Filed 8/26/13 Harkham Industries v. Jade Fashion CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
HARKHAM INDUSTRIES, INC., B242972
Cross-complainant and Appellant, (Los Angeles County
Super. Ct. No. BC479461)
v.
JADE FASHION & CO., INC. et al.,
Cross-defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County, James R.
Dunn, Judge. Affirmed.
Sussman Shank, John A. Schwimmer and Clifford S. Davidson; Law Offices of
Gary Freedman and Gary Freedman for Cross-complainant and Appellant.
Resch Polster & Berger, Robert W. Barnes and Sandra Khalili for Cross-defendants
and Respondents.
_______________________
Appellant Harkham Industries, Inc. appeals from the trial court‟s order granting
the special motion to strike brought by respondents Jade Fashion & Co., Inc., Resch
Polsert & Berger LLP, and Sandra Khalili pursuant to Code of Civil Procedure section
425.16.1 This appeal arises out of a dispute over monies allegedly owed by Harkham
Industries to Jade Fashion for the purchase of certain goods. Jade Fashion filed a civil
action against Harkham Industries for breach of contract and other related claims based
on allegations that Harkham Industries breached the parties‟ written agreement by failing
to make timely payments due under the terms of the agreement. While that action was
pending, counsel for Jade Fashion sent a letter to counsel for Harkham Industries stating
that a $30,000 check issued by Harkham Industries had been returned due to unavailable
funds, and demanding that the unpaid amount be wired to Jade Fashion by the following
business day. After making that payment and then confirming that the original check had
in fact been paid, Harkham Industries filed a cross-complaint against Jade Fashion and its
attorneys for fraud, conversion, and unjust enrichment.
The trial court granted the special motion to strike the cross-complaint. On
appeal, Harkham Industries contends that the trial court erred in granting the motion
because the allegedly fraudulent statements made in the letter did not pertain to any
payments at issue in the underlying breach of contract action, constituted criminal
conduct falling outside the scope of section 425.16, and were not protected by the
litigation privilege. We conclude that the trial court properly granted the special
motion to strike, and accordingly, affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
I. The Underlying Dispute
Jade Fashion is in the business of manufacturing and selling garments to other
businesses. Starting in 2010, Jade Fashion and Harkham Industries entered into a series
1 Unless otherwise stated, all further statutory references are to the Code of Civil
Procedure.
2
of agreements under which Harkham Industries purchased certain garments from Jade
Fashion at specified quantities and prices. In 2011, Harkham Industries fell behind on its
payment obligations. In November 2011, Sandra Khalili, a partner at Resch Polster &
Berger and counsel for Jade Fashion, sent a letter to Harkham Industries demanding
payment of the outstanding amount. Khalili thereafter had a series of discussions with
David Meniane, Harkham Industries‟ Chief Financial Officer, who stated that his
company was having cash flow problems and could not pay the balance due in a single
payment. Following those discussions, Jade Fashion and Harkham Industries entered
into a written agreement on November 28, 2011 regarding the repayment of the debt.
Under the terms of the agreement, Harkham Industries acknowledged that it owed
Jade Fashion a total of $341,628.88 and agreed to make weekly payments of $25,000
until the balance was paid in full. Uri Harkham, the Chief Executive Officer of Harkham
Industries, agreed to sign a continuing guaranty for the repayment of the debt, including
the principal balance, accrued interest, collection costs, and attorney‟s fees. In exchange,
Jade Fashion agreed that, if each weekly installment payment was timely made, Harkham
Industries would be entitled to deduct a total of $17,500 from the final payment. The
agreement further provided that, if Harkham Industries failed to fully and timely make
any of the required payments, it would not be entitled to the $17,500 discount and the
remaining unpaid balance would be immediately due and payable.
Harkham Industries did not make all of the weekly installment payments when
they were due. In particular, it did not make timely payments on December 16 and 23,
2011, on January 20 and 27, 2012, and on February 3, 2012. Each of these payments
was made a few days late. In January 2012, Meniane informed Khalili that Harkham
Industries would be shutting down and requested that the payments be reduced from
$25,000 to $5,000 per week. Khalili advised Meniane that Jade Fashion would not
agree to any changes to the parties‟ agreement.
