Filed 6/3/20 Susott v. Erdman CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SIXTH APPELLATE DISTRICT

JOHN L. SUSOTT,

Plaintiff and Respondent,

v.

HAROLD ERDMAN et al.,

Defendants and Appellants.

H044382

(Santa Clara County

Super. Ct. No. CV301236)

In a separate earlier action plaintiff John L. Susott (John) obtained a default judgment against his brother defendant Daniel C. Susott (Daniel) for allegedly committing financial and physical elder abuse against their now-deceased mother. Daniel also made two transfers of interests in real property he owned (evidenced by promissory notes secured by mortgages), one in favor of two attorneys (defendants John Samuel Preston and Eric David Schenk) and another in favor of a friend (defendant Harold Erdman). John sued Daniel, Erdman, and three attorneys in the instant action, alleging the transfers were fraudulent. (The attorney defendants, Miriam Brody, Schenk, and Preston have since settled and are no longer parties to this appeal. Brody and Schenk settled before oral argument; Preston filed notice of settlement after oral argument.) The trial court denied special motions to strike under the anti-SLAPP statute brought by the defendants.

The remaining defendants argue on appeal that the trial court erred because the fraudulent transfer claim arose from defendants’ constitutionally protected litigation-related activities in the earlier elder abuse case. Though the fraudulent transfer complaint refers to protected activity related to the elder abuse case, we will affirm because that activity does not supply any element of John’s fraudulent transfer claim; it is merely evidence related to liability.

I. TRIAL COURT PROCEEDINGS
II.
The following is based on John’s fraudulent transfer complaint as well as documentary evidence filed to support the anti-SLAPP motions. John sued Daniel in 2011, alleging Daniel committed financial and physical elder abuse against their now-deceased mother (elder abuse case). Attorneys Preston and Schenk represented Daniel in the elder abuse case. They substituted out of the elder abuse case in mid-2012, apparently because Daniel had run out of money to pay them. Preston and Schenk recorded a $150,000 mortgage in late-2012 on property Daniel owned in Hawaii to try to recover unpaid attorney’s fees.

Daniel negotiated with his friend Erdman in early 2013 to obtain a loan to pay for his legal defense in the elder abuse case. A March 2013 e-mail from Erdman to Daniel described the loan as a $500,000 promissory note secured by a mortgage on Daniel’s Hawaii property. After paying off the $150,000 owed to Preston and Schenk, the remainder of the loan would be held by Erdman and released in installments to pay for legal work on the elder abuse case, plus necessary repairs and property taxes on the Hawaii property. A term sheet signed by Daniel the next month contains substantially similar terms. The mortgage securing the $500,000 loan from Erdman to Daniel was recorded against the Hawaii property in April 2013. Default judgment in the elder abuse case was entered later that month, requiring Daniel to pay John over $1.6 million.

Daniel unsuccessfully moved for relief from default in the elder abuse case, and later appealed. Daniel represented himself in the appeal, but Preston and Schenk’s opening brief states Schenk provided “limited assistance” in that process. (The default judgment in the elder abuse case was affirmed on appeal by a different panel of this court.) Erdman made payments from the $500,000 loan to Preston and Schenk until 2015. Former defendant Brody was hired during that period to provide legal services related to the elder abuse case. Brody also received payments from Erdman out of the $500,000 loan.

John filed the instant fraudulent transfer complaint in 2016, naming as defendants Daniel, Preston, Schenk, Brody, and Erdman. In the introduction, the complaint states that the defendants had “waged and are waging sustained, aggressive litigation against Daniel’s family, attacking the judgments and preventing their enforcement.” The complaint continues: “the day after [the superior court] ruled against Daniel on [John’s] claim for over $1.6 million [in the elder abuse case], Daniel and the attorney defendants arranged to liquidate $500,000 of what is believed to be the last of Daniel’s equity in his Hawaii real property – his only known significant asset – for the benefit of the attorney defendants. After judgment-enforcement efforts were taken against the equity in the same asset, the attorney defendants used those funds to launch aggressive litigation against those efforts, including appealing and attacking the judgment which poses a competing right to the funds appropriated by Defendants.” The complaint frames the action as one adjudicating “whether lawyers of an unsuccessful defendant, after [a] ruling on the merits, may hold their client’s assets away from the judgment creditor, preventing reduction of their client’s judgment debt, by liquidating their client’s assets and paying the resulting funds to themselves; and whether these same lawyers – in competition with the judgment creditor for the judgment debtor’s funds – may avoid fraudulent-transfer liability by receiving those funds as ‘attorney fees’ by representing the debtor in his own plight to evade the judgment.”

