Filed 5/26/20 Kandeel v. Udko CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

AYMAN A. KANDEEL,

Plaintiff and Respondent,

v.

JORDAN L. UDKO et al.,

Defendants and Appellants.

B294290

(Los Angeles County
Super. Ct. Nos. BC712445, BC548794)

APPEAL from a judgment of the Superior Court of Los Angeles County, Dennis J. Landin, Judge. Reversed and remanded with instructions.

Freedman + Taitelman, Bryan J. Freedman, Steven E. Formaker and Bradley H. Kreshek.

Shaw, Koepke & Satter, Jens B. Koepke for Plaintiff and Respondent.

 

INTRODUCTION

Plaintiff Ayman Kandeel was sued in an underlying lawsuit, and defendants Jordan Udko; Judko MG, Inc.; Kirkwood James Drew; QTCV Holdings, LLC; and Nathan Wang (defendants) were his co-defendants in that action. Kandeel alleges that defendants initially agreed to cooperate in presenting a joint defense in the underlying litigation, but shortly before trial defendants fired their trial counsel, settled with the plaintiff behind Kandeel’s back, caused a trial continuance, gave the plaintiff confidential documents, and filed a declaration containing false information and accusations in an attempt to have Kandeel’s counsel removed from the case.

Kandeel sued defendants in this action, alleging that they breached an agreement to present a joint defense in the underlying litigation. Defendants filed a special motion to strike under the anti-SLAPP law, Code of Civil Procedure section 425.16, asserting that Kandeel’s allegations arose from protected litigation activity. Kandeel argued that defendants’ breach of an agreement was not protected litigation activity, and their litigation activities were merely evidence of that breach, so section 425.16 did not apply. The trial court agreed, and denied the motion.

We reverse. Defendants’ conduct that formed the basis of Kandeel’s claims consisted of actions “made in connection with an issue under consideration or review by a . . . judicial body,” and therefore constituted protected conduct under section 425.16, subdivision (e). As such, Kandeel’s claims arose from protected activity, and the trial court erred in finding otherwise.

The trial court did not reach the second prong of the anti-SLAPP analysis: whether Kandeel met his burden to prove a reasonable probability of prevailing on his claims. We remand for the trial court to address that issue in the first instance.

FACTUAL AND PROCEDURAL BACKGROUND

A. Underlying litigation
B.
The following facts are taken from Kandeel’s complaint and Udko’s declaration filed in support of the special motion to strike. These facts are largely undisputed.

Kandeel is an economist. In 2006, he founded an investment firm, Pi Capital, Inc., with investor Jarallah al-Jarallah, to manage the funds of Jarallah’s family. Jarallah provided capital, and Kandeel “served as the Chief Executive Officer and provided the investment expertise.” Udko and Drew “also served as officers of Pi Capital.” Udko’s title was Vice President of Business Development.

In 2013, Jarallah began to assert that he had suffered investment losses due to Kandeel’s wrongdoing. He assigned his claims to an entity he controlled, Greenfield LLC, and in 2014, Greenfield filed a lawsuit against Kandeel, Drew, and others alleging fraud. This fraud action is the underlying litigation. According to Udko, Greenfield’s complaint alleged that Kandeel, his entities, and Drew “converted $88,000,000 of the Jarallah’s funds, breached fiduciary duties in doing so, and committed fraud to obtain the investment funds.”

Kandeel retained law firm Loeb & Loeb (Loeb) to represent him and Drew. Loeb also represented Udko in relation to a third party subpoena. In January 2016, Greenfield added as defendants Udko; Udko’s company, Judko MG; Wang; and Drew’s company, QTVC Holdings. Greenfield alleged that the newly added defendants aided and abetted Kandeel’s actions. Kandeel funded the new defendants’ joint defense by Loeb.

On the evening of March 4, 2018, the day before trial was set to begin, Drew, Udko, and Wang terminated Loeb’s representation. Udko stated in his declaration that after consulting with different counsel, he, Drew, and Wang “entered into a settlement agreement with Greenfield LLC which relieved us, and our corporate entities, from any liability for any judgment, verdict or settlement of the [underlying litigation], and called for us, and our corporate entities, to be dismissed from that action.”

Trial was continued, and Greenfield moved to disqualify Loeb from the case based on accusations by Drew, Udko, and Wang. The motion was denied. Greenfield dismissed the Udko defendants from the underlying litigation on March 27, 2018. Trial in the underlying action was set to begin in October 2018. The record on appeal does not include information about the outcome of the underlying litigation.

C. Complaint in this action
D.
On July 3, 2018, Kandeel sued defendants. Kandeel alleged that after Greenfield sued him and Drew, Kandeel “conditionally agreed to fund Drew’s defense, with the understanding that Drew [would] fully cooperate in the joint defense.” Kandeel alleged that he, Drew, “and the various entities they controlled entered into a joint representation agreement with Loeb” that included “an explanation of joint representation, the clients’ consent to it, an explanation of conflicts of interest and the clients’ understanding of such conflicts should one arise in the future.”

