8-23-22, ROI filed its First Amended Cross-Complaint

·         INC then filed an initial Special Motion to Strike on 9-21-22 under ROA No. 222. The initial anti-SLAPP motion sought to strike the Cross-Complaint.

·         On 10-10-22, the Honorable Melissa McCormick vacated the hearing on INC’s initial anti-SLAPP under ROA No. 238 in response to Hartman Media Company’s peremptory challenge.

·         On 11-4-22, the parties entered a “Stipulation and Order Allowing Cross-Defendants to Amend Special Motion to Strike and Demurrer.” (ROA 278) The Stipulation provided that: (1) INC has 14 days after the Stipulation to amend their anti-SLAPP motion, but also that (2) ROI “does not waive any timeliness arguments that could have been asserted as to the initial filings of the September 21, 2022 Demurrer and MTS.” 

·         On 11-18-22, INC filed its operative “Amended” Anti-SLAPP motion. The instant motion also seeks to strike the Cross-Complaint.

Additionally, Exhibit 1 to the Heffner Declaration is an 8-23-22 email from Heffner to INC’s counsel, Mr. Diefenbach, which states in pertinent part:

“Dear James,

Attached please find a copy of my clients’ amended complaint. My intention with this is to resolve the pleading issues you raised today.

I also don’t think the parties need to add anti-SLAPP litigation to their plates even if I believe your clients’ position would lack merit. I therefore removed all reference to any statement arguably made in connection with litigation. ROI Property Group Management and ROI Property Group 2 do not intend to base any claim on your clients’ litigation related activities.”  (Heffner Decl., Exhibit 1.)

In Reply, INC contends it is undisputed that ROI “rushed” to file its FACC on 8/23/22 after being informed that INC planned file its anti-SLAPP motion. (Reply, 4:3-11.) INC argues the anti-SLAPP motion should not be deemed moot due to the filing of the FACC because doing so would encourage “hide the ball” tactics and gamesmanship. (Id.)

First, based on the above, it is undisputed INC’s original anti-SLAPP addressed the Cross-Complaint even though the FACC was already on file at that time.

Second, there is no evidence of subversion based on the submitted meet and confer evidence. Based on the submitted evidence, Mr. Diefenbach told Mr. Heffner on 8-23-22 that INC would be filing an anti-SLAPP. However, the case law does not hold that a mere “forewarning” of an anti-SLAPP is sufficient to demonstrate any amendment in response to this forewarning constitutes subverting the anti-SLAPP. On the contrary, ROI’s submitted evidence demonstrates that Mr. Heffner responded the same day stating he would voluntarily withdraw ROI’s references to litigation activity in the FACC because he believed they were unnecessary. ROI’s counsel voluntarily withdrawing references to litigation activity, without more, does not constitute filing the FACC to subvert an anti-SLAPP motion within the meaning of Colton.

The fact the parties stipulated for INC to file the amended anti-SLAPP motion does not compel a different result. The Stipulation states that ROI does not waive any “timeliness arguments” which could have been asserted as to, the original anti-SLAPP motion. Although it is not entirely clear what “timeliness” arguments refers to, here the original anti-SLAPP motion was moot at the time it was filed because it pertained to the original Cross-Complaint, which was no longer operative.

Finally, the sham pleading doctrine also does not compel a different result. The sham pleading doctrine states that: “[P]laintiffs are precluded from amending complaints to omit harmful allegations, without explanation, from previous complaints to avoid attacks raised in demurrers or motions for summary judgment.” Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408, 425. If there is an inconsistency between the original and amended complaint, the pleader is required to “explain satisfactorily” any inconsistency or omission. Id. at 426. Here, the Heffner Declaration and Exhibit 1 constitutes a satisfactory explanation why the FACC withdraws most of its references to litigation activity, namely, that the parties have met and conferred and that ROI believes it no longer requires references to litigation activity to assert its claims. Thus, the Court finds the FACC does not constitute a sham pleading.

Therefore, based on content of the original anti-SLAPP motion, the timing of the FACC, and the lack of evidence of subversion in the parties’ meet and confer emails, the Court finds ROI did not file the FACC for the purpose of subverting or avoiding a ruling on INC’s anti-SLAPP motion.

Although the Court makes this finding, the Court notes the FACC is still substantially identical to the Cross-Complaint. Because of these substantial similarities, the Court will further analyze the Motion as to the FACC.

Application of Anti-SLAPP Statute

In ruling on a § 425.16 motion to strike, the Court engages in a two-step process. “First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. [Citation.] [Second,] [i]f the defendant makes the required showing, the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success.”  Baral v. Schnitt (2016) 1 Cal.5th 376, 384.

