Case Name: Spielbauer Law Office v. Midland Funding, LLC, et al.
Case No.: 2018-CV-339157

The Special Motion to Strike the Complaint by Defendants Midland Funding, LLC and Midland Credit Management, Inc.

Factual and Procedural Background

This case arises from the collection of a debt. Defendant Midland Funding, LLC acts as and is a debt collector in the State of California and throughout the United States. (Complaint at ¶ 2.) Midland Funding LLC works with its affiliate, defendant Midland Credit Management, Inc. (“MCM”) in its collection and enforcement activities. (Id. at ¶ 4.)

On October 2, 2013, Midland filed a collection action against Melanie Barr (“Ms. Barr”) in Santa Clara County Superior Court (case no. 2013-1-CV-254015). (Complaint at ¶ 15.) Midland allegedly purchased a defaulted credit card agreement from Wells Fargo Bank. (Id. at ¶ 16.) Midland sued Ms. Barr for the total amount of $20,112.67. (Ibid.)

To defend against the lawsuit, Ms. Barr obtained the services of The Spielbauer Law Office (“SLO”). (Complaint at ¶ 17.) SLO conducted a vigorous defense of Ms. Barr by issuing third party subpoenas, bringing discovery motions, making court appearances, attending conferences with opposing counsel and preparing for a jury trial. (Ibid.) The case was set for a jury trial on November 16, 2015. (Id. at ¶ 18.)

Beginning in August 2015, SLO entered into discussions with counsel for Midland. (Complaint at ¶ 19.) On September 16, 2015, Midland filed a notice of conditional settlement and thus the jury trial date was vacated. (Ibid.) The parties however never entered into a settlement and no such agreement was ever executed. (Id. at ¶ 20.)

The collection case thereafter sat idle for three years as Midland did nothing to prosecute the action after filing its notice of conditional settlement. (Complaint at ¶ 22.) As a result, the matter was subject to mandatory dismissal with prejudice as of October 2, 2018. (Id. at ¶ 23.) In April and May 2018, Midland resolved the case with Ms. Barr by having her pay in excess of $20,112.67. (Id. at ¶¶ 25-26.) Midland resolved the matter without notifying SLO of these discussions nor of the case settlement. (Id. at ¶ 27.) In addition, Midland did not undertake any efforts to confirm that SLO was no longer representing Ms. Barr. (Ibid.) The court dismissed the collection action on May 30, 2018.

SLO generated attorney fees in the amount of $24,428.25 through its representation of Ms. Barr in the collection action. (Complaint at ¶ 30.) Due to Midland’s misconduct and concealment of activities, SLO was not able to bring a timely motion for attorney fees against Midland, fees it would otherwise be entitled to. (Id. at ¶ 31.)

On December 6, 2018, plaintiff SLO filed a Complaint against Midland alleging causes of action for: (1) intentional interference with contractual relations; (2) negligent interference with prospective economic advantage; (3) unjust enrichment; and (4) unfair business practices.

Special Motion to Strike the Complaint

Currently before the Court is Midland’s special motion to strike each cause of action in the Complaint. (Code Civ. Proc., § 425.16) Midland also submitted a request for judicial notice in conjunction with the motion. Plaintiff SLO filed written opposition. Midland filed reply papers.

Request for Judicial Notice

In support of the motion, Midland requests judicial notice of the following: (1) Santa Clara County Superior Court’s Register of Actions as of February 7, 2019, in the case entitled Midland Funding, LLC v. Melanie Bautista (case no. 2011-1-CV-208539) (Exhibit 1); and (2) Santa Clara County Superior Court’s Register of Actions as of February 7, 2019, in the case entitled Midland Funding, LLC v. Melanie Barr (case no. 2013-1-CV-254015) (Exhibit 2). Midland argues these requests are relevant for the Court to understand the facts and circumstances giving rise to the claims in the current lawsuit. The request is unopposed and the Court may take judicial notice of these exhibits as records of the superior court under Evidence Code section 452, subdivision (d). (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].)

Accordingly, the request for judicial notice is GRANTED.

Legal Standard

Code of Civil Procedure section 425.16 provides for a “special motion to strike” when a plaintiff’s claims arise from certain acts constituting the exercise of the constitutional rights of freedom of speech and petition for the redress of grievances, “unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.” (Code Civ. Proc., § 425.16, subds. (a) & (b)(1).)

“Consistent with the statutory scheme, ruling on an anti-SLAPP motion involves a two-step procedure. First, the moving defendant must identify ‘all allegations of protected activity’ and show that the challenged claim arises from that activity. [Citations.] Second, if the defendant makes such a showing, the ‘burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated.’ [Citation.] Without resolving evidentiary conflicts, the court determines ‘whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment.’ [Citation.]” (Bel Air Internet, LLC v. Morales (2018) 20 Cal.App.5th 924, 934.)