After Udko, Judko MG, QTVC Holdings, and Wang were added as defendants, “Udko and Wang similarly sought Kandeel’s help in funding the defense. Udko and Drew also asked Kandeel to fund the defense of their entities, Judko MG and QTVC Holdings. In response, Kandeel agreed to fund the joint defense, with the understanding that they [would] cooperate in a collective defense.” Loeb was retained to defend them, and “[e]ach defendant was provided with an explanation of conflicts of interest and their understanding of such conflicts should one arise in the future. In this agreement, [defendants] agreed to cooperate with [Loeb] and Kandeel and cooperate in the joint defense. Kandeel, as a co-defendant funding the entire defense, was the intended third party beneficiary of this agreement.” Defendants “also signed additional letters relating solely to joint representation.”

Kandeel alleged that he “agreed to pay the litigation fees and costs because Kandeel recognized that it was in the defendants’ collective best interest to pool their resources and coordinate the defense.” “In agreeing that Kandeel [would] be responsible for their attorneys fees and costs, [defendants] understood that they were obligated to cooperate with [Loeb] and Kandeel and cooperate in a joint and coordinated defense.” However, defendants secretly “engaged in direct communication with [Greenfield’s counsel] in violation of Rule of Professional Conduct, 2-100 Communication with a Represented Party.”

When defendants announced the day before trial that they were terminating Loeb’s representation, they made “a series of false accusations” and caused “privileged communication to be made public by Drew, who gave it to opposing counsel with the intention of injuring [Kandeel] and Loeb.” The timing of the events caused a continuation of trial, was “intended to increase the cost of the defense and give tactical advantage to” Greenfield, and was “designed to facilitate the removal of [Kandeel’s] chosen counsel.” Defendants also “actively assisted Greenfield” by providing it a “trial witness preparation binder that had been prepared by Loeb.” The settlement agreement between Greenfield and defendants revealed that Greenfield “agreed to indemnify and defend Drew, Udko, Wang, their family members and their companies from any claims by [Loeb] or Kandeel.” Greenfield and Jarallah also agreed to pay defendants’ attorney fees and costs incurred after February 28, 2018 in connection with the underlying litigation.

Kandeel asserted seven causes of action against defendants: (1) breach of written contract (third party beneficiary), (2) breach of the implied covenant of good faith and fair dealing, (3) interference with contract, (4) equitable indemnity, (5) contribution, (6) declaratory relief, and (7) unjust enrichment/ restitution.

In the first cause of action for breach of contract (third party beneficiary), Kandeel reasserted his allegations that defendants retained Loeb in connection with the underlying litigation, were provided with an explanation of conflicts of interest, and agreed to cooperate with Loeb and “cooperate in the defense.” Kandeel, as the person “funding the entire defense, was the intended third party beneficiary of this agreement.” However, defendants “secretly negotiated a settlement” with Greenfield, and “conspired with Greenfield’s counsel” to “damage Kandeel’s case” and to “cause yet another continuance of trial, causing Kandeel to incur additional attorneys fees and costs and further delay his day in court.” Kandeel alleged that the “conduct of [defendants], as alleged above, was a breach of written contract for which Kandeel was the intended third party beneficiary.”

In the second cause of action for breach of implied covenant of good faith and fair dealing, Kandeel repeated the same allegations as in the first cause of action. Kandeel alleged that defendants “breached the covenant of good faith and fair dealing implied in the written contract for which Kandeel was the intended third party beneficiary.”

In the third cause of action for interference with contract, Kandeel alleged that defendants’ termination of Loeb the night before trial began, their false accusations against Loeb, their assistance with Greenfield’s motion to disqualify Loeb, and their provision of privileged communications to Greenfield “was intended to disrupt the contractual relationship between Kandeel and Loeb.” Although the motion to disqualify Loeb was eventually denied, defendants’ conduct “disrupted Kandeel’s contractual relationship with [Loeb] and made it more expensive.” Kandeel also alleged he was entitled to recover punitive damages as a result of defendants’ conduct.

In the fourth cause of action for equitable indemnity and the fifth cause of action for contribution, Kandeel alleged that he “denies he is in any way legally responsible for the events giving rise to the Underlying Lawsuit.” To the extent he were to be found liable, defendants “were the proximate cause of the damages and/or losses to Greenfield.” In the sixth cause of action for declaratory relief, Kandeel requested a “judicial declaration of his rights and obligations with respect to the damages complained of by Greenfield in the Underlying Lawsuit and a declaration of Defendants’ responsibility for any and all sums which Kandeel may be compelled to pay.”

In the seventh cause of action for unjust enrichment/ restitution, Kandeel repeated his allegations from the first three causes of action regarding defendants’ initial participation in the joint defense while represented by Loeb. Kandeel alleged that defendants “received benefits they would not have otherwise secured, including over $1 million in attorneys fees and costs in connection with the Underlying Lawsuit.” He asserted that “[r]etention of these benefits by Defendants would be unjust and inequitable because Defendants did not cooperate in the joint defense,” instead turning against Kandeel on the eve of trial. Kandeel sought “restitution and disgorgement of all attorneys fees and costs that Kandeel incurred for Defendants’ benefit in connection with the defense of the Underlying Lawsuit.”