The complaint alleges one cause of action for fraudulent transfer (Civ. Code, § 3439.04), but that single cause of action alleges multiple fraudulent transfers and multiple theories of liability. The first allegedly fraudulent transfer was evidenced by the $150,000 promissory note secured by a mortgage on Daniel’s Hawaii property in favor of Preston and Schenk. The second allegedly fraudulent transfer was evidenced by the $500,000 promissory note secured by a mortgage on Daniel’s Hawaii property in favor of Erdman. (The complaint alleges a third transfer between Erdman and Brody, which we need not address as Brody is no longer a party to this appeal.) The complaint alleges the two relevant transfers were made with the “actual intent to hinder, delay, or defraud” John as a judgment creditor. Alternatively, the complaint alleges that the transfers were made “without receiving a reasonably equivalent value in exchange” and with knowledge by Daniel that he was insolvent and would incur debts beyond his ability to pay them. The complaint’s prayer seeks compensatory damages in the amount of the elder abuse judgment (which it estimated to be at least $2 million), attorney’s fees, and punitive damages.

Preston and Schenk filed a joint anti-SLAPP motion to strike the complaint, which Erdman joined. Former defendant Brody filed a separate anti-SLAPP motion, which Daniel joined. The defendants argued the fraudulent transfer complaint arose from constitutionally protected petitioning activity—namely the funding of the attorneys’ work representing Daniel in the elder abuse case. The trial court denied the motions by written order after a hearing, finding that the “gravamen of [John’s] fraudulent transfer claim is not those [litigation-funding] activities, but the transfer of funds for an improper purpose, i.e., to deprive John of his ability to collect on the judgment obtained.”

III. DISCUSSION
IV.
Though briefed separately, the various defendants’ arguments are largely the same. We will refer to the remaining defendants jointly as “defendants” when an argument was made by all of them, and we will identify specific defendants when addressing arguments made only by them.

A. THE ANTI-SLAPP STATUTE
B.
The anti-SLAPP statute is “designed to protect defendants from meritless lawsuits that might chill the exercise of their rights to speak and petition on matters of public concern.” (Wilson v. Cable News Network, Inc. (2019) 7 Cal.5th 871, 883–884 (Wilson).) A defendant may file an anti-SLAPP motion to strike claims “arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue.” (Code Civ. Proc., § 425.16, subd. (b)(1); unspecified statutory references are to this section.) Courts evaluate anti-SLAPP motions in a two-step process. First, the defendant has the burden to show the challenged claims arise from protected activity. If the defendant meets that burden, in the second step the burden shifts to the plaintiff to show a probability of prevailing on the merits. We review de novo a trial court’s decision on an anti-SLAPP motion. (Wilson, at p. 884.)

The trial court here denied the motions because it determined defendants had not met their initial burden. At the first step, the defendant must “identify the activity each challenged claim rests on and demonstrate that that activity is protected by the anti-SLAPP statute.” (Wilson, supra, 7 Cal.5th at p. 884.) The statute applies “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 v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1060 (Park).) We “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.) Once we determine the actions by the defendant supplying the elements of the claim, we then evaluate whether the defendant has shown that any of those actions falls within one or more of the four categories of activities protected by the anti-SLAPP statute. (Wilson, at p. 884.)

The Supreme Court recently clarified the first step of the anti-SLAPP process in Wilson. The Wilson court observed that the first step of the anti-SLAPP process focuses on a defendant’s acts and conduct rather than the motives behind that conduct. (Wilson, supra, 7 Cal.5th at pp. 886–887.) The court stated: “At the first step of the analysis, the defendant must make two related showings. Comparing its statements and conduct against the statute, it must demonstrate activity qualifying for protection. (See § 425.16, subd. (e).) And comparing that protected activity against the complaint, it must also demonstrate that the activity supplies one or more elements of a plaintiff’s claims.” (Wilson, at p. 887.) The court noted that a defendant’s motives are not “categorically off-limits in determining whether an act qualifies as protected activity under the anti-SLAPP statute.” (Id. at p. 889.) But a “plaintiff’s allegations cannot be dispositive of [that] question.” (Ibid.) The court concluded that if “conduct that supplies a necessary element of a claim is protected, the defendant’s burden at the first step of the anti-SLAPP analysis has been carried, regardless of any alleged motivations that supply other elements of the claim.” (Id. at p. 892.)

