Hydro Co. v. Elsinore Valley Mun. Water Dist. CA4/1

Filed 1/27/15 Hydro Co. v. Elsinore Valley Mun. Water Dist. CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

THE HYDRO COMPANY, INC., D063673

Plaintiff and Appellant,

v. (Super. Ct. No.
37-2012-00057077-CU-BC-NC)
ELSINORE VALLEY MUNICIPAL
WATER DISTRICT,

Defendant and Respondent.

APPEAL from an order of the Superior Court of San Diego County, Timothy M.

Casserly, Judge. Reversed with directions.

Yale & Baumgarten and David W. Baumgarten for Plaintiff and Appellant.

Best Best & Krieger, James B. Gilpin, and Holly E. Cheong for Defendant and

Respondent.

Plaintiff The Hydro Company, Inc., doing business as The Nevada Hydro

Company, Inc. (Nevada Hydro), appeals an order granting the special motion to strike

filed by defendant Elsinore Valley Municipal Water District (the District) under Code of
Civil Procedure section 425.16, commonly known as the "anti-SLAPP" statute.1 Nevada

Hydro contends that the court erred in (1) determining that Nevada Hydro's complaint for

breach of contract arose from an act in furtherance of the District's right of petition or free

speech (§ 425.16, subd. (b)(1)); (2) finding that the commercial speech exception to the

anti-SLAPP statute did not apply (§ 425.17, subd. (c)); and (3) concluding that Nevada

Hydro had not established a probability that it would prevail on its claim for breach of

contract (§ 425.16, subd. (b)(1)).

We conclude that Nevada Hydro has established a probability that it will prevail

on its claim. Therefore, even assuming that the trial court did not otherwise err, the

District's anti-SLAPP motion should not have been granted. The order is reversed with

directions to deny the motion.

FACTUAL AND PROCEDURAL BACKGROUND

In 1995, the District obtained a preliminary permit from the Federal Energy

Regulatory Commission (FERC) for the planned Lake Elsinore Pumped Storage project,

later known as the Lake Elsinore Advanced Pumped Storage project (LEAPS). The

project involved construction of the following elements: a reservoir adjacent to Lake

Elsinore, California, at a higher elevation than the lake; a pumping system to deliver

water from Lake Elsinore to the new reservoir; and a series of turbines to generate

electricity when water from the reservoir is released back to the lake. The project would

1 " 'SLAPP' is an acronym for 'strategic lawsuit against public participation.' "
(Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 268, fn. 1 (Soukup).) All
further statutory references are to the Code of Civil Procedure unless otherwise stated.
2
pump water into the new reservoir using electricity during periods of low electrical

demand. During periods of high electrical demand, the project would release the pumped

water into the lake, thereby generating electricity that would be sold to a local utility.

In order to transfer the necessary electricity, the LEAPS project included plans for

an electrical transmission line connecting the LEAPS project to the wider power grid.

The nature and configuration of this transmission line would later prove to be

controversial.

The District and Nevada Hydro entered into a Development Agreement for the

LEAPS project. The Development Agreement broadly granted Nevada Hydro the

exclusive right to develop, finance, construct, and operate the project. In exchange,

Nevada Hydro agreed, among other things, to bear the costs of developing, constructing,

and operating the project; to reimburse the District for its expenditures related to the

project; to pay a one-time fee to the District; and to pay the District for water

management services at Lake Elsinore related to the project.2

The Development Agreement authorized Nevada Hydro to obtain all necessary

licenses and permits for the LEAPS project, including a FERC license. It also obligated

Nevada Hydro to use its "best and reasonable judgment" to obtain a FERC license and

construct and operate the project. The Development Agreement required the District to

"make every reasonable effort necessary or appropriate to effectuate" Nevada Hydro's

2 Part of the District's interest in the LEAPS project appears to be related to the
District's belief that the LEAPS project would ensure a baseline level of water in Lake
Elsinore and improve water quality.
3
development rights and to "use its reasonable best efforts to obtain all

permits . . . necessary in the reasonable opinion of [Nevada Hydro], desirable for the

purpose of . . . enabling [Nevada Hydro] to proceed with development of the Project."

The Development Agreement also obligated each party, at the request of the other, to

"execute such additional instruments and take such additional acts as are reasonably

necessary to effectuate this Agreement."