On February 10, 2012, Harkham Industries sent two checks to Jade Fashion―a
check for $30,000 and a check for $39,128.77. The check for $39,128.77 reflected the
remaining principal balance owed to Jade Fashion, less the $17,500 discount. Jade
3
Fashion refused, however, to cash the $39,128.77 check on the ground that Harkham
Industries‟ failure to timely make all of the required installment payments under the
agreement precluded it from applying the $17,500 discount to its final payment. On
February 15, 2012, Khalili sent Harkham Industries a letter in which she demanded
payment of the principal balance of $17,500, plus interest and attorney‟s fees incurred in
collection of the debt, and indicated that the $39,128.77 check could be credited to its
account if the balance due was paid. Harkham Industries refused to make the requested
payment.
II. Jade Fashion’s Civil Complaint Against Harkham Industries
On February 23, 2012, Jade Fashion filed a civil action against Harkham
Industries asserting causes of action for breach of contract, goods sold and delivered,
open book account, account stated, and breach of guaranty. The complaint specifically
alleged that Harkham Industries had breached the parties‟ November 2011 agreement by
failing to comply with the payment terms set forth in the agreement, including refusing to
pay the remaining principal balance of $17,500 for the goods it had ordered from Jade
Fashion. The complaint sought damages in the amount of $56,628.77 (the sum of the
$17,500 discount and the $39,128.77 uncashed check), plus interest and attorney‟s fees.
That same day, Jade Fashion also filed an ex parte application for a right to attach order
pursuant to section 483.010. The trial court continued the hearing on Jade Fashion‟s
application to March 8, 2012, giving Harkham Industries until March 5, 2012 to file an
opposition.
III. Khalili’s March 2, 2012 Letter Concerning the $30,000 Check
On February 29, 2012, Jade Fashion‟s bank, East West Bank, informed Jade
Fashion in an email that the $30,000 check from Harkham Industries dated February 10,
2010 had not cleared. The email specifically stated as follows: “As of today, the check
has no [sic] paid yet, funds not available, but it doesn‟t seems like [sic] been returned.
Please check with your customer. Let me know if need [sic] my help. Thanks.”
4
In the late afternoon on Friday, March 2, 2012, Khalili sent a letter to counsel for
Harkham Industries in which she stated, in pertinent part, as follows: “As you know, this
firm represents Jade Fashion & Co., Inc. („Jade.‟) [¶] Harkham Industries, Inc. dba
Jonathan Martin and/or Johnny Martin („Jonathan Martin‟) gave our client check no.
170258 dated February 10, 2012 in the amount of $30,000. The check has been returned
unpaid due to unavailable funds. A copy of the bank‟s notification is attached. This
letter serves as notice and demand that Jonathan Martin and Uri Harkham, as guarantor,
wire the sum of $30,000 to our client no later than noon March 5, 2012. [¶] At this
juncture, the sum due and owing to our client is increased by $30,000. We will
supplement our attachment papers to reflect the additional sums due and owing by
Jonathan Martin and Uri Harkham. The total sum of $139,958.41 is now due from
Jonathan Martin and Mr. Harkham as follows: [¶] 1. Principal: $86,628.77 [¶] 2. Interest:
$16,329.64 (through March 2, 2012) [¶] 3. Attorney‟s fees: $37,000.” Khalili enclosed
with her letter a copy of the $30,000 check, which included a text box with the
typewritten notation “-funds not available -no stop.”
On the morning of Monday, March 5, 2012, Meniane requested that Harkham
Industries‟ bank, Comerica Bank, make a wire transfer of $30,000 to Jade Fashion.
According to Meniane, he made the request without first inquiring about the status of the
check with Comerica Bank because of Jade Fashion‟s pending application for a right to
attach order and Harkham Industries‟ desire to make sure all of the payments required by
the parties‟ agreement had been made. However, later that day, Meniane followed up
with the bank to ascertain why the check had not cleared. The bank informed Meniane
that the check had not been returned for insufficient funds and had in fact been paid on
February 13, 2012. Harkham Industries demanded the return of the additional $30,000
payment, but Jade Fashion refused.
IV. Harkham Industries’ Cross-Complaint Against Jade Fashion and Its Counsel
On March 21, 2012, Harkham Industries filed a cross-complaint against
Jade Fashion, Khalili, and Resch Polster & Berger for fraud, conversion, and unjust
5
enrichment. In the first cause of action for fraud, it was alleged that Khalili fraudulently
represented in her March 2, 2012 letter that the $30,000 check had been returned due to
unavailable funds, and that Harkham Industries reasonably relied on such statements in
transferring an additional $30,000 to Jade Fashion. In the second cause of action for
conversion, it was alleged that Jade Fashion and its counsel converted the $30,000
wire transfer by inducing Harkham Industries to make the transfer through fraudulent
representations and thereafter refused to return such payment. In the third cause of action
for unjust enrichment, it was alleged that, through their wrongful conduct, Jade Fashion
and its counsel had been unjustly enriched at Harkham Industries‟ expense.