E. Special motion to strike
F.
1. Section 425.16
2.
Defendants filed a special motion to strike under section 425.16. “A cause of action arising from a person’s act in furtherance of the ‘right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability’ that the claim will prevail.” (Monster Energy Co. v. Schechter (2019) 7 Cal.5th 781, 788 (Monster Energy), citing § 425.16, subd. (b)(1).) Thus, “[a]nti-SLAPP motions are evaluated through a two-step process. Initially, the moving defendant bears the burden of establishing that the challenged allegations or claims ‘aris[e] from’ protected activity in which the defendant has engaged.” (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1061 (Park).) “If the defendant carries its burden, the plaintiff must then demonstrate its claims have at least ‘minimal merit.’” (Ibid.)

Under section 425.16, 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 . . . judicial proceeding . . . , (2) any written or oral statement or writing made in connection with an issue under consideration or review by a . . . judicial body, or any other official proceeding authorized by law.” (§ 425.16, subd. (e).) “‘A cause of action “arising from” defendant’s litigation activity may appropriately be the subject of a section 425.16 motion to strike.’ [Citation.] ‘Any act’ includes communicative conduct such as the filing, funding, and prosecution of a civil action.” (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056.)

3. Defendants’ motion
4.
Defendants moved to strike the first cause of action for breach of written contract (third party beneficiary), the second cause of action for breach of the implied covenant of good faith and fair dealing, the third cause of action for interference with contract, and the seventh cause of action for unjust enrichment/ restitution. They asserted that these causes of action arose from defendants’ protected activity because they were “all based on Defendants’ various litigation-related activities in the underlying Greenfield Action.”

Defendants confirmed the basic facts regarding the underlying litigation, including that Kandeel retained Loeb as counsel for each of the defendants. Defendants asserted that they each “executed written engagement agreements with Loeb.” Udko stated in his declaration that as trial approached, however, Loeb told him that at Kandeel’s instruction, it was “not allowed to discuss [with Udko] the details of any settlement discussions” with Greenfield. Udko became concerned that that if the case went to trial, he would be exposed to a multi-million dollar judgment. Udko also stated that Kandeel approached him shortly before trial and “asked me to assist his defense by testifying falsely as to several material matters.”

Udko stated that he consulted with another attorney, and “[i]n March 2018, I authorized [the other attorney] to communicate with counsel for Greenfield to negotiate a settlement on my behalf.” Udko and the other defendants settled with Greenfield, as alleged in the complaint. Udko stated, “As part of the settlement agreement, I agreed to be interviewed by Greenfield and to appear at trial to testify.”

In their motion, defendants asserted that the four challenged causes of action were based on defendants’ litigation activities, and therefore satisfied the first prong of the anti-SLAPP analysis. They also asserted that Kandeel could not prove a reasonable probability of prevailing, and therefore could not satisfy the second prong of the anti-SLAPP analysis, in part because the litigation privilege precluded any liability.

5. Opposition
6.
Kandeel filed an opposition, along with his declaration and a request for judicial notice. He asserted that “five co-defendants entered into a joint defense agreement. Five co-defendants actively betrayed Ayman Kandeel by . . . [s]tealing[Loeb] attorney work product and providing it to a third party[;] [a]ctively communicating with Greenfield’s counsel” without Loeb’s presence; “[e]ngineering a trial continuance” with the eve-of-trial settlement; and “[e]ntering into a secret settlement” with Greenfield. Kandeel stated in his declaration that he agreed to fund the defendants’ defense in the underlying litigation, “and they agreed to cooperate with me in the defense” of that action. He asserted that he had incurred “well in excess of $1 million in [Loeb’s] attorneys fees and costs attributable to the defense” of defendants.

Kandeel attached the letter from defendants terminating Loeb, in which defendants accused Loeb of “breach[ing] your fiduciary duties to us repeatedly.” Defendants stated in the letter that Loeb failed to fairly represent them in light of the irresolvable conflict of interest with Kandeel; negotiated a settlement between defendants and Kandeel that “was not fair to us,” which Kandeel never intended to pay; and “demanded, and collected, payments of substantial fees and costs from us even though our engagement agreements clearly state that we are not responsible for such amounts.”

Kandeel also attached the settlement agreement between defendants and Greenfield, in which each of the defendants “agree[d] to be interviewed by counsel for the Greenfield Parties” and to “be called as a witness or a hostile witness by Greenfield” at trial. Greenfield agreed to indemnify and defend defendants “in connection with” any claims by Kandeel or Loeb. Defendants also agreed to give Greenfield “90% of any amounts they receive” from a malpractice action against Loeb, if such an action were to be filed. Greenfield agreed to dismiss defendants from the underlying litigation. The agreement was signed March 4, 2018, the day before trial was set to begin.

In his opposition to the motion, Kandeel argued that defendants had not met their burden to show that the challenged causes of action arose out of protected activity. He stated that he “alleges breach of a joint defense agreement and active efforts to undermine the defense of the action by undercutting the defense with the assistance of” Greenfield and its counsel. Relying largely on cases involving breach of fiduciary duty claims against attorneys and other fiduciaries, Kandeel asserted that the “breach of duties owed to a co-defendant under a joint defense agreement does not constitute protected speech or petitioning within the meaning of Section 425.16.” He asserted that defendants “breached the cooperation clause,” which was not protected activity under section 425.16. He also contended that defendants disclosed Loeb’s confidential work product to Greenfield, which was also not protected activity, and “breached a separate legal duty owed to Loeb.”

