Case Number: EC068282 Hearing Date: July 27, 2018 Dept: A

Zhang v Qi

SPECIAL MOTION TO STRIKE COMPLAINT; MOTION TO SET ASDIE DEFAULT AND QUASH SERVICE OF SUMMONS AND COMPLAINT

Calendar: 19

Case No: EC068282

Hearing Date: 7/27/18

Action Filed: 3/21/18

Trial Date: None

1. Special Motion to Strike

MP: Defendant Anthony Chu

RP: Plaintiff Qingyu Zhang

2. Motion to Set Aside Default and Quash Service of Summons and Complaint

MP: Defendant Jiang Qi

RP: None

ALLEGATIONS OF THE COMPLAINT

Plaintiff Qingyu Zhang (“Plaintiff”) brought the instant malicious prosecution action against Defendants Jiang Qi, Anthony Chu, and the Law Offices of Anthony Chu (“Defendants”). In an underlying action (KC068561), Defendants (with Qi as plaintiff and Chu as his attorney) brought suit against Bluestar Express Group, Inc. and Yidan Zhang for various wage and hour violations. Defendants later filed an amendment to the complaint, adding Plaintiff as a defendant in place of Doe 2. Approximately three months after adding Plaintiff to the underlying suit, Plaintiff served a CCP § 128.7 motion for sanctions on Defendants. Several days later, Defendants voluntarily dismissed Plaintiff from the underlying action, without prejudice.

Plaintiff filed the instant suit on March 21, 2018. Plaintiff alleges Defendants had no reasonable basis to add him to the underlying action. Instead, Plaintiff alleges that he is the father of one of the defendants in the underlying action, Tao Zhang aka Tom Zhang (Doe 1 and 2), and that Defendants added Plaintiff (Doe 3) to the suit in an effort to force a settlement in the underlying action.

The complaint states a single cause of action for malicious prosecution.

RELIEF REQUESTED:

1. Plaintiff Qingyu Zhang moves to strike the complaint pursuant to the anti-SLAPP statute (CCP § 425.16.)

2. Defendant Jiang Qi moves to set aside the default and quash service of summons and complaint

DISCUSSION:

1. Special Motion to Strike

Legal Standard

CCP §425.16 permits 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.

The defendant bears the initial burden of showing that the claims fall within the class of suits subject to a motion to strike under CCP §425.16, i.e., that plaintiff’s claim is based on an act of defendant in furtherance of his right to free speech. (Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 304.) Under CCP §425.16(b)(2), the Court may consider the pleadings and supporting affidavits in making its determination. A defendant meets his initial burden by demonstrating that the act underlying the plaintiff’s case fits one of the categories identified in section 425.16(e). (City of Cotati v. Cashman (2002) 29 Cal.4th 69, 78.) Subdivision (e) defines the protected acts as the following:

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

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;

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

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.

If the defendant meets this initial burden, the plaintiff then has the burden of demonstrating a probability of prevailing on the claim. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 741.) The plaintiff satisfies this burden by demonstrating 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. (Id.) Under CCP §4 25.16(b)(2), a plaintiff may use affidavits to meet the plaintiff’s burden.

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; 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].)

Timeliness

Plaintiff argues Defendants’ motion is untimely, because it was not filed within 60 days of service of the complaint, as required by CCP § 425.16(f).)

Defendants state in reply that they were served on March 28, 2018, that sixty days later was Sunday, May 27, and that because of the Memorial Day holiday, they were unable to file the motion until Tuesday, May 29, 2018.

The proof of service on file with the Court states that Plaintiff’s complaint was served on March 25, 2018, by substituted service. Plaintiff does not explain why he believes he was not actually served until March 28. Sixty days from March 25 is Thursday, May 24, 2018, making the instant motion five days late (though only two court days late, because of the weekend and the holiday).

Regardless, CCP § 425.16(f) explicitly provides the Court with discretion to hear late-filed anti-SLAPP motions. Since the time was brief and the issue significant, the Court will exercise its discretion and hear the motion on its merits.

Evidentiary Objections

With the reply, Defendants filed 19 evidentiary objections to Plaintiff’s evidence in opposition. Objection no. 1 is overruled. Objection nos. 2-19 relate to a motion for sanctions filed by Plaintiff in the underlying action. Defendants argue the statements made in the declarations supporting that motion are untrue, and will therefore not be considered as evidence here. Insofar as these declarations are relevant to Plaintiff’s position in the underlying suit, and are not submitted to prove the truth of the matter asserted in the declarations, the motion and its exhibitswill be admitted, and Defendants’ objection nos. 2-19will be overruled. The Court notes that even if it were to sustain the objections, it would not have any particular effect on the outcome of this motion.