V. The Special Motion to Strike the Cross-Complaint
On May 17, 2012, Jade Fashion and its attorneys filed a special motion to strike
the cross-complaint pursuant to section 425.16. They argued in the motion that, because
the statements in Khalili‟s March 2, 2012 letter were made in the course of litigation and
directly related to Harkham Industries‟ performance under the parties‟ agreement, each
cause of action in the cross-complaint was based on conduct in furtherance of the right of
petition and was barred by the litigation privilege. In support of the motion, Khalili
submitted two declarations in which she stated that she did not send the letter with the
intent to defraud Harkham Industries, but rather because she believed East West Bank‟s
statement that the check had not cleared due to insufficient funds to be true. Khalili
further stated that she did not forge or otherwise alter the copy of the check that she had
enclosed with the letter, and that at the time she sent the letter, she believed the notation
on the check had been made by East West Bank.
In opposing the special motion to strike, Harkham Industries argued that section
425.16 did not apply because the $30,000 check was not in dispute in the underlying
breach of contract action, and the alleged misrepresentations in the March 2, 2012 letter
about the status of the check constituted criminal fraud and forgery. Harkham Industries
further asserted that the litigation privilege did not apply because the letter did not pertain
6
to the subject matter of the litigation, and neither the letter nor the copy of the check had
been submitted to the trial court as part of the underlying suit.2
On June 12, 2012, the trial court heard the special motion to strike, and granted the
motion finding that the statements in the March 2, 2012 letter constituted petitioning
activity under section 425.16 because they were made in connection with the breach of
contract action, and that Harkham Industries could not show a probability of prevailing
on its claims because the statements were protected by the litigation privilege. In
response to the specific arguments raised by Harkham Industries, the court found that the
$30,000 check was part of the outstanding debt obligation at issue in the underlying suit
and was reasonably related to the subject matter of that litigation even if it was not
specifically referenced in the complaint. The court further found that there was no
evidence that, as a matter of law, Jade Fashion or its attorneys had engaged in criminal
fraud or forgery by misstating the status of the check. At the conclusion of the hearing,
counsel for Harkham Industries made an oral request to conduct discovery to further
support its opposition. The trial court denied the request for failure to comply with the
statutory procedure for seeking discovery under section 425.16.
On June 19, 2012, the trial court entered a written order granting the special
motion to strike and dismissing each cause of action in the cross-complaint. Harkham
Industries filed a timely notice of appeal.
2 In its opposition papers, Harkham Industries also noted that, prior to filing the
special motion to strike, Khalili had objected to being deposed about the truth or falsity
of the statements in her March 2, 2012 letter based on the attorney-client privilege and
the litigation privilege. However, in opposing the special motion to strike, Harkham
Industries did not request an opportunity to conduct discovery, nor did it file a separate
motion for discovery pursuant to section 425.16, subdivision (g).
7
DISCUSSION
I. Standard Of Review
Section 425.16 provides, in pertinent part, that “[a] cause of action against a
person arising from any act of that person in furtherance of the person‟s right of petition
or free speech under the United States or 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 plaintiff will prevail on the
claim.” (§ 425.16, subd. (b)(1).) Section 425.16 must be “construed broadly” to
effectuate the statute‟s purpose which is to encourage participation in matters of public
significance and to ensure that such participation is not chilled through an abuse of the
judicial process. (§ 425.16, subd. (a).)3
Resolution of a section 425.16 special motion to strike requires a two-step process.
First, the moving party must make a threshold showing that the challenged cause of
action arises from constitutionally protected activity. (Rusheen v. Cohen (2006) 37
Cal.4th 1048, 1056; Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53,
67.) If the moving party satisfies this prong, the burden shifts to the opposing party to
demonstrate a probability of prevailing on the merits of the claim. (Rusheen v. Cohen,
supra, at p. 1056; Equilon Enterprises v. Consumer Cause, Inc., supra, at p. 67.) We
review a trial court‟s ruling on a special motion to strike de novo, conducting an
independent review of the record. (Flatley v. Mauro (2006) 39 Cal.4th 299, 325;
Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3.)