Nevada Hydro and the District obtained a second preliminary permit from FERC.

The second preliminary permit appeared to contemplate that the LEAPS project would be

larger than initially planned. The permit application filed by Nevada Hydro and the

District identified two transmission lines for the project: a southerly line connecting to

San Diego Gas & Electric's Talega-Escondido transmission line and a northerly line

connecting to Southern California Edison's Valley-Serrano transmission line. Together,

the transmission lines for the LEAPS project were called the TE/VS transmission line or

the TE/VS interconnect.

While the application for the second preliminary permit was pending, the

California Independent System Operator identified a need for additional transmission

capability, unrelated to the LEAPS project, in the area where the TE/VS interconnect

would be constructed. The TE/VS interconnect could satisfy this need by transmitting

electricity between the two existing lines maintained by San Diego Gas & Electric and

Southern California Edison. The District initiated a separate environmental review

process for the development of a project covering only the TE/VS interconnect.

4
 After obtaining the second preliminary permit, Nevada Hydro and the District

applied for a FERC license for the LEAPS project. FERC prepared a Final

Environmental Impact Statement (EIS) for the project. The Final EIS noted that the

license application included a proposal to build the TE/VS interconnect. In an appendix

to the Final EIS, FERC concluded that the TE/VS interconnect "would be an appropriate

long-term solution to southern California's transmission congestion bottlenecks as well as

the transmission-constrained, generation-deficient San Diego area." FERC noted that in

such a scenario, the TE/VS interconnect would fall outside any FERC license because

FERC generally licenses only primary transmission lines, i.e., transmission lines that

carry electricity solely to or from a FERC-licensed project. Because the TE/VS

interconnect would carry additional electricity, unrelated to the LEAPS project, FERC

could not license it. Instead, the TE/VS interconnect would be within the jurisdiction of

the California Public Utilities Commission (CPUC).

In order to obtain the FERC license, Nevada Hydro and the District were required

to obtain certification of compliance with the Federal Clean Water Act from the

California State Water Resources Control Board (State Water Board). Nevada Hydro and

the District submitted and withdrew applications for certification annually for several

years.3 The final application, filed in 2009, was denied without prejudice based on a lack

of documentation that the LEAPS project had been assessed for environmental impacts

under the California Environmental Quality Act (CEQA).

3 The process of submitting and withdrawing applications appears to be a procedure
used to avoid formal denial of the application by the State Water Board.
5
 The reason for the delay in CEQA compliance is unclear from the record. The

allocation of the cost of preparing an environmental impact report (EIR) between the

District and Nevada Hydro appears to have been an issue. In any event, at the time of the

State Water Board's denial, there was a dispute regarding which public agency should

handle CEQA compliance, the District or the CPUC. The Governor's Office of Planning

and Research eventually determined that the CPUC, which would license the TE/VS

interconnect, was the proper lead agency for CEQA purposes.

After this determination, Nevada Hydro applied to the CPUC for a Certificate of

Public Convenience and Necessity for the TE/VS interconnect. The CPUC announced

that it would analyze both the TE/VS interconnect and the LEAPS project under CEQA

and prepare an appropriate EIR. The CPUC explained, "Under CEQA, the lead agency

must evaluate the impacts of an entire project, even if the agency does not have authority

over all aspects of the project. The LEAPS project is dependent on the TE/VS Project;

therefore, the LEAPS project is a connected action that must be considered." In the

CPUC's view, evaluating the entire project made logical sense as well: "[T]he CPUC's

decisions regarding the proposed TE/VS Project must be made in light of the impacts of

both projects, because the proposed TE/VS Project would facilitate development of the

proposed LEAPS Project." The CPUC explained that its EIR was intended to satisfy the

requirements for water certification by State Water Board: "The EIR being prepared by

the CPUC is intended to provide sufficient information and analysis of the Proposed

Project for the [State Water Board] to be able to use the EIR in its certification issuance

process."

6
 In the meantime, the District responded to Nevada Hydro's request that the State

Water Board reconsider its denial with a letter to the Board supporting the denial. Noting

this divergence between the District and Nevada Hydro, and other evidence of long-

simmering disagreements between the two entities, FERC asked the District and Nevada

Hydro to provide just cause why their joint application for a FERC license for the LEAPS

project should not be dismissed.