In his request for judicial notice, Kandeel attached a declaration by Jerry Phillips, a partner at Loeb, who was counsel for Kandeel and defendants in the underlying litigation. The Phillips declaration was filed in the underlying litigation in opposition to the motion to disqualify Loeb as counsel of record for Kandeel. Attached to the declaration were several documents relating to the relationship between Loeb on the one hand, and Kandeel and defendants on the other.

Phillips described several of the exhibits as “engagement letters.” The documents are on Loeb letterhead, and are completely redacted except for paragraphs addressing a “joint representation waiver” and “conflict of interest.” None of the language in these paragraphs is case-specific. The letters bear Phillips’s signature, but no other signatures.

Phillips described Exhibit D to his declaration as “three additional letters relating solely to joint representation” signed by all defendants on March 2, 2016. Exhibit D consists of three letters, one each to Drew, Udko, and Wang. Each letter states, “As you may be aware, there are certain consequences of our joint representation of you that we need to explain, and we urge you to review these consequences carefully.” The letters state that attorney-client confidentiality may be affected by the joint representation, and quote Rules of Professional Conduct, rule 3-310(C) regarding consent for conflicts of interest. The letters warned that “multiple representation . . . involves significant risks,” including the “greater risk of divided loyalties here where Dr. Kandeel has agreed to pay any final judgment against you.” The letters continued, “[W]e encourage you to consult with other counsel as to potential conflict of interest and that we have afforded the opportunity to raise with us to your satisfaction any questions you may have on the subject.” The letters are signed by Phillips; no additional signatures are visible. Phillips stated in his declaration that he witnessed Drew, Udko, and Wang sign the March 2 letters, but the signed versions were lost.

7. Reply
8.
In their reply, defendants distinguished this case from the fiduciary duty cases Kandeel cited. Defendants also asserted that the protected activity at issue was not simply incidental to the causes of action Kandeel alleged.

Further, defendants argued that Kandeel had not established a probability of prevailing on the challenged causes of action. They asserted that Kandeel alleged breach of a contract, but the “parameters of the alleged agreement to cooperate is [sic] not set forth,” and nothing “even remotely suggests that the agreement to cooperate would bar Defendants from settling the [underlying litigation] without Kandeel.” The engagement agreements with Loeb did not “preclude Defendants from engaging in the conduct” in Kandeel’s complaint. Defendants asserted again that the litigation privilege barred any liability.

9. Hearing and ruling
10.
At the hearing on the motion, defendants’ counsel asserted that the “entirety of the complaint” focused on “litigation-protected actions.” Addressing the trial court’s tentative ruling, defendants’ counsel noted that the court referred to a “joint defense agreement,” but argued, “It’s not a joint defense agreement. It’s an attorney-client fee agreement and a contract [sic] waiver.” Defense counsel argued that Kandeel had not asserted any claim independent of the litigation activities.

Kandeel’s counsel stated that this case was about enforcing a contract, and determining who is liable for paying attorney fees. Kandeel’s counsel noted for the record that trial in the underlying case was currently in progress before the same judge who was deciding the motion to strike, and argued about the credibility of Udko’s testimony. Defendants’ counsel asserted that witness credibility was not relevant to the anti-SLAPP motion. The court took the matter under submission.

The court denied the motion in a written ruling. The court stated that Kandeel’s “claims do not arise from Defendants’ protected activity, but rather Defendants’ breach of the joint defense agreement.” The court continued, “Defendants characterize their conduct as relating to a number of their protected litigation activities – terminating their law firm, cooperating with opposing counsel, and entering into a settlement agreement with opposing counsel. Yet fundamentally, all of those actions arise from Defendants’ alleged breach of the agreement between Kandeel and the Defendants. This is made plain by the logical inference that none of those downstream activities would have occurred had Defendants not breached the agreement. As such, rather than litigation activity, Defendants’ conduct is a breach of contract, which is not accorded protection under CCP section 425.16. The fact that Defendants may have committed some protected activity does not change that conclusion since the protected activity is merely incidental to the essential activity upon which [Kandeel’s] claims are based.”

The court discussed several cases, and stated “Defendants attempt to parse out each discrete action they pursued – terminating their law firm, entering into a settlement agreement, providing a binder to opposing counsel – and characterize each act as litigation activity. [Citation.] All of these actions – even if they are protected – are fundamentally rooted in their breach of an agreement, which is conduct that is not protected under CCP section 425.16.” The court concluded that because defendants had not met their burden to show that Kandeel’s claims arose from protected activity, the first prong of the anti-SLAPP analysis, it need not consider the second prong of the analysis, whether Kandeel demonstrated a probability of prevailing.

Defendants timely appealed.