With the supplemental reply, Defendants filed 55 evidentiary objections to Plaintiff’s evidence in the supplemental opposition. The Court gave the parties an opportunity to provide supplemental briefing on the issue of malice and to clarify the relationships between the parties in the underlying action. The objections are directed at evidence that is responsive to the limited scope of briefing that the Court has allowed. However, objection nos. 15, 18-19, 23, and 26will be sustained based on the secondary and best evidence rule.

Prong 1

Plaintiff does not dispute that the malicious prosecution action arises from protected activity, and that Defendants have therefore satisfied their burden as to the first prong of the analysis.

Prong 2

“To prevail on a malicious prosecution claim, the plaintiff must show that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination favorable to the plaintiff; (2) was brought without probable cause; and (3) was initiated with malice.” (Soukup v. Law Offices of Herbert Hafif (2006) 39 Ca1.4th 260, 292.)

Termination of Suit

“The first element of a malicious prosecution cause of action is that the underlying case must have been terminated in favor of the malicious prosecution plaintiff. The basis of the favorable termination element is that the resolution of the underlying case must have tended to indicate the malicious prosecution plaintiff’s innocence. [Citations.] When prior proceedings are terminated by means other than a trial, the termination must reflect on the merits of the case and the malicious prosecution plaintiff’s innocence of the misconduct alleged in the underlying lawsuit.” (HMS Capital, supra, 118 Cal.App.4th at p. 214, 12 Cal.Rptr.3d 786.) If the evidence of the circumstances of the termination is conflicted, “ ‘the determination of the reasons underlying the dismissal is a question of fact.’ ” (Sycamore Ridge Apartments LLC v. Naumann (2007) 157 Cal.App.4th 1385, 1399, 69 Cal.Rptr.3d 561 (Sycamore Ridge ).)

(Daniels v. Robbins (2010) 182 Cal.App.4th 204, 217.)

Defendants argue the underlying action did not terminate in Plaintiff’s favor, because Defendants voluntarily dismissed Plaintiff’s from the suit. Defendants argue that where the underlying action is terminated solely for technical or procedural reasons, the suit is not deemed to have terminated ‘in favor of’ the prevailing party:

“ ‘A termination [by dismissal] is favorable when it reflects “the opinion of someone, either the trial court or the prosecuting party, that the action lacked merit or if pursued would result in a decision in favor of the defendant.” ’ [Citation.] [¶] … The focus is not on the malicious prosecution plaintiff’s opinion of his innocence, but on the opinion of the dismissing party.” (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 881, italics in original.) “The test is whether or not the termination tends to indicate the innocence of the defendant or simply involves technical, procedural or other reasons that are not inconsistent with the defendant’s guilt.” (Ibid.; accord, Stanley v. Superior Court (1982) 130 Cal.App.3d 460, 464-465 [181 Cal.Rptr. 878].)

(Eells v. Rosenblum (1995) 36 Cal.App.4th 1848, 1855.) “A voluntary dismissal is presumed to be a favorable termination on the merits, unless otherwise proved to a jury.” (Sycamore Ridge Apartments, LLC v. Naumann (2007) 157 Cal.App.4th 1385, 1400.)

Defendants argue they voluntarily dismissed Plaintiff without prejudice because, given the client’s financial status, they did not want to risk losing on the motion for sanctions that had been served. Defendants also argue that they felt a dismissal was safer, because they could always conduct further discovery and later seek leave to amend the complaint and add Plaintiff to the suit again.

While a jury could conclude that a financial desire to avoid sanctions could be motivated solely by financial considerations, it could just as easily—if not more easily—conclude that Defendants were concerned they were going to lose on the motion for sanctions because they had concluded “that the action lacked merit.” Given the presumption that a voluntary dismissal constitutes a favorable termination, and the issue of fact relating to Defendants’ credibility as to the alternative explanation proposed for the dismissal, the Court holds that Plaintiff has carried his burden of demonstrating a probability of succeeding on the merits as to this element of the cause of action.

Probable Cause

“[T]he existence or absence of probable cause has traditionally been viewed as a question of law to be determined by the court, rather than a question of fact for the jury.” (Sheldon Appel Co v. Albert & Oliker (1989) 47 Cal.3d 863, 875.) “[T]he probable cause element calls on the trial court to make an objective determination of the ‘reasonableness’ of the defendant’s conduct, i.e., to determine whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable. The resolution of that question of law calls for the application of an objective standard to the facts on which the defendant acted.” (Id. at 878.)

