Judge Robert S. Draper, Case 22STCV28003 2022-12-19 Tentative Ruling

Defendants Code of Civil Procedure section 425.16 Motion to Strike is GRANTED as to the Fourth, Fifth, and Sixth Causes of Action.

Defendants Code of Civil Procedure section 425.16 Motion to Strike is DENIED as to the First, Second and Third Causes of Action.

This is an action for breach of a commercial lease. The Complaint alleges as follows.

Plaintiff Hawkeye Entertainment, LLC (“Hawkeye”) entered into a lease agreement for commercial space (the “Subject Property”) with Defendants Smart Capital Investment I, LLC, Smart Capital II, LLC, Smart Capital Investment III, LLC, Smart Capital IV, LLC, and Smart Capital V, LLC’s (together, “Smart Capital”) predecessor-in-interest. (Compl. ¶¶ 9-14.) Hawkeye then sublet the Subject Property to Plaintiff W.E.R.M. (“WERM”, and with Hawkeye, “Plaintiffs”). (Compl. ¶ 20.) Smart Capital operates as Plaintiffs’ landlord under the lease. (Compl. ¶ 21.)

Prior to Smart Capital’s purchase of the Subject Property, Plaintiffs invested substantial resources into making the Subject Property code compliant. (Compl. ¶ 23.) Additionally, Plaintiffs obtained a conditional use permit for the on-site sale of alcoholic beverages (the “CUB Permit”) for the Subject Property. (Ibid.) With the CUB Permit obtained, WERM opened and began operating a successful night club (the “Night Club”) in the subject property. (Compl. ¶ 23.)

Plaintiffs are current with all obligations under the Lease. (Compl. ¶ 25.) This was confirmed in a recent Bankruptcy Court evidentiary hearing on a Motion to Assume Lease and Sublease (“Assumption Motion”) filed by Hawkeye and opposed by Smart Capital. (Ibid.)

Nonetheless, Smart Capital, through its manager, Defendant Michael Chang (“Chang”, and with Smart Capital, “Defendants”), have attempted to interfere with WERM’s operation of the Night Club. (Compl. ¶ 33.) Defendants have allegedly failed to cooperate with Plaintiffs’ effort to obtain a permit to serve alcoholic beverages on site (the “CUB”); manufactured erroneous defaults; contacted regulatory agencies without justification to interfere with Plaintiffs businesses; contacted the Los Angeles Police Department without justification to interfere with Plaintiffs’ business operations; contacted Plaintiffs’ business partners to interfere with contractual relations; failed to take reasonable steps to secure the Subject Property from criminal activity; trespassed onto the Subject Property without permission during business hours; interfered with Plaintiffs’ employees while they were trying to perform their duties; and, failed to maintain the building as required under the lease. (Compl. ¶ 35.)

On August 29, 2022, Plaintiffs filed the Complaint asserting seven causes of action:

On September 28, 2022, Defendants filed a Motion to Strike Plaintiffs’ Prayer for Punitive Damages. That Motion is to be heard on February 8, 2023.

On December 13, 2022, Plaintiffs filed a Notice of Errata and attached the documentation they intended to attach to their Opposition.

On December 14, 2022, the Court granted Plaintiffs’ Motion for Preliminary Injunction.

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)

Evidence Code Section 452 provides that judicial notice may be taken for facts and propositions that are “not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Cal. Evid. Code § 452(h).) Further, “a court may take judicial notice of [recorded documents and] the fact of a document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document's legally operative language, assuming there is no genuine dispute regarding the document's authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 745-755.)

Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning. (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-14 (citations and internal quotations omitted).) In addition, judges “consider matters shown in exhibits attached to the complaint and incorporated by reference.” (Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.) However, “[w]hen judicial notice is taken of a document . . . the truthfulness and proper interpretation of the document are disputable.” (Aquila, Inc. v. Sup. Ct. (2007) 148 Cal.App.4th 556, 569 (quoting StorMedia Inc. v. Sup. Ct. (1999) 20 Cal.4th 449, 457 n. 9).)