DISCUSSION

As stated above, anti-SLAPP motions under section 425.16 are evaluated through a two-step process. The moving defendant bears the burden of establishing that the challenged claims arise from protected activity, and if the defendant meets that burden, the plaintiff must establish that there is a probability that his claims will prevail. (See Park, supra,2 Cal.5th at p. 1061; Monster Energy, supra, 7 Cal.5th at p. 788.) Protected activity includes “(1) any written or oral statement or writing made before a . . . judicial proceeding . . . , (2) any written or oral statement or writing made in connection with an issue under consideration or review by a . . . judicial body, or any other official proceeding authorized by law.” (§ 425.16, subd. (e).)

“We review de novo the grant or denial of an anti-SLAPP motion. [Citation.] We exercise independent judgment in determining whether, based on our own review of the record, the challenged claims arise from protected activity. [Citations.] In addition to the pleadings, we may consider affidavits concerning the facts upon which liability is based. [Citations.] We do not, however, weigh the evidence, but accept plaintiff’s submissions as true and consider only whether any contrary evidence from the defendant establishes its entitlement to prevail as a matter of law.” (Park, supra, 2 Cal.5th at p. 1067.)

A. Kandeel’s claims arise from protected activity.
B.
The trial court held that defendants failed to meet the first prong of the anti-SLAPP analysis. It stated that defendants’ “protected litigation activities – terminating their law firm, cooperating with opposing counsel, and entering into a settlement agreement with opposing counsel” did not amount to a claim “arising from” protected activity, because “fundamentally, all of those actions arise from Defendants’ alleged breach of the agreement between Kandeel and the Defendants.”

Defendants assert that the trial court erred in denying the motion, because the allegations were based on defendants’ conduct relating to the underlying litigation, and therefore Kandeel’s claims arise from protected activity. Defendants also assert that the court erred in finding that there was a “joint defense agreement,” because the letters from Loeb attached to Kandeel’s opposition place no limitation on defendants’ actions.

Kandeel asserts that the trial court was correct, because “the principal thrust of Kandeel’s claims is that the defendants breached the contract.” He also states that “the crux of Kandeel’s suit is that [defendants] breached their contractual obligations to cooperate in the parties’ joint defense against Greenfield, and instead chose to align themselves with Greenfield” in the underlying litigation. Thus, “[h]e sued because the secret nature of defendants’ negotiation of and execution of the settlement agreement and their active assistance of Greenfield against Kandeel directly violated the cooperation obligation defendants bore under the joint defense agreement.”

The trial court’s and Kandeel’s analyses are erroneous, because they focus on Kandeel’s allegations—that defendants’ actions amounted to a breach of contract—rather than defendants’ underlying conduct that serves as the basis of the allegations. “A claim arises from protected activity when that activity underlies or forms the basis for the claim.” (Park, supra,2 Cal.5th at p. 1062.) “[T]he 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.] ‘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) . . . .’ [Citation.] In short, in ruling on an anti-SLAPP motion, 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.” (Id. at p. 1063.)

Here, the court mistakenly focused on Kandeel’s allegations instead of defendants’ conduct. Defendants’ actions in the underlying litigation did not “fundamentally . . . arise from Defendants’ alleged breach of the agreement.” Instead, Kandeel’s allegations about the breach of an agreement arose from defendants’ protected conduct. Indeed, the agreement itself—to the extent one existed—purportedly required defendants to adhere to a certain position in pending litigation. The agreement and defendants’ actions that allegedly breached it consisted of, written and oral statements made in a judicial proceeding (§ 425.16, subd. (e)(1)), or made in connection with an issue under review by a judicial body (§ 425.16, subd. (e)(2)). “Under the first step of the anti-SLAPP analysis, . . . it is the defendant’s acts that matter. [Citations.] If the acts alleged in support of the plaintiff’s claim are of the sort protected by the anti-SLAPP statute, then anti-SLAPP protections apply.” (Wilson v. Cable News Network, Inc., supra, 7 Cal.5th at p. 887.)

This case is very similar to Navellier v. Sletten (2002) 29 Cal.4th 82 (Navellier). There, plaintiffs Navellier and NMI created an investment company, and Sletten and others served as trustees for the company. After Sletten and the other trustees terminated their contract, Navellier and NMI sued them in federal court for breaches of fiduciary duty. Sletten and the plaintiffs reached a settlement agreement, which included a release of any other claims by Sletten. (Id. at pp. 85-86.) As the litigation continued, however, Sletten filed a counter-claim asserting that the plaintiffs were contractually required to provide him with “a trustees’ errors and omissions insurance policy, which would have covered his defense in the federal lawsuit.” (Id. at p. 86.) The case proceeded to a partial summary judgment, a trial, and an appeal.

Meanwhile, the plaintiffs filed an action in state court against Sletten. Similar to Kandeel’s allegations here, the Navellier plaintiffs alleged “that Sletten had committed fraud in misrepresenting his intention to be bound by the Release, so as to induce plaintiffs to incur various litigation costs in the federal action that they would not have incurred had they known Sletten’s true intentions. Plaintiffs also alleged that Sletten had committed breach of contract by filing counterclaims in the federal action.” (Navellier, supra, 29 Cal.4th at p. 87.) Sletten filed a special motion to strike under section 425.16, the trial court denied the motion, the Court of Appeal affirmed, and the Supreme Court reversed.