Defendants argue that, at the time they added Plaintiff to the underlying suit, they had a legitimate basis for believing Plaintiff was an alter ego of Qi’s employers, Bluestar and Yidan Zhang, because Plaintiff is the principal of another entity, New Diamond Trucking, which operates at the same location and appears to intermingle their funds with Bluestar.

Plaintiff argues Defendants have already admitted that they lacked probable cause, by declaring (in support of the first element) that the reason they dismissed Plaintiff from the suit was, at least in part, because they needed to conduct further discovery. (Chu Decl. ¶ 14.) Plaintiff also argues that Defendants’ explanation regarding alter ego does not make sense, because it added Plaintiff to the suit in September 2017, but did not add the other entity, New Diamond Trucking, until January 2018.

The Court finds that Plaintiff has carried its burden of submitting sufficient evidence that Defendants lacked probable cause at the time they added Plaintiff to the underlying suit. Per the evidence submitted by Defendants in support of the motion, Defendants were aware that Plaintiff was CEO of a company that worked out of the same location as the other defendants in the underlying suit (Chu Decl. ¶¶ 3-4); Qi, the actual employee, believed that New Diamond and Bluestar were functionally the same company (Chu Decl. ¶ 5, Qi Decl. ¶ 3); and Defendants were aware a single individual had signed checks for Bluestar, New Diamond Trucking, and a third company, including checks that were used to transfer significant amounts of money from New Diamond to Bluestar. (Chu Decl. ¶¶ 8-9.)

This evidence is, for the most part, irrelevant to Defendants’ assertion that it had probable cause to bring a claim against Plaintiff, because that evidence all points to a potential claim against New Diamond (which was not added for several more months), and not a claim against Plaintiff. Moreover, it is particularly notable that Defendants’ declaration regarding its view of the case is internally inconsistent. For example, Defendants refer to discovery it propounded, and responses it received, in an effort to determine whether a claim existed against Plaintiff (Chu Decl. ¶¶ 6-7), yet the discovery referenced was not propounded until after Plaintiff had already been added to the suit. (Liu Decl., ¶¶ 17-18, Exh. N & O.) Defendants also declare that they first learned of New Diamond in October 2017 (Chu Decl. ¶ 2), even though Plaintiff was added to the suit in September 2017, purportedly because of Plaintiff’s connections to New Diamond.

Probable cause is lacking only where the litigant “seeks recovery upon a legal theory which is untenable under the facts known to him.” (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 292.) Defendants explanation as to what was known to him at the time of Plaintiff was added to the suit is perpetually changing and internally inconsistent.

Accordingly, the Court will find that Plaintiff has carried his burden of demonstrating a probability of succeeding on the merits as to this element of the cause of action.

Malice

“The ‘malice’ element . . . relates to the subjective intent or purpose with which the defendant acted in initiating the prior action. (Sheldon Appel, supra, 47 Cal.3d at p. 874, 254 Cal.Rptr. 336, 765 P.2d 498.) The motive of the defendant must have been something other than that of bringing a perceived guilty person to justice or the satisfaction in a civil action of some personal or financial purpose. (5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §§ 429, 450 at pp. 511, 534). The plaintiff must plead and prove actual ill will or some improper ulterior motive.” (Venture v. LMI Insurance Co. (1998) 66 Cal.App.4th 478, 494.) “[P]ast cases establish that the defendant’s motivation is a question of fact to be determined by the jury.” (Sheldon Appel Co v. Albert & Oliker, supra, 47 Cal.3d at 875.)

Although the malice element is typically an element of fact, the matter may also be decided as a matter of law if the evidence permits a trier of fact to reach only one conclusion. For example, in Daniels v. Robbins, the Court of Appeal held, “In sum, the evidence marshaled against the Quinlivan Attorneys is as follows: an apparent lack of evidentiary support for the factual allegations in the underlying action; a lack of factual investigation as evidenced by an inability to provide formal or informal discovery; a client who may have had actual ill will against Wilhelmina; and a refusal by Young to dismiss without a waiver of claims by Wilhelmina. This record, which lacks any affirmative evidence that the Quinlivan Attorneys met the requirements of malice, including knowledge the case lacked probable cause, is insufficient as a matter of law to establish malice as to the Quinlivan Attorneys.” (Daniels v. Robbins, supra, 182 Cal.App.4th at 227.)

Here, Plaintiff’s allegations of malice turn on Defendants’ efforts to settle the case, which Plaintiff argues reveals that Defendants sued Plaintiff based not on probable cause, but on a belief that bringing Plaintiff into the underlying suit, it would pressure the other defendants, including Plaintiff’s son, to settle.