II. Arising From Constitutionally Protected Activity
A cause of action arises from protected activity within the meaning of section
425.16 if the conduct of the defendant on which the cause of action is based was an
3 Section 425.16 is commonly referred to as the anti-SLAPP statute. SLAPP is an
acronym for “Strategic Lawsuit Against Public Participation.” (Jarrow Formulas, Inc., v.
LaMarche (2003) 31 Cal.4th 728, 732, fn. 1.)
8
act in furtherance of the defendant‟s right of petition or free speech. (City of Cotati v.
Cashman (2002) 29 Cal.4th 69, 78 [“statutory phrase „cause of action . . . arising from‟
means simply that 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”]; Navellier v.
Sletten (2002) 29 Cal.4th 82, 89 [“the critical consideration is whether the cause of action
is based on the defendant‟s protected free speech or petitioning activity”].) Under section
425.16, an act in furtherance of the right of petition or free speech 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. . . .” (§ 425.16, subd. (e)(2).)
California 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.) “[S]tatements, writings and pleadings in connection
with civil litigation are covered by the anti-SLAPP statute, and that statute does not
require any showing that the litigated matter concerns a matter of public interest.
[Citations.]” (Rohde v. Wolf (2007) 154 Cal.App.4th 28, 35.) In general, “a statement is
„in connection with‟ litigation under section 425.16 . . . if it relates to the substantive
issues in the litigation and is directed to persons having some interest in the litigation.”
(Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1266.) “„[C]ommunications
preparatory to or in anticipation of the bringing of an action or other official proceeding”
also fall within the ambit of section 426.16. (Briggs v. Eden Council for Hope &
Opportunity (1999) 19 Cal.4th 1106, 1115.) “Accordingly, although litigation may not
have commenced, if a statement „concern[s] the subject of the dispute‟ and is made „in
anticipation of litigation “contemplated in good faith and under serious consideration”‟
[citations] then the statement may be petitioning activity protected by section 425.16.”
(Neville v. Chudacoff, supra, at p. 1268.) The provisions of section 425.16 “protect not
only the litigants, but also their attorneys‟ litigation-related statements.” (Coretronic
Corp. v. Cozen O’Connor (2011) 192 Cal.App.4th 1381, 1389; see also Rusheen v.
9
Cohen, supra, 37 Cal.4th at p. 1056; Jarrow Formulas, Inc. v. LaMarche, supra, 31
Cal.4th at p. 734; Kashian v. Harriman, supra, at pp. 907-908.)
A. The Statements in the March 2, 2012 Letter were Made in Connection
with Litigation.
Harkham Industries argues that Respondents failed to make the threshold showing
that the cross-complaint arose from constitutionally protected activity because the subject
matter of Khalili‟s March 2, 2012 letter was unrelated to Jade Fashion‟s underlying
lawsuit. Harkham Industries specifically asserts that, because the letter pertained solely
to the $30,000 check and not to the $17,500 discount that was the subject of the breach of
contract action, Respondents could not show that the letter was related to any substantive
issues in the litigation. This argument does not withstand scrutiny.
The underlying suit filed by Jade Fashion arose out of Harkham Industries‟
purported failure to make timely payments due under the November 2011 agreement.
Jade Fashion‟s complaint specifically alleged that Harkham Industries had breached the
parties‟ contract “by failing and refusing to comply with the payment terms set forth in
the Forbearance Agreement, including, by failing and refusing to pay the remaining
principal balance of $17,500.” At the time the February 2012 complaint was filed, the
damages sought consisted of the $17,500 unpaid discount and the $39,128.77 uncashed
check because, apart from interest and attorney‟s fees, those were the sole amounts which
Jade Fashion asserted had not been paid in accordance with the parties‟ agreement.
Therefore, while the damages claimed in Jade Fashion‟s complaint were directed at the
$17,500 discount, the object of the breach of contract action was to collect the monies
allegedly owed by Harkham Industries under the terms of the agreement. Khalili‟s
March 2, 2012 letter, which concerned an additional $30,000 payment that had been due
under the agreement and had been reported by Jade Fashion‟s bank as not yet paid, was
logically related to the object of that litigation.
The statements contained in the letter further demonstrate that they were made in
connection with the underlying lawsuit. Indeed, the letter itself directly referenced the
10
pending litigation between the parties and related how the additional $30,000 was now
part of the larger amount that was in dispute. Khalili specifically stated in the letter that
“[a]t this juncture, the sum due and owing to our client is increased by $30,000.” She
also stated that “we will supplement our attachment papers to reflect the additional sums
due and owing. . . .” Khalili then set forth an itemized list of the amounts she alleged
were owed under the parties‟ agreement, including principal, interest, and attorney‟s fees.