The Supreme Court explained that in “the anti-SLAPP context, the critical consideration is whether the cause of action is based on the defendant’s protected free speech or petitioning activity.” (Navellier, supra, 29 Cal.4th at p. 89 [emphasis in original].) The court found that “each of Sletten’s acts (or omissions) about which plaintiffs complain falls squarely within the plain language of the anti-SLAPP statute.” (Id. at p. 90.) The plaintiffs’ fraud claim focused on “Sletten’s alleged negotiation, execution, and repudiation of the Release” in the federal litigation, which constituted protected activity under section 425.16, because it “involved ‘statement[s] or writing[s] made in connection with an issue under consideration or review by a . . . judicial body’ (§ 425.16, subd. (e)(2)), i.e., the federal district court.” (Ibid.) The parties’ arguments about the validity of the Release in federal court were also protected as “‘statement[s] or writing[s] made before a . . . judicial proceeding’ ([§ 425.16], subd. (e)(1)), i.e., the federal action.” (Ibid.) Similarly, Sletten’s counterclaim filed in the federal action was “indisputably . . . a ‘statement or writing made before a . . . judicial proceeding’ (§ 425.16, subd. (e)(1)).” (Ibid.) The court stated, “[B]ut for the federal lawsuit and Sletten’s alleged actions taken in connection with that litigation, plaintiffs’ present claims would have no basis. This action therefore falls squarely within the ambit of the anti-SLAPP statute’s ‘arising from’ prong.

(§ 425.16, subd. (b)(1).)” (Ibid.)

The Supreme Court rejected plaintiffs’ argument, similar to Kandeel’s argument here, that the case involved “‘a garden variety breach of contract and fraud claim’ not covered by section 425.16.” (Navellier, supra, 29 Cal.4th at p. 90.) The court stated, “[C]onduct alleged to constitute breach of contract may also come within constitutionally protected speech or petitioning. The anti-SLAPP statute’s definitional focus is not the form of the plaintiff’s cause of action but, rather, the defendant’s activity that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning.” (Id. at p. 92.) The court concluded, “[S]ince plaintiffs’ action against Sletten is based on his constitutional free speech and petitioning activity as defined in the anti-SLAPP statute, Sletten met his threshold burden of demonstrating that plaintiffs’ action is one arising from the type of speech and petitioning activity that is protected by the anti-SLAPP statute.” (Id. at p. 95 [emphasis in original].)

Kandeel argues that reliance on Navellier “doesn’t work,” because in Navellier the plaintiffs’ breach of contract claim “was based solely on [Sletten’s] filing of a counterclaim,” while here, Kandeel sued defendants “because they failed to cooperate in a joint defense and instead helped Greenfield against Kandeel.” Navellier did not hold that “protected activity” is limited to a counterclaim. Moreover, it is clear that 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 activity . . . includes the filing of lawsuits, and statements and pleadings made in or in preparation for civil litigation.” (ValueRock TN Properties, LLC v. PK II Larwin Square SC LP (2019) 36 Cal.App.5th 1037, 1046.) Discussions about upcoming testimony are also protected activity under section 425.16, subdivision (e)(2). (Haight Ashbury Free Clinics, Inc. v. Happening House Ventures (2010) 184 Cal.App.4th 1539, 1548.) In addition, communication about settling pending litigation “‘directly implicates the right to petition’ and is subject to an anti-SLAPP motion.” (Crossroads Investors, L.P. v. Federal National Mortgage Assn. (2017) 13 Cal.App.5th 757, 783; see also GeneThera, Inc. v. Troy & Gould Professional Corp. (2009) 171 Cal.App.4th 901, 908.) Here, defendants’ alleged conduct—including retaining Loeb, communicating with Greenfield’s counsel regarding a settlement, terminating Loeb, supporting Greenfield’s motion to remove Loeb from the case, providing trial preparation materials to Greenfield, and causing a continuation of the trial—are litigation-related activities within the scope of section 425.16.

Kandeel asserts that this case is similar to Castleman v. Sagaser (2013) 216 Cal.App.4th 481 (Castleman), in which an attorney, Sagaser, resigned from his law firm under “acrimonious terms stemming from an internal dispute” among the partners. (Id. at p. 485.) Before he left, Sagaser reviewed firm documents relating to several real estate and business transactions between two sets of clients. Sagaser apparently worked with another attorney in getting information to one of the clients, who then sued the other set of clients, the law firm, and additional defendants for fraud relating to the transactions. (Id. at pp. 486-487.)

Castleman, the client who was sued in the underlying litigation, then sued Sagaser for breach of fiduciary duty, breach of the duty of loyalty, conversion, and invasion of privacy. (Castleman, supra, 216 Cal.App.4th at p. 487.) Castleman alleged that Sagaser used confidential client information to encourage the underlying litigation, draft the underlying complaint, and advise the plaintiffs in the underlying litigation. (Id. at pp. 487-488.) “The complaint describe[d] Sagaser’s behavior in terms of ethical violations, including breaches of the duties of loyalty and confidentiality owed to [Castleman and related entities] as former clients under the State Bar Rules of Professional Conduct.” (Id. at p. 488.) Sagaser filed a special motion to strike under section 425.16, asserting that Castleman’s causes of action arose from the protected activity of testifying and communicating with counsel in the underlying litigation. (Ibid.)