In support of this, Plaintiff argues that Defendants initially offered to settle for $347,011.04 with Bluestar in March 2016, before the lawsuit was filed. Then, in July 2017, Defendants offered to settle for $500,000.00 with Bluestar. When this offer was rejected, Plaintiff argues that Defendants retaliated by adding Plaintiff to the underlying lawsuit.

As Defendants note in reply, however, Plaintiff ignores that just two months later, on October 18, 2017, Defendants offered to settle for just $150,000.00. There is no apparent reasonable connection between the addition of Plaintiff to the suit and Defendants’ efforts to extort a settlement, given that the settlement offer dramatically decreased after Plaintiff was added to the suit.

In the supplemental opposition, Plaintiff argues that Defendant’s settlement offer expired on the date Plaintiff response to the complaint was due, and that this circumstantially shows that Defendants acted with malice in order to entice a settlement and force Plaintiff into not responding. However, the Court will not make an inference—without any further evidence or legal basis—that a settlement offer’s expiration date can circumstantially show malice. In addition, Defendants show that they granted several extensions for Plaintiff to file his answer, which thereby extended the time to accept the settlement offer. (Chu 2nd Suppl. Decl., ¶3.) Defendants also provide an email dated October 18, 2017, showing that Plaintiff’s counsel (who is also counsel for Bluestar) informed Defendants he would be representing Plaintiff and the newly added Doe defendants, and that Defendants should forward any settlement offers. (Suppl. Reply at Ex. B.) This evidence tends to show a lack of malice on Defendants’ part in offering to settle the underlying action.

Further, Plaintiff fails to submit evidence that Defendants were aware of a connection between Plaintiff and Tom Zhang at the time Defendants added them as Doe defendants to the underlying action. In the supplemental opposition filed by Plaintiff, Plaintiff clarifies that he is the father of Tom Zhang, and that Yidan Zhang has no familial relation to Plaintiff or Tom Zhang. (See Suppl. Opp. at Ex. A [Tom Zhang Decl., ¶¶3-6].) Plaintiff submits evidence showing that Defendants were aware of Plaintiff’s familial relationship with Tom Zhang on January 16, 2018 based on Qi’s deposition responses—which was months after Plaintiff was added to the action and approximately a week before Plaintiff’s dismissal from the underlying lawsuit on January 22, 2018. (Suppl. Opp. at Ex. C.) In the deposition, Qi responded that he worked for the “Zhang family”, but it is unclear if Qi is referring to Plaintiff as no mention of Plaintiff was made. Plaintiff also argues that Defendants were aware of Plaintiff’s familial relation to Tom Zhang, based on Tom Zhang’s deposition taken on February 9, 2018; however, this deposition was taken after Plaintiff had already been dismissed.

The Court has considered the parties initial papers and supplemental briefs. Despite the arguments and evidence submitted with the supplemental briefs, Plaintiff has not upheld his burden to submit evidence of malice. Plaintiff’s theory of malice—that the amendment was an effort to extort a settlement—is unsupported by the evidence. The Court will therefore find that Plaintiff has not carried his burden of demonstrating a probability of succeeding on the merits as to this element of the cause of action.

Conclusion

The Court will grant Defendants’ special motion to strike, and permit Defendants to seek attorney’s fees via a separately noticed motion.

2. Motion to Set Aside Default and Quash Service of Summons

A. Set Aside Default

CCP §473(b) permits the Court to set aside a default entered through the mistake, inadvertence, surprise, or excusable neglect of a party or the mistake, inadvertence, surprise, or neglect of an attorney.

The default of Defendant Jiang Qi was entered on May 7, 2018.

Qi moves under both the discretionary and mandatory prongs of CCP §473(b). Qi argues that he was not properly served prior to default being entered. Alternatively, he provides his counsel’s declaration of fault to support this motion.

Filing a proof of service that complies with statutory standards creates a rebuttable presumption that service was proper. (Dill v. Berquist Construction Co. (1994) 24 Cal.App.4th 1426, 1441.) Substituted service of the summons and complaint is proper when a copy of the summons and complaint cannot with reasonable diligence be personally delivered to the person to be served. (CCP §415.20(b).) Substituted service may be made by leaving a copy of the summons and complaint at the person’s dwelling in the presence of a competent member of the household, and by thereafter mailing a copy of the summons and complaint by first-class mail, postage prepaid to the person to be served. (Id.) Service of a summons in this manner is deemed complete on the 10th day after the mailing. (CCP §415.20(b).)