The principal listed was $86,628.77, which consisted of the $56,628.77 amount that was
being sought in the underlying lawsuit plus the additional $30,000 sum that Khalili was
now claiming was also in dispute. Thus, the contents of the letter clearly show that it was
sent in anticipation of litigating a claim for the additional $30,000 as part of the pending
breach of contract action.
Moreover, Harkham Industries‟ argument that the subject matter of the letter had
nothing to do with the underlying lawsuit is belied by its own pleadings and admissions
in the trial court. In its cross-complaint against Respondents, Harkham Industries alleged
that, at the time it received the letter, it was imminently required to file an opposition to
Jade Fashion‟s pending application for a right to attach order and that it arranged the
payment of an additional $30,000 to ensure that, consistent with its opposition, it had
fully performed under the parties‟ agreement. In his declaration, Harkham Industries‟
Chief Financial Officer confirmed that he requested the wire transfer without first
inquiring into the status of the check with his bank because of the pendency of Jade
Fashion‟s application in the underlying suit and his company‟s desire to make sure all of
the payments required by the agreement had been made. At the hearing, Harkham
Industries‟ counsel made similar representations to the trial court, recounting that because
his client had intended to oppose the application on the ground it had made all payments
due under the agreement, it felt compelled to transfer the additional amount demanded in
the letter prior to filing its opposition, which had been due that same day. Accordingly,
as reflected in these statements, Harkham Industries itself understood that the dispute in
the breach of contract action was not simply about the $17,500 discount, but about
whether it had fully performed under the parties‟ agreement by paying all amounts that
11
were due and owing. Based on this record, the letter was sufficiently related to the
substantive issues in the litigation to constitute protected activity under section 425.16.
B. Respondents’ Conduct in Connection with the March 2, 2012 Letter
Was Not Illegal as a Matter of Law.
Harkham Industries also contends that Respondents failed to establish that they
engaged in constitutionally protected activity because their alleged actions in connection
with the March 2, 2012 letter constituted criminal conduct falling outside the scope of
section 425.16. In particular, Harkham Industries claims that it sufficiently alleged that
Respondents committed the crime of fraud by intentionally misrepresenting the status of
the $30,000 check in Khalili‟s letter, and the crime of forgery by altering the bank record
that was attached to the letter. This claim likewise lacks merit.
The mere allegation of illegality is not sufficient to remove an action from section
425.16‟s motion to strike procedure. “[C]onduct that would otherwise come within the
scope of the anti-SLAPP statute does not lose its coverage … simply because it is alleged
to have been unlawful or unethical.” (Kashian v. Harriman, supra, 98 Cal.App.4th at
pp. 910-911.) It is only in the “narrow circumstance” in which the “the defendant
concedes, or the evidence conclusively establishes, that the assertedly protected speech or
petition activity was illegal as a matter of law, [that] the defendant is precluded from
using the anti-SLAPP statute to strike the plaintiff‟s action.” (Flatley v. Mauro, supra, 39
Cal.4th at pp. 316, 320; see also Soukup v. Law Offices of Herbert Hafif, supra, 39
Cal.4th at p. 285 [where “a defendant‟s assertedly protected constitutional activity is
alleged to have been illegal . . ., the illegality must be established as a matter of law either
through the defendant‟s concession or because the illegality is conclusively established
by the evidence”]; Malin v. Singer (2013) 217 Cal.App.4th 1283, 1298-1299 [where
extortion claim based on an attorney demand letter did not constitute criminal conduct as
a matter of law, it was subject to dismissal under the anti-SLAPP statute].) “If, however,
a factual dispute exists about the legitimacy of the defendant‟s conduct, it cannot be
resolved within the first step but must be raised by the plaintiff in connection with the
12
plaintiff‟s burden to show a probability of prevailing on the merits.” (Flatley v. Mauro,
supra, at p. 316; see also Governor Gray Davis Com. v. American Taxpayers Alliance
(2002) 102 Cal.App.4th 449, 460 [where “the legality of [the defendant‟s] exercise of a
constitutionally protected right [is] in dispute in the action, the threshold element in a
section 425.16 inquiry has been established”].) Here, Respondents do not concede
illegality and it has not been conclusively established by the evidence.