The trial court denied the motion, and the Court of Appeal affirmed, noting, “A growing body of case law holds that actions based on an attorney’s breach of professional and ethical duties owed to a client are not SLAPP suits, even though protected litigation activity features prominently in the factual background.” (Castleman, supra, 216 Cal.App.4th at p. 491.) Relying on those cases, the court found that Castleman’s “causes of action do not arise from protected activity within the meaning of the anti-SLAPP statute. The foundation of each claim is the allegation that Sagaser chose to align himself with [Castleman’s] adversaries, in direct opposition to [Castleman’s] interests, thereby breaching duties of loyalty and confidentiality owed to them by virtue of a prior attorney/client relationship. [Castleman’s] complaint specifically alleges that Sagaser violated the State Bar Rules of Professional Conduct, including rule 3-310, which is the principal thrust” of the lawsuit. (Id. at p. 493.) Sagaser’s communication with attorneys and testimony in the underlying litigation was “collateral to the principal thrust of [Castleman’s] causes of action,” and was “more appropriately characterized as evidence of Sagaser’s alleged breach of fiduciary duties or evidence in support of an affirmative defense.” (Id. at p. 494.)

Kandeel argues that this case is similar, in that “the crux of Kandeel’s suit is that the Udko Defendants breached their contractual obligations to cooperate in the parties’ joint defense against Greenfield, and instead ‘chose to align’ themselves with Greenfield.” We disagree that Castleman, and similar cases Kandeel cites regarding attorneys who breach fiduciary duties, are instructive. Defendants here were not bound by the Rules of Professional Conduct, and did not breach them by shifting their loyalties. As the court noted in Coretronic Corp. v. Cozen O’Connor (2011) 192 Cal.App.4th 1381, 1392, which Kandeel also cites, in such cases it is “the breach of the duty of loyalty owed to the clients that [gives] rise to liability, not protected speech or petitioning activity.” Thus, “[a]ny assertedly protected activity is not the root of the complaint; it is merely the setting in which the claims arose.” (Ibid.; see also Benasra v. Mitchell Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179, 1189 [a breach of an attorney’s fiduciary duty does not occur “when the attorney steps into court to represent the new client, but when he or she abandons the old client.”]; Freeman v. Schack (2007) 154 Cal.App.4th 719, 732 [“the principal thrust of the conduct underlying their causes of action is not [the attorney’s],” but “undertaking to represent a party with interests adverse to plaintiffs, in violation of the duty of loyalty he assertedly owed them.”].) An attorney’s ongoing professional obligation to a client arises from professional standards and the Rules of Professional Conduct, and exists even when no litigation is pending. It is not analogous to the duty alleged here, in which a non-attorney litigant was purportedly required by contract to take a certain position in an ongoing lawsuit, and then breached that contract through testimony and other litigation filings.

Kandeel also cites City of Alhambra v. D’Ausilio (2011) 193 Cal.App.4th 1301 (City of Alhambra), a case the trial court relied upon. In that case, a former city employee and former president of the Alhambra Firefighters’ Association (AFA) sued the City of Alhambra for civil rights violations. The parties settled, and as part of their settlement agreement, the employee agreed to refrain from participating in certain AFA activities. (Id. at p. 1304.) About a year later, the city learned that the former employee had participated in an AFA meeting and “took part in a protest by City employees against the City, while wearing his AFA shirt.” (Id. at 1305.) The city asked the former employee to refrain from such activities, but the employee would not agree. The city sued for declaratory relief, stating “that an ‘actual controversy has arisen and now exists’ between the parties ‘concerning their respective rights and duties’ under . . . the settlement agreement.” (Ibid.) The employee filed an anti-SLAPP motion, which the trial court denied. (Id. at p. 1305.)

The Court of Appeal affirmed, finding that “the City’s declaratory relief claim does not arise from appellant’s protected activities, but from an actual, present controversy between the parties regarding the scope and enforceability” of the settlement agreement. (City of Alhambra, supra, 193 Cal.App.4th at p. 1307.) The court explained, “While [the employee’s] protected speech activities may have alerted the City that an actual controversy existed regarding the legality of [the relevant section of the settlement agreement], the speech itself does not constitute the controversy. The City did not sue appellant because he engaged in protected speech; the City sued him because it believed he breached a contract which prevented him from engaging in certain speech-related conduct and a dispute exists as to the scope and validity of that contract.” (Id. at p. 1308.)

Kandeel asserts that similarly, he sued defendants “because the secret nature of defendants’ negotiation of and execution of the settlement and their active assistance of Greenfield against Kandeel directly violated the cooperation obligation defendants bore under the joint defense agreement.” In City of Alhambra, however, the parties were attempting to define the scope of their agreement moving forward—the city’s declaratory relief action did not assert liability based on the employee’s past conduct, so it did not “arise from” that conduct. Here, by contrast, Kandeel’s causes of action seek to find defendants liable for their actions in the underlying litigation. City of Alhambra is therefore not instructive.