The proof of service filed on May 7, 2018 shows that service was effectuated by substituted service on March 25, 2018 by leaving the documents with an “Asian lady who seemed to be a co-occupant of Jiang Qi.” The proof of service states that the documents were thereafter mailed on March 25, 2018, and is accompanied by a signed Declaration of Diligence from the registered California process server, Caleb Franklin. However, the Declaration of Diligence merely states that the declaration was signed under the penalty of perjury, but no statements nor any efforts showing any diligence on the part of the process server is provided.

Qi argues that service was improper because there is no showing that reasonably diligent efforts were undertaken to personally serve Qi before resorting to substituted service. (See CCP §415.20 [substituted service proper if summons and complaint cannot with reasonable diligence by personally delivered]; Lebel v. Mai (2012) 210 Cal.App.4th 1154, 1164.) A review of the proof of service filed May 7, 2018 confirms that though a Declaration of Diligence was filed, there are no actual efforts showing diligence by the process server.

As such, default was incorrectly entered since the Declaration of Diligence fails to show that reasonably diligent efforts were made to serve Qi prior to resorting to substituted service. “Substituted service is valid only if a good faith, reasonable effort at personal service on the party to be served is first attempted.” (Lebel v. Mai (2012) 210 Cal.App.4th 1154, 1164.)

The Court notes that a second proof of service was filed on May 31, 2018, which includes a Declaration of Diligence with the efforts undertaken by the process server to serve Qi at his residence. However, this proof of service was filed after default had been improperly entered on May 7, 2018, and thus will not be considered in determining whether the default entered on May 7, 2018 was proper.

In addition, there are grounds to vacate the default based on attorney fault. Anthony K. Chu, who is a Defendant in this action and also Qi’s counsel, provides his declaration. He states that on March 28, 2018, he was served with the complaint and learned that both he and Qi were named defendants. (Chu Decl., ¶6.) On April 23, 2018, Chu requested a 15-day extension to respond to the complaint, which Plaintiff’s counsel granted. (Id., ¶¶7-8, Ex. B.) Chu believed that this extension applied to both him and Qi, and calculated the new deadline based on his own service date, rather than taking into consideration the response deadline from Qi’s service date. (Id., ¶9.) On May 7, 2018, Plaintiff caused the default of Qi to be entered and on May 9, 2018, Chu emailed Plaintiff asking why default was taken in violation of the 15-day extension. (Id., ¶11.) Thus, Chu states that as a result of his mistake, inadvertence, surprise, or excusable neglect, Qi did not timely respond to the complaint based on his mistaken understanding of the 15-day extension. (Id., ¶15.)

There is substantive merit to this motion on both discretionary and mandatory grounds. Thus, the Court will grant the motion to set aside the default.

B. Quash Service of Summons and Complaint

Qi also moves to quash the summons and complaint on the grounds that the May 7, 2018 proof of service fails to include a Declaration of Diligence, and he did not receive a copy of the summons and complaint through any purported attempts to “sub-serve” him, or by mail.

As stated above, filing a proof of service that complies with statutory standards creates a rebuttable presumption that service was proper. (Dill, supra, 24 Cal.App.4th at 1441.) Further, under CCP §415.20(b), substituted service is deemed complete on the 10th day after mailing.

A review of the Court’s files shows that two proofs of service were filed for Qi. The first proof of service was filed on May 7, 2018, as described above. The second proof of service was filed on May 31, 2018, and is essentially identical to the first proof of service, but attaches a Declaration of Diligence from the process server, stating that he made several attempts to serve Qi at 2209 Alexdale Lane, Rowland Heights, CA 91748 on various dates. Although the first proof of service did not comply with the code, the second proof of service is properly accompanied by a Declaration of Diligence, detailing the reasonably diligent efforts made to personally serve Qi. Thus, this second proof of service cures the issue regarding the lack of Declaration of Diligence in the first proof of service.

Next, Qi provides his declaration stating that he did not receive a copy of the summons and complaint by substituted service from an occupant of his residence or by mailing. (Qi Decl., ¶3.) However, Qi does not deny that the address he was served at by substituted service is his correct address or that he resides with a co-occupant.

As stated in CCP §415.20(b), substituted service is deemed complete on the 10th day after mailing. The documents were mailed on March 25, 2018, such that service was complete by April 5, 2018. Qi has not provided any facts or evidence showing that Plaintiff failed to comply with the statutory procedures for service of process such that personal jurisdiction over Qi was not established. (Am. Express Centurion Bank v. Zara (2011) 199 Cal.App.4th 383, 387.)

Accordingly, the Court will deny the motion to quash. Qi is ordered to file a responsive pleading to the operative complaint.

RULING:

Grant Defendants’ special motion to strike, and permit Defendants to seek attorney’s fees via a separately noticed motion, timely filed.
Grant Qi’s motion to set aside the default and deny the motion to quash.