Harkham Industries argues that Khalili committed criminal fraud by intentionally
misrepresenting that the $30,000 check had been returned for unavailable funds to induce
the company to pay an additional $30,000 to which her client was not entitled. However,
Khalili specifically denied that she acted with any such fraudulent intent, stating in her
declaration as follows: “I did not write the March 2, 2012 letter intending to defraud
Harkham [Industries] . . . or to induce their reliance; rather, I believed East West Bank‟s
statement that the check had not cleared because of insufficient funds.” Harkham
Industries reasons that Khalili must have intentionally misrepresented the status of the
check because there is a significant difference between a check not being paid due to
unavailable funds, as reported by East West Bank in its email, and a check being returned
unpaid due to unavailable funds, as represented by Khalili in her letter. As further
support for its argument, Harkham Industries points to the timing of the letter, which was
sent one business day prior to the deadline for filing an opposition to Jade Fashion‟s
application for a right to attach order and demanded that payment be made by the
following business day. However, even with an inference that Khalili intended to
deceive Harkham Industries about the status of the check would not conclusively show
criminal fraud.
Harkham Industries also asserts that Respondents committed criminal forgery by
altering the copy of the check that was enclosed with the letter. The copy of the check
included a text box with the typewritten notation “-funds not available-no stop.” In
response to Harkham Industries‟ allegations of forgery, Khalili stated in a declaration that
she did not forge or otherwise alter the copy of the check, and that at the time she sent the
letter, she believed the notation on the check had been made by East West Bank. At the
13
hearing on the special motion to strike, Khalili clarified that she did not receive the copy
of the check or the email about the check being unpaid directly from the bank, but rather
obtained both documents from her client. Although the source of the typewritten notation
was not disclosed, none of the evidence submitted to the trial court indisputably
established that any of Respondents was responsible for making it, or that the notation
was made with the intent to defraud Harkham Industries. In fact, the notation itself was
consistent with the information provided by the bank that the check had not been paid
due to unavailable funds. While such information was ultimately determined to be
incorrect, there was no conclusive evidence that either Jade Fashion or Khalili had any
basis for knowing that the bank was mistaken and that the check had in fact cleared at the
time the letter was sent.
In sum, because the conduct of Respondents was directly related to the pending
litigation between the parties and was not shown to be illegal as a matter of law,
Respondents met their burden of proving that the cross-complaint arose from
constitutionally protected activity within the meaning of section 425.16.
III. Probability of Prevailing on the Merits
Once Respondents made a prima facie showing that their conduct fell within the
scope of section 425.16, the burden shifted to Harkham Industries to prove a reasonable
probability of prevailing on its claims. To demonstrate a probability of prevailing on the
merits of a challenged cause of action, “the plaintiff must „state[ ] and substantiate[ ] a
legally sufficient claim.‟ [Citation.]” (Jarrow Formulas, Inc. v. LaMarche, supra, 31
Cal.4th at p. 741.) The plaintiff must make a prima facie showing of facts that would, if
proven, support a judgment in his or her favor. (Soukup v. Law Offices of Herbert Hafif,
supra, 39 Cal.4th at p. 291.) For purposes of this inquiry, the court “„“must accept as true
the evidence favorable to the plaintiff [citation] and evaluate the defendant‟s evidence
only to determine if it has defeated that submitted by the plaintiff as a matter of law.”‟”
(Flatley v. Mauro, supra, 39 Cal.4th at p. 326.) Although “„the court does not weigh the
credibility or comparative probative strength of competing evidence, it should grant the
14
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.‟ [Citation.]” (Soukup v.
Law Offices of Herbert Hafif, supra, at p. 291.)
“The litigation privilege, codified at Civil Code section 47, subdivision (b),
provides that a „publication or broadcast‟ made as part of a „judicial proceeding‟ is
privileged.” (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th
1232, 1241.) The privilege is “relevant to the second step in the anti-SLAPP analysis in
that it may present a substantive defense a plaintiff must overcome to demonstrate a
probability of prevailing.” (Flatley v. Mauro, supra, 39 Cal.4th at p. 323.) The litigation
privilege is absolute in nature and “is now held applicable to any communication,
whether or not it amounts to a publication [citations], and all torts except malicious
prosecution.” (Silberg v. Anderson (1990) 50 Cal.3d 205, 212.) It thus “has been applied
in „numerous cases‟ involving „fraudulent communication or perjured testimony,‟”
including civil actions for fraud. (Flatley v. Mauro, supra, at p. 322; see, e.g., Navarro
v. IHOP Properties, Inc. (2005) 134 Cal.App.4th 834, 843-844 [fraud claim based on
alleged false promises made in negotiating stipulated judgment]; Navellier v. Sletten
(2003) 106 Cal.App.4th 763, 771-772 [fraud claim based on alleged misrepresentation
to be bound by settlement release in prior litigation]; Home Ins. Co. v. Zurich Ins. Co.