The party requesting judicial notice must (a) give each adverse party sufficient notice of the request to enable the adverse party to prepare to meet the request and (b) provide the court with sufficient information to enable it to take judicial notice of the matter. (Cal. Evid. Code § 453.)

Plaintiffs move to strike the Second, Third, Fourth, Fifth, and Sixth Causes of Action from the Complaint pursuant to Code of Civil Procedure section 425.16.

In assessing a defendant’s section 425.16 special motion to strike, the court must engage in a twostep 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. (Id.) 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 425.16(e). If the defendant meets his initial burden, then the burden shifts to the plaintiff to establish a probability that the plaintiff will prevail on the claim—i.e., present facts which would, if proved at trial, support a judgment in the plaintiff’s favor. (Id. at 15051.)

In making its determination of the anti-SLAPP motion, the court shall consider the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based. (Code Civ. Proc., § 425.16(b)(2).) However, the court does not “weigh credibility [nor] compare the weight of the evidence. Rather, [the court] accepts as true the evidence favorable to the plaintiff and evaluates the defendant’s evidence only to determine if it has defeated that submitted by the plaintiff as a matter of law.” (Flatley v. Mauro (2006) 39 Cal.4th 299, 326.)

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.) Specifically, courts decide 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 the 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; Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 671; Equilon Ent. v. Consumer Cause (2002) 29 Cal.4th 53, 67; Gov. Gray Davis Committee v. Amer. Taxpayers Alliance (2002) 102 Cal.App.4th 449, 458-59; CCP §425.16(e).) Moving parties can satisfy their 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. (CCP §425.16(e); Equilon Ent., LLC v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66.)

Here, Defendants argue that three forms of protected speech constitute the gravamen of Plaintiffs’ Complaint: (1) petitioning activity to government and enforcement authorities such as the LAPD, LA Code Enforcement, and LA City Attorney’s Office; (2) Communications made within and/or in connection with Plaintiffs’ 2019 Bankruptcy case and related litigation; and (3) communications of public concern regarding the operation of the world-famous Exchange LA Nightclub.

First, Defendants argue that the allegations contained in the Complaint regarding Defendants’ reporting of Plaintiffs’ failure to comply with the CUB requirements and related regulations constitute “communications that are preparatory to or in anticipation of commencing official proceedings.” (Siam v. Kizilbash (2005) 130 Cal.App.4^th 1563, 1570.) Additionally, Defendants contend that Plaintiffs’ repeated reliance on Defendants’ allegedly false statements in bankruptcy court constitute protected statements and other filings made during litigation in a judicial proceeding. (See, e.g. Lennar Homes of California, Inc. v. Stephens (2014) 232 Cal.App.4^th 673, 680-82.)

Defendants argue that these allegations are the gravamen of Plaintiffs’ Second and Third Causes of Action. Indeed, Plaintiffs rely heavily on statements made to regulatory authorities and in bankruptcy proceedings when alleging their first three causes of action. (See Compl. ¶¶ 66(d-f), 71(c-e).)

In Opposition, Plaintiffs contend that the First Cause of Action for Breach of Contact, Second Cause of Action for Implied Covenant of Good Faith and Fair Dealing, and Third Cause of Action for Breach of Implied Covenant of Quiet Enjoyment are supported by myriad allegations that exist independent of expressive conduct. Plaintiffs argue that Defendants have selected specific allegations that fall within protected speech, while ignoring the gravamen of the Complaint as to these causes of action. Plaintiffs contend that, though Defendants’ statements in bankruptcy court and to regulatory officials are evidence of Defendants’ intent to breach the lease, they do not form the basis for the causes of action in question.