Code of Civil Procedure section 425.16(e) defines protected activity as follows: “as used in this section, “act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue” includes: (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.” 

A claim may be struck pursuant to Sec. 425.16 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.” Wilson v. Cable News Network, Inc. (2019) 7 Cal.5th 871, 884. “Assertions that are ‘merely incidental’ or ‘collateral’ are not subject to section 425.16. Allegations of protected activity which merely provide context, without supporting a claim for recovery, cannot be stricken under the anti-SLAPP statute.” Baral, supra, at 394 (internal quotation marks and citations omitted). See also Newport Harbor Offices v. Morris Cerullo World Evangelism (2018) 23 Cal.App.5th 28, 43.

Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 61 (Equilon) states: “[t]he only thing the defendant needs to establish to invoke the [potential] protection of the SLAPP statute is that the challenged lawsuit arose from an act on the part of the defendant in furtherance of her right of petition or free speech. From that fact the court may [effectively] presume the purpose of the action was to chill the defendant's exercise of First Amendment rights. It is then up to the plaintiff to rebut the presumption by showing a reasonable probability of success on the merits.” 

1.    First Prong

It appears ROI’s Cross-Complaint and FACC allege the same causes of action. Specifically, ROI’s Cross-Complaint (ROA 82) alleges the following causes of action: (1) declaratory relief against INC, LLC and Mr. Hartman, (2) enforcement of judgment against INC, LLC and Mr. Hartman, (3) constructive fraudulent transfer, common law and Civil Code § 3439.04(a)(2) against INC, LLC, Hartman Media and Mr. Hartman, (4) intentional fraudulent transfer, common law and Civil Code § 3439.04(a)(1) against INC, LLC, Hartman Media and Mr. Hartman, (5) constructive trust, Civil Code §§ 2223, 2224 against LLC, Hartman Media and Mr. Hartman.

In comparison, the FACC alleges the following causes of action: (1) declaratory relief against INC, LLC and Mr. Hartman, (2) enforcement of judgment against INC, LLC, Mr. Hartman, (3) constructive fraudulent transfer, common law and Civil Code § 3439.04(a)(2) against INC, LLC, Hartman Medi and Mr. Hartman, (4) intentional fraudulent transfer, common law and Civil Code § 3439.04(a)(1) against INC, LLC, Hartman Media and Mr. Hartman, (5) constructive trust, Civil Code §§ 2223 and 2224 against LLC, Hartman Media and Mr. Hartman.

INC argues ROI’s claims on the Cross-Complaint can be divided into (1) claims based on settlement negotiations and (2) claims based on litigation payments. INC argues that the anti-SLAPP statute applies to both types of allegations.

As to first category of allegations discussed above – settlement negotiations, it appears the FACC removed specific references to the parties’ meet and confer or settlement discussions in the Judgment Enforcement Action entirely. For example, the Motion points out that the FACC removed paragraphs 14, 15, 21 and 49. These reference emails between the parties’ counsel and specific references to actions Mr. Hartman engaged in which allegedly support ROI’s alter ego claims. Although not pointed out by the motion, paragraph 26 is also removed. Therefore, because the FACC removes all of the specific allegations of settlement negotiations, the Court finds the motion moot as to this category of allegations.

As to the second category of allegations discussed above – allegations of litigation payments, INC’s motion argues paragraphs 13, 16, 18, 43, 47, 55, and 58 of the FACC still allege ROI’s fraudulent transfer claims are based on communicative conduct, which is covered under the anti-SLAPP statute. (Motion, 16:4-17:24.) For example, INC argues the Cross-complaint/FACC improperly targets its payments for attorney’s fees by targeting its payments to the Apple Card alleged in the FACC. Id.

As to both types of allegations, the Court finds Manlin v. Milner (2022) 82 Cal.App.5th 1004, (Manlin) instructive.  Manlin deals with a dispute between members of a limited liability company.  There plaintiff sued the managing member engaged in self-dealing to the detriment of plaintiff and the LLC.  The managing member cross-complained against plaintiff, who in turn, cross-complained back further alleging self-dealing including misappropriation of funds from the LLC to finance the litigation. The Cross-defendants moved to strike under Code of Civil Procedure section 425.16 arguing the alleged conduct occurred as part of the litigation, and therefore protected activity.