(2002) 96 Cal.App.4th 17, 24-26 [fraud claim based on alleged false statements made by
attorneys to induce settlement of lawsuit].) Because it is absolute, the privilege applies
irrespective of any malice or intent to cause injury. (Rusheen v. Cohen, supra, 37
Cal.4th at p. 1063; Silberg v. Anderson, supra, at pp. 216, 220.)
“The usual formulation is that the privilege applies to any communication
(1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants
authorized by law; (3) to achieve the objects of the litigation; and (4) that have some
connection or logical relation to the action. [Citations.]” (Silberg v. Anderson, supra, 50
Cal.3d at p. 212.) The requirement that the statement be made “in” a judicial proceeding
does not limit the litigation privilege to statements made at trial or to evidence offered in
open court. (Rusheen v. Cohen, supra, 37 Cal.4th at p. 1057.) Rather, the privilege
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“applies to any publication required or permitted by law in the course of a judicial
proceeding to achieve the objects of the litigation, even though the publication is made
outside the courtroom and no function of the court or its officers is involved.”
(Silberg v. Anderson, supra, at p. 212.) As a result, “„communications with “some
relation” to judicial proceedings‟ are „absolutely immune from tort liability‟” by the
privilege. (Rusheen v. Cohen, supra, at p. 1057.)
In this case, Harkham Industries failed to demonstrate a probability of prevailing
on the merits of its action because the claims alleged in the cross-complaint were barred
as a matter of law by the litigation privilege. Each cause of action in the cross-complaint
was based on the common allegation that Respondents falsely represented in Khalili‟s
March 2, 2012 letter that the $30,000 check had been returned for unavailable funds and
did so with the intent to defraud Harkham Industries of an additional $30,000 sum. The
allegedly fraudulent statements set forth in both the letter and the attached copy of the
check fell squarely within the scope of the litigation privilege.
The statements constituted a communication made on behalf of a litigant in the
course of a judicial proceeding. The statements also were logically related to the
underlying suit and were made to achieve the objects of that litigation, i.e., to collect on
the monies allegedly owed to Jade Fashion by Harkham Industries under the parties‟
November 2011 agreement. Any allegation that the statements were false, fraudulent, or
made with a malicious intent is immaterial to the application of the privilege. (Rusheen
v. Cohen, supra, 37 Cal.4th at p. 1063 [“the litigation privilege is absolute and applies
regardless of malice”]; Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 959
[privileged communication need not be “accurate” or “truthful” but simply within the
“category of communication permitted by law”]; O’Keefe v. Kompa (2000) 84
Cal.App.4th 130, 135 [“even an act committed fraudulently or with malice is privileged
under [Civil Code] section 47, subdivision (b)”].)
Harkham Industries asserts that the litigation privilege does not apply because
Respondents‟ allegedly fraudulent scheme, which included deceiving Harkham Industries
into transferring an additional $30,000 payment and then retaining those funds to try to
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force a settlement, constituted a course of non-communicative conduct not protected by
the privilege. In support of this argument, Harkham Industries principally relies on Drum
v. Bleau, Fox & Associates (2003) 107 Cal.App.4th 1009, 1027-1028 (Drum), where
the Court of Appeal held that the wrongful act of levying on property in execution of a
judgment was a non-communicative act outside the scope of the litigation privilege even
if the act of applying for a writ of execution was a privileged communication. However,
in Rusheen v. Cohen, supra, 37 Cal.4th 1048, the California Supreme Court expressly
disapproved of Drum for failing to address the relevant question of whether the gravamen
of the action was communicative or non-communicative conduct. (Id. at pp. 1061, 1065.)
Turning to that question, the Supreme Court held that “if the gravamen of the action is
communicative, the litigation privilege extends to noncommunicative acts that are
necessarily related to the communicative conduct.” (Id. at p. 1065 [where gravamen of
action was procurement of a default judgment based on allegedly false declarations of
service, acts necessary to enforce judgment were protected by the litigation privilege].)