C. DEFENDANTS DID NOT CARRY THEIR FIRST-STEP BURDEN
D.
Per Wilson and Park, defendants here had to show (1) that John’s complaint alleges statements and conduct by defendants that qualify for protection under one of the four categories in section 425.16, subdivision (e); and (2) that the protected activity supplies at least one element of John’s fraudulent transfer cause of action. (Wilson, supra, 7 Cal.5th at p. 887.) Beginning with the elements of the fraudulent transfer claim, John can establish liability by either actual or constructive fraud. Actual fraud would require a showing that Daniel transferred an obligation to a creditor (here either Preston and Schenk or Erdman), and that Daniel made that transfer with “actual intent to hinder, delay, or defraud” John. (Civ. Code, § 3439.04, subd. (a)(1).) Constructive fraud would require a showing that Daniel transferred an obligation to a creditor (again, either Preston and Schenk or Erdman), that Daniel did not receive a reasonably equivalent value in exchange for the transfer, and that Daniel reasonably should have believed that he would be incurring debts through those transfers that were beyond his ability to pay as they became due. (Civ. Code, § 3439.04, subd. (a)(2).)

Bearing those elements in mind, we now address whether any protected activity by defendants supplies one or more of those elements. Defendants’ briefing is ambiguous regarding which category of protected activity they contend is at issue. They quote Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056, where the Supreme Court stated that any act in furtherance of a person’s rights of petition or free speech can include “communicative conduct such as the filing, funding, and prosecution of a civil action.” But the cause of action that triggered the anti-SLAPP motion in Rusheen was in a cross-complaint alleging abuse of process related to an attorney’s work to obtain a judgment on a complaint; in other words the attorney’s protected communicative conduct supplied the elements of the abuse of process claim. (Id. at p. 1054.) And the Rusheen court’s general statement about communicative conduct potentially constituting an act in furtherance of a person’s rights of petition or free speech did not and could not expand the statutory categories of protected activity beyond those in section 425.16, subdivision (e). The closest category that might apply here is section 425.16, subdivision (e)(2): “any written or oral statement or writing made in connection with an issue under consideration or review by a … judicial body.” For that to apply, defendants must show that the complaint alleges statements or writings in connection with an issue under consideration in the elder abuse case that supply an element of the fraudulent transfer cause of action.

We acknowledge the complaint alleges statements or writings made in connection with issues under consideration in the elder abuse case. For example, the complaint alleges the defendants had “waged and are waging sustained, aggressive litigation against Daniel’s family, attacking the judgments and preventing their enforcement.” The complaint also alleges defendants used the funds from the $500,000 loan secured by a mortgage on Daniel’s Hawaii property to “launch aggressive litigation against” John’s efforts to enforce the elder abuse judgment, “including appealing and attacking the judgment which poses a competing right to the funds appropriated by [d]efendants.” Although those allegations describe protected activity, the activity itself does not supply an element of the fraudulent transfer cause of action.

The only activities alleged in the complaint that supply an element of the fraudulent transfer cause of action are the transfers themselves––i.e., agreements by the various defendants to be bound by or benefit from the two loans secured by mortgages on Daniel’s Hawaii property. That the transfers themselves are the only activities that supply an element of the claim is apparent when one looks to the two methods by which John can establish liability. Actual fraud requires a transfer plus a specific intent to hinder, delay, or defraud payment. If John can demonstrate that such intent existed, it is irrelevant how the funds might have been spent. Similarly, John can establish constructive fraud if he can demonstrate Daniel did not receive a reasonably equivalent value in return for the transfers. Again, that the funds might have been used to finance litigation is irrelevant if John can show Daniel did not receive something of reasonably equivalent value. We reject Erdman’s argument that John “could not have omitted his allegations of transfers that constituted the funding of litigation and still state the same claim.”

The fraudulent transfer cause of action thus arises merely from conduct—transferring money—and not from any particular statement or writing at all. Because it does not arise from a statement or writing, section 425.16, subdivision (e)(2) does not apply and defendants cannot show that the fraudulent transfer claim arises from protected activity. Though the transfers were evidenced by writings (the recorded mortgages), those writings do not supply an element of the claim. (See Park, supra, 2 Cal.5th at p. 1065 [“ ‘In deciding whether an action is a SLAPP, the trial court should distinguish between (1) speech or petitioning activity that is mere evidence related to liability and (2) liability that is based on speech or petitioning activity.’ ”]; Baral v. Schnitt (2016) 1 Cal.5th 376, 394 [“Allegations of protected activity that merely provide context, without supporting a claim for recovery, cannot be stricken under the anti-SLAPP statute.”].)