Manlin, at 1019, states:

“To determine whether a challenged allegation or claim ”arises from” protected activity we must determine whether protected activity was the alleged injury-producing act forming the basis of the claim (Park, supra, 2 Cal.5^th at pp. 1062-1063) “’ The only means specified in section 425.16 by which a moving defendant can satisfy the [“arising from”] requirement is to demonstrate that the defendant’s conduct by which plaintiff claims to have been injured falls within one of the four categories described in subdivision (e)’” (Id. at p. 1063.)…”[I]n ruling on an anti-SLAPP motion, the 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” (Park, supra, 2 Cal.5^th at p. 1063.)  In so doing, the courts should be “attuned to and… respect the distinction between activities that form the basis for a claim and those that merely lead to the liability-creating activity or provide evidentiary support for the claim.” (Id. at p. 1064.)”

The Manlin Court, at 1019-1020, went on to state:

“Here, the gravamen of the first and third (and derivatively the fourth) causes of action in Manlin's cross-complaint is that Milner and the Attorneys breached fiduciary duties owed to Manlin and the LLCs by diverting the LLCs’ money to fund Manlin's legal expenses…Cross-defendants argue that funding litigation constitutes protected petitioning activity [citation] and that Manlin's cross-complaint arose from that activity. We disagree…Here, the element of Manlin's claim for breach of fiduciary duty is the self-dealing act of diverting funds from the LLCs in which Manlin owns an interest. The allegation that the cross-defendants engaged in this self-dealing completes the claim. Why they did so, for example to fund litigation—is not an element of the claim, and therefore forms no basis for liability…Here, cross-defendants allegedly breached fiduciary duties owed to Manlin and the LLCs by diverting the LLCs’ money. No element of Manlin's claim depends on the purpose for that diversion, but only on the diversion itself and whether it constituted self-dealing. The diversion may have been to further some protected activity—for example to fund a political campaign or publish a newsletter or fund litigation—but that purpose does not convert Manlin's suit to one arising from the protected activity. The protected use to which cross-defendants put the diverted funds may supply evidence of the selfishness of their self-dealing but does not convert the use itself into the basis for liability. Manlin's complaint is based on the act of diverting funds from the LLC for selfish purposes. Manlin could have omitted allegations regarding funding lawsuits and still state the same claim.”

Here, the First, Second and Fifth Causes of Action are based on theories of Alter Ego.

The basis for the FACC’s first cause of action for declaratory relief can be found in paragraph 30, which states: “[a]n actual and present controversy currently exists between the parties regarding whether Platinum LLC is the alter ego of Platinum Inc. and thus liable for the judgment entered against Platinum Inc.” (FACC, ¶ 30.)  ROI is alleging it was injured by Cross-Defendants acting as the alter egos of each other such that they avoided the Judgment. ROI does not allege it was injured by the communications between Cross-Defendants during any negotiations.

The gravamen of the FACC’s second cause of action for enforcement of judgment can be found in paragraph 37, which states: “[t]he ROI Cross-Complainants therefor seek entry of a further amended judgment against Mr. Hartman, Platinum LLC, Platinum Inc., and DOES 1-5 jointly and severally.” Again, alter ego based.

The basis for the FACC’s fifth cause of action for constructive trust is found in paragraph 62 which alleges Cross-Defendants hold assets for ROI as constructive trustees.  Alter ego based.

None of these causes of action assert liability based on protected activity.

Further, the Third and Fourth Causes of Action are based on the transfer of property/funds allegedly to hinder, delay or defraud creditors.  As stated in Manlin at 1020: “Why they did so, for example to fund litigation—is not an element of the claim and therefore forms no basis for liability.”

Because it appears that none of the five causes of action of the FACC arise from protected activity, the Court finds INC does not meet its burden on the first prong. Therefore, INC’s motion is DENIED.

2.    Second Prong

Having denied the motion for INC’s failure to meet its burden on the first prong, the Court does not address the merits of the second prong.

Monetary Sanctions

ROI moves for sanctions of $34,310 against INC and its counsel pursuant to Code of Civil Procedure section 425.16(c)(1) on the grounds the motion is frivolous and filed solely to cause delay. (Opposition, 19:12-24.)

Code of Civil Procedure section 425.16(c)(1) provides: “[e]xcept as provided in paragraph (2), in any action subject to subdivision (b), a prevailing defendant on a special motion to strike shall be entitled to recover that defendant’s attorney’s fees and costs. If the court finds that a special motion to strike is frivolous or is solely intended to cause unnecessary delay, the court shall award costs and reasonable attorney’s fees to a plaintiff prevailing on the motion, pursuant to Section 128.5.”

The Court finds INC’s motion is not frivolous or solely for the purpose of causing delay based on the procedural history of this action and the parties’ prior litigation activity. Therefore, ROI’s request for monetary sanctions is denied.

ROI is to give notice.

Case Management Conference

Regardless whether the parties submit on the tentative above, counsel for the parties are to attend the CMC, either remotely or in person.