“A claim arises from protected activity when that activity underlies or forms the basis for the claim.” (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1062.) “‘[T] defendant’s act underlying the plaintiff’s cause of action must itself have been an act in furtherance of the right of petition or free speech.’” (Id. at 1063 (quoting City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78) (emphasis in original).) “‘[T]he mere fact that an action was filed after protected activity took place does not mean the action arose from that activity for the purposes of the anti-SLAPP statute.’” (Id. (quoting Navellier v. Sletten (2002) 29 Cal.4th 82, 89) (alteration in original).) “Instead, the focus is on determining what ‘the defendant’s activity [is] that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning.’” (Id. (quoting Navellier, supra, 29 Cal.4th at 92) (alteration in original).) “‘The only means specified in section 425.16 by which a moving defendant can satisfy that [‘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. (quoting Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66) (emphasis in original).) “In short, in ruling on an anti-SLAPP motion, courts should consider the elements of the challenged claim and what actions by defendant supply those elements and consequently form the basis for liability.” (Id.)

In the present case, although the allegations levied against Defendants certainly include protected activity, these protected statements are merely evidence of Defendants’ intent to breach the lease and expel Plaintiffs from the Subject Property rather than Defendants’ conduct by which plaintiff claims to have been injured.

For example, the First Cause of Action for Breach of Contract alleges that Defendants breached the lease by: being delinquent on real property taxes; interfering with Plaintiffs’ use and enjoyment of the Premises; failing to properly maintain and repair the Premises; failing to secure the requisite occupancy certificate required of it from the Lease and applicable laws; and seeking to prevent a renewed or new CUB. (Compl. ¶¶ 60(a-e).)

While Defendants’ statements in the bankruptcy proceedings might provide evidence for these allegations, the allegations themselves are non-expressive conduct directly alleging a breach of the lease.

Similarly, for the Second Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing, Plaintiffs allege, among other allegations, that Defendants “manufactur[ed] Lease defaults for the sole purpose of terminating the Plaintiffs rights under the Lease and Sublease.” (Compl. ¶ 66(b).) While the statements regarding lease defaults made in bankruptcy proceedings provide evidence of this allegation, the allegation is independent of those statements and is not a protected activity.

Accordingly, as Plaintiffs’ first three causes of action rely on non-expressive conduct, and as the protected activity on which Defendants accuse Plaintiff of relying are merely evidence of these allegations, Defendants do not meet their burden of showing the attacked claim relies on protected activity.

Defendants’ Motion to Strike the First, Second, and Third Causes of Action is DENIED.

Next, Defendants argue that the allegations supporting Plaintiffs’ Fourth, Fifth, and Sixth Causes of Action for Negligent Interference with Prospective Economic Advantage, Intentional Interference with Prospective Economic Advantage, and Intentional Interference with Contractual Relations, respectively, are protected as speech “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.” (CCP § 425.16(e)(4).)

“In general, ‘[a] public issue is implicated if the subject of the statement or activity underlying the claim (1) was a person or entity in the public eye; (2) could affect large numbers of people beyond the direct participants; or (3) involved a topic of widespread, public interest.’” (D.C. v. R.R. (2010) 182 Cal.App.4th 1190, 1215 (quoting Jewett v. Capital One Bank (2003) 113 Cal.App.4th 805, 814).)

Here, Defendants allege that issues pertaining to Plaintiffs’ operation of the night club are an issue of public concern, as the club, as the Complaint acknowledges, has been ranked the second best club in the United States and a top ten club in the world. (Compl. ¶ 31.) Additionally, Defendants contend that the Exchange LA operations are a matter of public interest, as a number of complaints related to its operations have been levied by the public. (Kim Decl. Ex. 7.)

In Opposition, Plaintiffs contend, again, that the communications between Defendants and Plaintiffs’ business partners do not form the gravamen of the subject causes of action. This time, their argument is unavailing.

Upon review of the Complaint, the entirety of the allegations supporting the Fourth, Fifth, and Sixth causes of action are Defendants’ alleged erroneous communication with Plaintiffs’ business partners, which Plaintiffs allege Defendants undertook to interfere with Plaintiffs’ business relations. Unlike the first three causes of action, where the protected communications are evidence of Defendants’ breach of contract, for the Fourth through Sixth causes of action, Defendants’ protected communications constitute Plaintiffs’ alleged attempt to interfere with Plaintiffs’ business relations.