First Prong: Protected Activity

“A defendant meets his or her burden on the first step of the anti-SLAPP analysis by demonstrating the acts underlying the plaintiff’s cause of action fall within one of the four categories spelled out in [Code of Civil Procedure] section 425.16, subdivision (e).” (Collier v. Harris (2015) 240 Cal.App.4th 41, 50-51 (Collier).) That section provides that an “‘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 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).) “These categories define the scope of the anti-SLAPP statute by listing acts which constitute an ‘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.’” (Collier, supra, at p. 51, citing Code Civ. Proc., § 425.16, subd. (e).)

“A claim arises from protected activity when that activity underlies or forms the basis for the claim. [Citations.] Critically, ‘the 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.’ [Citations.] ‘[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.’ [Citations.] 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.’ [Citation.]” (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1062-1063 (Park).)

“[A] claim may be struck 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.” (Park, supra, 2 Cal.5th at p. 1060.) To determine whether the speech constitutes the wrong itself or is merely evidence of a wrong, “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. at p. 1063.)

“In deciding whether the ‘arising from’ requirement is met, a court considers ‘the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.’” (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 670.) “[I]f the defendant does not demonstrate this initial prong, the court should deny the anti-SLAPP motion and need not address the second step.” (Baharian-Mehr v. Smith (2010) 189 Cal.App.4th 265, 271.)

Midland argues each cause of action in the Complaint is based on protected activity consisting of litigation-related conduct in settling the collection action brought against Ms. Barr. (See Complaint at ¶¶ 25, 26, 27; Logan Decl. at ¶¶ 5-15; Pogosian Decl. at ¶¶ 6-17.)

As stated above, one category of protected conduct includes “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.” (Code Civ. Proc., § 425.16, subd. (e)(2).) Courts “have adopted a fairly expansive view of what constitutes litigation-related activities within the scope of section 425.16.” (Kashian v. Harriman (2002) 98 Cal.App.4th 892, 908.)

Protected litigation-related activities include statements made as part of settlement negotiations. (See Suarez v. Trigg Laboratories, Inc. (2016) 3 Cal.App.5th 118, 123 [“Communications in the course of settlement negotiations are protected activity within the scope of section 425.16”]; Navellier v. Sletten (2002) 29 Cal.4th 82, 85-87 [anti-SLAPP statute applied to claim that party “committed fraud in misrepresenting … intention to be bound” by release in prior action]; Seltzer v. Barnes (2010) 182 Cal.App.4th 953, 963-967 (Seltzer) [reversing denial of anti-SLAPP motion in homeowner’s action for fraud in connection with settlement negotiations in underlying lawsuit]; GeneThera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901, 908 [affirming grant of anti-SLAPP motion in lawsuit based on firm’s communication of settlement offer]; Dowling v. Zimmerman (2001) 85 Cal.App.4th 1400, 1420 (Dowling) [attorney’s negotiation of stipulated settlement in unlawful detainer action was protected conduct]; see also Applied Business Software, Inc. v. Pacific Mortgage Exchange, Inc. (2008) 164 Cal.App.4th 1108, 1118 [entering into a settlement agreement is protected activity].)

Here, each cause of action arises from facts regarding settlement of the collection action between Midland and Ms. Barr. With respect to the first and second causes of action, plaintiff alleges the settlement interfered with the attorney-client relationship between SLO and Ms. Barr. (Complaint at ¶¶ 37, 46.) In particular, plaintiff SLO claims Midland failed to disclose the settlement discussions to avoid paying attorney fees to SLO arising from the collection action. (Ibid.) Similarly, the third and fourth causes of action for unjust enrichment and unfair business practices allege Midland engaged in settlement discussions with Ms. Barr without notifying plaintiff SLO. (Id. at ¶¶ 51, 62.) Midland disputes any such interference as Ms. Barr confirmed in writing that she was no longer represented by counsel at the time of settlement. (Logan Decl. at ¶¶ 11, 15; Ex. 1.) In fact, according to Midland, Ms. Barr wanted to settle her collection action because she was pursuing a home refinancing. (Id. at ¶ 12.) As settlement of the underlying collection action constitutes the gravamen the Complaint, each cause of action is based on protected activity to satisfy the first prong.

In opposition, plaintiff SLO argues the Complaint does not arise from protected activity as it is based on Midland’s conduct, i.e. settling the collection case, rather than any specific statements or communicative actions made in the collection litigation. (See OPP at pp. 2-7.) This contention is not persuasive for several reasons. First, the protections of the anti-SLAPP statute extend to “any act” in furtherance of a person’s right of petition. (Code Civ. Proc., § 425.16, subd. (b)(1).) “Any act” includes communicative conduct such as the filing, funding, and prosecution of a civil action. (Ludwig v. Sup. Ct. (1995) 37 Cal.App.4th 8, 17-19 (Ludwig).) Thus, if filing and prosecuting a lawsuit is protected, so too are the acts of settling and ultimately dismissing a case. As mentioned in the reply brief, plaintiff SLO has not cited any legal authority demonstrating that settlement of a lawsuit constitutes non-communicative conduct that is not protected by the anti-SLAPP statute.