Kandeel asserts that defendants’ petitioning activity is “only evidence of their breach of the joint defense agreement,” which is “incidental to the actual gravamen of Kandeel’s claims.” He cites Park, supra, 2 Cal.5th at p. 1064, in which the court discussed “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.” In that case, plaintiff Park alleged he was denied tenure due to discrimination. The defendant university filed a special motion to strike under section 425.16, asserting that “Park’s suit arose from its decision to deny him tenure and the numerous communications that led up to and followed that decision, [and] these communications were protected activities.” (Id. at p. 1061.) The Supreme Court disagreed, because the elements of Park’s discrimination claim “depend not on the grievance proceeding, any statements, or any specific evaluations of him in the tenure process, but only on the denial of tenure itself and whether the motive for that action was impermissible.” (Id. at p. 1068.) The court added, “No one disputes the University can submit evidence of communications leading to the decision to deny tenure, but doing so does not establish those communications, rather than the tenure denial decision itself, as the ‘facts upon which the liability . . . is based.’ (§ 425.16, subd. (b)(2).)” (Id. at p. 1068.)

Kandeel also cites Gaynor v. Bulen (2018) 19 Cal.App.5th 864 (Gaynor), a breach of fiduciary duty action involving a trust. The defendant filed a special motion to strike under section 425.16, asserting that “the ‘gravamen’ of the petition arose from his alleged participation in the probate litigation, and these actions were in furtherance of his constitutional right to petition.” (Id. at p. 875.) The trial court denied the motion, and the Court of Appeal affirmed, noting that the plaintiffs had alleged that the defendant was involved in a plan to wrongfully convert trust assets. “Although the alleged breach of loyalty may have been carried out by the filing of probate petitions, it was not the petitioning activity itself that is the basis for the breach of fiduciary claim. [Citation.] The litigation activities . . . would provide evidence of the alleged breaches of fiduciary duty, but the filing of these petitions was not necessary to establish this portion of the breach of fiduciary duty claim.” (Id. at p. 880.)

Here, defendants’ actions are not incidental to Kandeel’s allegations or evidence supporting a broader claim, as in Park or Gaynor. To the contrary, every aspect of Kandeel’s allegations arises from the underlying litigation—the formation of the purported defense agreement in reaction to being sued by Greenfield; the parties’ actions in furtherance of the agreement such as retaining Loeb; defendants’ actions undermining the agreement by communicating with Greenfield’s counsel, providing Greenfield information relevant to the litigation, and reaching a settlement; and defendants’ support of Greenfield’s motion to disqualify Loeb. Indeed, “it is difficult to conjure a clearer scenario than the case before us of a lawsuit arising from protected activity.” (Taheri Law Group v. Evans (2008) 160 Cal.App.4th 482, 489.) Thus, the trial court erred by holding that defendants failed to meet the first prong of the anti-SLAPP analysis.

B. Probability of prevailing

As noted above, if the moving defendant bears the burden of establishing that the challenged claims arise from protected activity, “the plaintiff must then demonstrate its claims have at least ‘minimal merit.’” (Park, supra, 2 Cal.5th at p. 1061.) “Only a cause of action that satisfies both prongs of the anti-SLAPP statute—i.e., that arises from protected speech or petitioning and lacks even minimal merit—is a SLAPP, subject to being stricken under the statute.” (Navellier, supra, 29 Cal.4th at p. 89.)

Because the trial court denied defendants’ motion on the first prong of the anti-SLAPP analysis, it did not consider whether Kandeel had met his burden to demonstrate a probability of prevailing on his claims. Under these circumstances, “we may remand the matter to the trial court to conduct the second-prong analysis,” but we also “have discretion to decide the issue ourselves, since it is subject to independent review.” (Schwarzburd v. Kensington Police Protection & Community Services Dist. Bd. (2014) 225 Cal.App.4th 1345, 1355.) The majority of appellate courts have found that “the more prudent course is to remand the matter to the trial court to determine in the first instance whether [the plaintiff] demonstrated a reasonable probability of prevailing on the merits of his causes of action.” (Hunter v. CBS Broadcasting Inc. (2013) 221 Cal.App.4th 1510, 1527; see also Collier v. Harris (2015) 240 Cal.App.4th 41, 58 [“The majority of appellate courts” have declined to address second-prong anti-SLAPP analyses in the first instance “either because contested evidentiary issues existed or simply because it was appropriate for the trial court to decide the issue first.”].)

Defendants assert that Kandeel did not meet his burden to prove a reasonable probability of prevailing. Kandeel asks that if we reverse on the first prong of the analysis, we remand for the trial court to decide the second prong. Determination of the second prong of the anti-SLAPP analysis requires consideration of whether the retainer letters and conflict waiver between defendants and Loeb constituted a “contract” as Kandeel alleged, whether the litigation privilege bars Kandeel’s claims, and other issues. We find that the more prudent course is to remand to allow the trial court to determine these matters in the first instance.

 

DISPOSITION

The order on defendants’ special motion to strike under section 425.16 is reversed, and the matter is remanded to the trial court for consideration of the second prong of the anti-SLAPP analysis. Defendants are entitled to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

COLLINS, J.

We concur:

MANELLA, P. J.

CURREY, J.