Even assuming the recorded mortgages evidencing the transfers could theoretically qualify as protected activity under section 425.16, subdivision (e)(2), a statement or writing is not protected under that subdivision “merely because it was made ‘in connection with’ litigation; it must be ‘made in connection with an issue under consideration or review’ and thus must ‘relate[ ] to the substantive issues in the litigation.’ ” (McConnell v. Innovative Artists Talent & Literary Agency, Inc. (2009) 175 Cal.App.4th 169, 181 (McConnell).) Though the mortgages might have created a source of money to allow the attorneys to litigate the elder abuse case, they were not connected to an issue under consideration in that action as is required to fall within section 425.16, subdivision (e)(2).

Our conclusion is consistent with other cases where connections to pending judicial proceedings were found inadequate for writings to qualify as protected activity. McConnell is instructive. (McConnell, supra, 175 Cal.App.4th 169.) Two talent agents filed lawsuits against their talent agency employer alleging their employment contracts contained terms that were illegal under state law. The employer responded by having the agents escorted from their offices and modifying their job duties to effectively prohibit them from doing their jobs. The employer sent the agents correspondence confirming the details of the job duty modifications. The employer subsequently fired the employees, and the employees amended their complaints to add wrongful termination causes of action. (Id. at pp. 172–173.) The employer unsuccessfully moved to strike the wrongful termination causes of action under the anti-SLAPP statute, and argued on appeal that the termination claims arose from the correspondence sent by the employer confirming the details of the job duty modifications. (Id. at p. 176.)

The McConnell court affirmed, reasoning that the acts underlying the employees’ “claims of retaliation and wrongful termination consisted of a course of conduct by [the employer] … that prevented [the employees] from performing their work as talent agents.” (McConnell, supra, 175 Cal.App.4th at pp. 176–177.) That the changes in job duties were “reduced to writing does not convert them from conduct affecting the conditions of employment to protected free speech activity.” (Ibid.; accord Gaynor v. Bulen (2018) 19 Cal.App.5th 864, 880 (Gaynor) [anti-SLAPP motion to strike a breach of fiduciary duty cause of action properly denied where the activity giving rise to the cause of action was seeking to modify a trustee succession plan to benefit only certain beneficiaries; though the “alleged breach of loyalty may have been carried out by the filing of probate petitions, it was not the petitioning activity itself that [was] the basis for the breach of fiduciary [duty] claim”]; Drell v. Cohen (2014) 232 Cal.App.4th 24, 30 [anti-SLAPP motion to strike a declaratory relief action to determine the status of an attorney fee lien properly denied where the complaint “did not allege defendants engaged in wrongdoing by asserting their lien. Rather, the complaint asked the court to declare the parties’ respective rights to attorney fees.”].) Like in McConnell, plaintiff’s fraudulent transfer claim here is based on defendants’ conduct in transferring money that was evidenced by the loans secured by the Hawaii property, rather than on any protected statements or writings. That the transfers were later reduced to writing does not convert that conduct into protected activity.

Defendants rely on Optional Capital, Inc. v. Akin Gump Strauss, Hauer & Feld LLP (2017) 18 Cal.App.5th 95 (Optional Capital). Optional Capital was a Korean venture capital firm. Its investors included the DAS Corporation (DAS) and a group of individuals (Kim parties). DAS and the Kim parties allegedly conspired to take control over Optional Capital in 2001. Once they took over, they converted more than $35 million of Optional Capital’s assets and transferred them to a California bank account owned by a California corporation (Alexandria) controlled by the Kim parties. Alexandria later transferred about $15 million of those converted funds to a Swiss bank account it controlled. (Id. at pp. 101–103.) A series of lawsuits followed. DAS sued the Kim parties in California state court for fraud, breach of contract, and breach of fiduciary duty. (Id. at p. 102.) The United States government commenced forfeiture proceedings against the Kim parties in federal court for the Kim parties’ conduct in running Optional Capital, which temporarily froze the money in Alexandria’s Swiss bank account. Optional Capital and DAS each filed claims in the federal forfeiture action, and a law firm (Parker) represented DAS in the action. (Id. at pp. 103–104.) The district court in the federal forfeiture action eventually granted summary judgment in favor of the Kim parties (which dismissed the claims of Optional Capital and DAS). While that decision was on appeal to the Ninth Circuit, DAS and the Kim parties reached a mediated settlement in the state court action. Another law firm (Akin) represented DAS. (Id. at pp. 104–105.) With that settlement in hand, DAS successfully liquidated the money from Alexandria’s Swiss bank account to satisfy the settlement. (Ibid.) Shortly after DAS received the funds from the Swiss bank account, the Ninth Circuit reversed and reinstated the claims of both DAS and Optional Capital in the federal forfeiture action. Optional Capital then sued DAS and the two law firms that represented DAS (Parker and Akin) in state court, alleging that the mediated settlement of the state court action between DAS and the Kim parties, as well as the subsequent liquidation of the Swiss bank account, amounted to a fraudulent transfer. (Id. at p. 105.) Parker and Akin filed anti-SLAPP motions, which the trial court granted.