In addition, the Complaint specifically refers to discussions between Midland and Ms. Barr that were concealed from plaintiff SLO and which ultimately led to settlement of the collection action. (See Complaint at ¶¶ 27, 36, 37, 44, 45.) Also, as stated above, the Court may consider declarations in support of the motion in its first prong analysis. The declaration by MCM’s Account Manager, Mary Kay Logan, details the communications between Midland and Ms. Barr resulting in settlement of the collection action. (Logan Decl. at ¶¶ 5-14.) Evidence of said communications therefore support the settlement-related conduct alleged in the Complaint.

Furthermore, as the reply points out, it is hard to imagine Midland settling the collections case with Ms. Barr without communicating with her. In addressing “communicative” v. “non-communicative” conduct in the anti-SLAPP context, the appellate court in Ludwig stated:

“Barstow contends strenuously that Ludwig’s activities in recruiting and encouraging his agents are ‘noncommunicative.’ We are at a loss to imagine how Ludwig accomplished the recruiting and encouragement without communication. [Citation.] We must assume that he asked Keating, Krier, Hendrix, and Sweet to take certain actions on his behalf. This required a communication. Further communicative conduct was then committed by the agents in speaking, writing, and making allegations in legal documents.”

(Ludwig, supra, 37 Cal.App.4th at p. 20.)

Similarly, there would need to be some degree of communication or negotiation between Midland and Ms. Barr to result in any kind of settlement. To conclude otherwise would be seemingly absurd and nonsensical. The Complaint here concedes such discussions took place but were concealed from plaintiff SLO. Midland submits evidence showing these discussions occurred ultimately culminating in settlement and dismissal of the collection action. The Court therefore finds that Midland’s efforts in settling the collection action constitute communicative conduct in support of the first prong of the motion.

The only other argument raised in opposition is that Midland’s conduct is not protected as it does not involve a public issue or an issue of public interest. (See OPP at pp. 7-8.) A defendant may satisfy the first prong based on “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)(4).) This argument is immaterial as Midland is not seeking relief under subdivision (e)(4), but subdivision (e)(2) which does not require the existence of a public issue or issue of public interest. (See Vergos v. McNeal (2007) 146 Cal.App.4th 1387, 1395 [Section 425.16, subdivision (e)(2) does not require the defendant to show a public issue or issue of public interest].) For reasons stated above, Midland has satisfied its initial burden in showing that each cause of action in the Complaint arises from protected activity. The burden now shifts to plaintiff SLO to demonstrate a probability of success on the merits.

Second Prong: Probability of Success on the Merits

“To establish a probability of prevailing, the 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. For purposes of this inquiry, the trial court considers the pleadings and evidentiary submissions of both the plaintiff and the defendant; though the court does not weigh the credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendant’s evidence supporting the motion defeats the plaintiff’s attempt to establish evidentiary support for the claim. In making this assessment it is the court’s responsibility…to accept as true the evidence favorable to the plaintiff…The plaintiff need only establish that his or her claim has minimal merit to avoid being stricken as a SLAPP.” (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 291 [internal citations and quotation marks omitted].)

Plaintiff SLO’s opposition fails to address the second prong or offer evidence to establish a probability of success on the merits. Nor does plaintiff SLO attempt to overcome the defense of the litigation privilege which appears to bar each cause of action alleged in the Complaint. (See Flatley v. Mauro (2006) 39 Cal.4th 299, 323 [Civil Code § 47, subd. (b) litigation privilege presents a substantive defense plaintiff must overcome to demonstrate probability of success on the merits]; see also Seltzer, supra, 182 Cal.App.4th at p. 970 [litigation privilege applies to statements made by counsel during settlement negotiations]; Dowling, supra, 85 Cal.App.4th at p. 1422 [applying litigation privilege to an action based on statements the attorney defendant made while negotiating a settlement].)

As plaintiff SLO has not established a probability of success on the merits, the special motion to strike is GRANTED.

Disposition

The special motion to strike the Complaint is GRANTED.

Midland’s request for attorney’s fees and costs is DENIED WITHOUT PREJUDICE subject to a noticed motion and attorney declaration to support an award of fees and costs. (Code Civ. Proc., § 425.16, subd. (c); Ketchum v. Moses (2001) 24 Cal.4th 1122, 1131.)

SLO’s request for attorney’s fees and costs is DENIED as it did not prevail in opposing the motion.

Midland shall submit a proposed judgment after compliance with Rules of Court, Rule 3.1312.

The Court will prepare the Order.