Accordingly, Defendants have met their initial burden of showing that the Fourth, Fifth, and Sixth causes of action arise from protected activity. The burden now shifts to Plaintiffs to show the probability of success on the merits.

Once a defendant has 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(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].) The evidentiary showing by the plaintiff must be made by competent and admissible evidence. (Morrow v. Los Angeles Unified Sch. Dist. (2007) 149 Cal.App.4th 1424, 1444; see also Evans v. Unkow (1995) 38 Cal.App.4th 1490, 1497-98 (proof cannot be made by declaration based on information and belief); Tuchscher Dev. Enters., Inc. v. San Diego Unified Port Dist. (2003) 106 Cal.App.4th 1219, 1236-38 (documents submitted without proper foundation could not be considered in determining plaintiff’s probability of prevailing on its claim).)

Here, Defendants have only this to say regarding their probability of success on the merits:

In the interest of brevity, Plaintiffs will not repeat the facts supporting their claims or the causes of action at issue, since they are discussed in great detail above. However, it must be mentioned that Plaintiffs have established that their claims have merit by way of the declarations accompanying this Opposition. Therefore, the Second Prong has been established by Plaintiffs even if Defendants somehow are able to meet the First Prong.

Moreover, although Plaintiffs do provide evidence allegedly supporting their causes of action, this evidence was submitted substantially late, and is not cited to whatsoever within Plaintiffs’ memorandum of points and authorities. The Court cannot dig through the over 1200 pages of documents that Plaintiffs belatedly filed looking for Plaintiffs evidence of merit without any guidance or help from Plaintiffs.

Accordingly, Plaintiffs fail to meet their burden of demonstrating the probability of success on the merits as to the Fourth, Fifth, and Sixth causes of action on this motion. The parties should understand, however, that the Anti-SLAPP statute merely requires a plaintiff to come forward with the evidence supporting its claim at an earlier stage than would otherwise be required so that defendants are not unfairly prejudiced by having to defend claims which plaintiff has no legal right to bring, such as a claim barred by the litigation privilege. The Court does not leave this is the factual situation here. And that Plaintiffs could have clarified this had they chosen to abide by the rules. Therefore, the motion as to these causes of action is denied without prejudice. The parties should go forward with discovery and the Court will consider this issue again once discovery has been completed

Defendants’ Motion to Strike is DENIED as to the First, Second, and Third Causes of Action.

Defendants’ Motion to Strike is GRANTED as to the Fourth, Fifth, and Sixth Causes of Action without prejudice.

[1] As Defendants note, Plaintiffs’ Opposition Memorandum exceeds the page limitation set forth in the Code of Civil Procedure. Additionally, Plaintiffs failed to file the supporting evidence until after Defendants’ Reply Memorandum had been filed. While Defendants urge the Court to disregard Plaintiffs’ Opposition Memorandum for this reason, they do not claim they have been prejudiced. The Court does expect all counsel to abide by both the Code of Civil Procedure and California's Rules of Court and Plaintiff's Counsel is admonished for failing to do so. If Defendants do claim that they have been prejudiced, the court will continue this hearing. But since they do not appear to be making that claim, and to expedite the resolution of the case, the Court will consider the arguments made and evidence and law cited in the Opposition Memorandum.

HAWKEYE ENTERTAINMENT, LLC, et al., Plaintiffs, vs. MICHAEL CHANG, et al.; Defendants.	Case No.:	22STCV28003
	Hearing Date:	December 19, 2022

	[TENTATIVE] RULING RE: DEFENDANTS MICHAEL CHANG, SMART CAPITAL INVESTMENTS I, LLC, SMART CAPITAL INVESTMENTS II, LLC, SMART CAPITAL INVESTMENTS III, LLC, SMART CAPITAL INVESTMENTS IV, LLC, SMART CAPITAL INVESTMENTS V, LLC, AND TOP PROPERTIES CORPORATION’S ANTI-SLAPP MOTION.