Here, the gravamen of Harkham Industries‟ cross-complaint was the alleged
fraudulent inducement of an additional $30,000 payment based on the false statements in
Khalili‟s March 2, 2012 letter about the status of the check. As discussed above, such
communications were absolutely privileged under Civil Code section 47, subdivision (b)
as statements made in connection with the pending litigation. The scope of the privilege
also extended to the subsequent acts taken by Respondents to effectuate the purported
fraud, including Jade Fashion‟s acceptance of the $30,000 wire transfer and its retention
of those additional funds. Because the litigation privilege applied to the specific conduct
upon which the cross-complaint was based, Harkham Industries failed to meet its burden
of proving a probability of prevailing on the merits of its claims. The trial court therefore
did not err in granting the special motion to strike.
IV. Denial of Request for Discovery
Harkham Industries also challenges the trial court‟s denial of its oral request at the
hearing on the special motion to strike for an opportunity to conduct discovery of facts to
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support its opposition. Harkham Industries specifically contends that it had good cause
for requesting discovery based on Respondents‟ own “duplicitous discovery conduct” in
connection with bringing the motion. We need not decide, however, whether Harkham
Industries made a sufficient showing of good cause because it failed to comply with the
statutory procedure for seeking discovery under section 425.16, and thus, its request was
properly denied.4
Section 425.16, subdivision (g) provides as follows: “All discovery proceedings
in the action shall be stayed upon the filing of a notice of motion made pursuant to this
section. The stay of discovery shall remain in effect until notice of entry of the order
ruling on the motion. The court, on noticed motion and for good cause shown, may order
that specified discovery be conducted notwithstanding this subdivision.” “We review for
abuse of discretion the trial court‟s decision as to whether a plaintiff has complied with
the requirements of section 425.16, subdivision (g) to merit discovery prior to a hearing
on the motion to strike. [Citations.] „Under this standard the reviewing court will not
disturb the trial court‟s decision unless it “has exceeded the limits of legal discretion
by making an arbitrary, capricious, or patently absurd determination.”‟ [Citation.]”
(Tuchscher Development Enterprises, Inc. v. San Diego Unified Port Dist. (2003) 106
Cal.App.4th 1219, 1247.)
Here, the record reflects that Harkham Industries waited until the hearing on
Respondents‟ special motion to strike to make an oral request for discovery. “Section
425.16, subdivision (g), however, requires that requests to conduct limited discovery
pending a hearing on a special motion to strike must be in the form of a noticed motion.
[Citation.]” (Contemporary Services Corp. v. Staff Pro Inc. (2007) 152 Cal.App.4th
4 In support of its argument that it had good cause for seeking discovery, Harkham
Industries included in its appellant‟s appendix certain discovery-related documents that
the parties served prior to the filing of the special motion to strike. Respondents have
objected to the inclusion of such documents in the record on appeal on the ground that
they were never filed with the trial court. In light of our conclusion that the request for
discovery was procedurally barred under section 425.16, we need not address this issue.
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1043, 1061.) “[I]n the absence of such a noticed motion, the anti-SLAPP statute
prescribe[s] the court‟s power to allow or proceed with discovery proceedings, and the
court lack[s] inherent power to act directly contrary to the statutory mandate.” (Britts v.
Superior Court (2006) 145 Cal.App.4th 1112, 1129; see, e.g., Contemporary Services
Corp. v. Staff Pro Inc., supra, at p. 1062 [trial court did not abuse its discretion in
denying ex parte application to conduct discovery “when section 425.16, subdivision (g)
unequivocally requires a noticed motion for such requests”]; Tuchscher Development
Enterprises, Inc. v. San Diego Unified Port Dist., supra, 106 Cal.App.4th at pp. 1247-
1248 [oral request for discovery made at hearing on special motion to strike “was not
authorized under section 425.16, subdivision (g) because it was not made by noticed
motion”]; Braun v. Chronicle Publishing Co. (1997) 52 Cal.App.4th 1036, 1052 [oral
request for discovery made at hearing on section 425.16 motion “was not a timely and
properly noticed motion for discovery”].) Because Harkham Industries failed to satisfy
the procedural requirements of section 425.16, subdivision (g) by filing a noticed motion
for discovery, the trial court did not abuse its discretion in denying the untimely request.
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
ZELON, J.
We concur:
WOODS, Acting P. J.
SEGAL, J.
Assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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