Affirming the trial court’s decision to grant the anti-SLAPP motions, the Optional Capital court noted that Optional Capital’s fraudulent transfer complaint was based on a number of communicative acts made in connection with issues under consideration in the earlier litigation. (Optional Capital, supra, 18 Cal.App.5th at p. 114.) The court reasoned that the law firms’ “conduct at issue … arose directly out of the litigation in which they were respectively representing DAS. Under [Optional Capital’s] theory of the case, there would not have been any transfer of funds from the [Swiss bank] account to DAS but for Akin’s work in negotiating a settlement of the state court action and but for Parker’s alleged failure to timely disclose the settlement to the federal district court. In fact, [Optional Capital] even relies on in-court statements by Akin lawyers as evidence of a conspiracy with the Kim parties.” (Ibid.)

Optional Capital is distinguishable from the facts here. First, the complaint in that case alleged a series of communicative litigation-related acts by the attorney-defendants that led to the allegedly fraudulent transfer, whereas in our case there are references to communicative litigation-related actions occurring only after the allegedly fraudulent transfers. Second, despite Park having been filed months before the opinion in Optional Capital, the Optional Capital court did not follow the Park court’s guidance to focus on the elements of the challenged claim and whether any protected actions supply those elements. To the extent Optional Capital is inconsistent with the Supreme Court’s guidance in Park and Wilson, we are of course bound by our high court’s interpretation of the anti-SLAPP statute.

Defendants’ other authorities are similarly unpersuasive because they were decided before the Supreme Court clarified the step-one process in Park and Wilson. For example, defendants argue Sheley v. Harrop (2017) 9 Cal.App.5th 1147 (Sheley) supports their position. Sheley involved a dispute between family members who inherited shares of a corporation. The second wife (Sheley) of the man who started the corporation inherited 25 percent of the shares, and the man’s adult children from another marriage (Harrop) inherited the remaining 75 percent. (Id. at p. 1153.) At Harrop’s direction, the corporation sued Sheley for, among other things, breach of fiduciary duty related to her actions on behalf of the corporation while her husband was still alive. Sheley cross-complained against Harrop, alleging causes of action for breach of fiduciary duty, conversion, and negligence. (Id. at pp. 1154–1155.) The cross-complaint alleged that Harrop committed those torts by, among other things, using corporate assets to fund, file, and litigate the lawsuit against Sheley. On appeal from the denial of Harrop’s anti-SLAPP motion, the Sheley court concluded that the allegations related to filing, maintaining, and funding a lawsuit arose out of protected activity. (Id. at pp. 1159, 1167–1168.)

As another court has pointed out, however, Sheley was decided before Park and therefore did not have the “benefit of Park’s clear admonitions regarding the need to identify the specific elements of the claim relied upon by the defendant to invoke the anti-SLAPP statute.” (Gaynor, supra, 19 Cal.App.5th at p. 886.) We agree with Gaynor that under “Park, the allegations of wrongful litigation in Sheley arguably did not form the basis for the claims, and instead were examples of the claimed breach of duties.” (Gaynor, at p. 886.) As the Sheley court did not compare the allegations about the Harrop defendants’ acts to the specific elements of the claims at issue, its reasoning is of limited value.

Defendants argue that because fraudulent intent is an essential element of John’s fraudulent transfer cause of action, we must look at the allegations regarding the purpose of the loans in determining whether defendants’ alleged role in the transfer of funds was protected. But since we conclude the transfers were not protected activity, the motivation behind the transfers is irrelevant.

V. DISPOSITION
VI.
The order denying the anti-SLAPP motions is affirmed. Each party shall bear its own costs on appeal.

____________________________________

Grover, J.

WE CONCUR:

____________________________

Mihara, Acting P. J.

____________________________

Danner, J.

H044382 – Susott v. Erdman et al.