Nevada Hydro responded by letter, requesting that FERC not dismiss the

application. Nevada Hydro's letter summarized the potential benefits of the LEAPS

project for the power grid (storing and stabilizing electricity supply) and for the District

(compensation for its water management services). Nevada Hydro stated that it had met

every requirement for a FERC license except water quality certification from the State

Water Board, and explained that it planned to obtain certification from the State Water

Board using the EIR that the CPUC was preparing for the TE/VS interconnect and the

LEAPS project.4 Nevada Hydro contended that pursuing the TE/VS interconnect made it

more likely that the LEAPS project would be economically viable, because the cost of the

TE/VS interconnect would not be borne by the LEAPS project alone. Nevada Hydro

argued that limiting the TE/VS interconnect to electricity flowing only to or from the

LEAPS project, as a primary line under FERC's jurisdiction, "would be economically

wasteful and deprive the grid of a highly useful transmission asset."

4 Nevada Hydro also noted that it had filed a challenge to the State Water Board's
denial in superior court, which was pending. Nevada Hydro believed that FERC's own
environmental analysis should have been sufficient under CEQA for the State Water
Board to issue water quality certification. Nevada Hydro later dismissed the challenge.
7
 The District, also responding by letter, expressed its concern that it lacked the

statutory authority to pursue the TE/VS interconnect as a stand-alone project because the

TE/VS interconnect would transport electricity independent of the LEAPS project. The

District stated, "[Nevada Hydro's] pursuit of a stand-alone transmission project is

consistent with neither the District's historical position nor with its current statutory

authority." The District argued that Nevada Hydro's pursuit of the TE/VS interconnect

was hindering the successful prosecution of a FERC license for the LEAPS project. The

District explained why it believed the State Water Board's earlier denial of water

certification was proper, and expressed concern that the CPUC's analysis of the LEAPS

project would also be insufficient to obtain water quality certification. The District's

letter concluded as follows: "[T]he District reiterates its status as a municipal water

district whose authority is defined and limited by the state Legislature. Although the

District has clear authority to pursue hydroelectric projects and transmission lines

necessary or convenient for the delivery of hydroelectric power, the type of stand-alone

transmission project apparently envisioned by [Nevada Hydro] is one that the District

cannot pursue."

FERC, through a director, dismissed the joint application for the LEAPS project.

The director's order stated, "Based on our review of both [the District's] and Nevada

Hydro's responses and the 1997 Development Agreement between Nevada Hydro and

[the District], it is clear that [the District's] goal is to develop the hydroelectric project

and improve the water quality of Lake Elsinore through the operation of that project. On

the other hand, Nevada Hydro's primary interest is in the TE/VS transmission line." The

8
director's order concluded, "The co-applicants' divergent responses to the . . . just cause

letter further clarify that the co-applicants have different goals, that they have been

unable to work together in the past, and that they likely would be unable to do so if issued

a license for the project. Moreover, the non-primary transmission line that Nevada Hydro

now seeks to construct is beyond our jurisdiction to authorize as a stand-alone line.

Based on these factors, it would be unreasonable to expend further public resources on

this matter."

Several days later, the District provided Nevada Hydro with notice of events of

default under the Development Agreement. The notice also purported to terminate the

Development Agreement. In the notice, the District alleged that Nevada Hydro had

failed to reasonably prosecute the FERC license, failed to pay permitting fees to the State

Water Board, and failed to abide by other obligations in the Development Agreement.

The District later paid the State Water Board fees referenced in the letter.

Nevada Hydro requested that the full commission rehear the director's decision to

dismiss the joint application. The District filed a motion to respond, which the

commission granted. In a comprehensive order, the commission denied rehearing.

The commission's order denying rehearing examined the history of the LEAPS

project, the positions of the parties, and the propriety of the director's action dismissing

the joint application. The commission emphasized that the director's decision to dismiss

the joint application was not based on the merits of the LEAPS project or the TE/VS

transmission line. The commission explained that "the Director did not dismiss the

application because Nevada Hydro decided to develop the TE/VS as an open-access line

9
or because the TE/VS, as a stand-alone transmission line, would not be subject to

Commission jurisdiction, as Nevada Hydro asserts. In referring to Nevada Hydro's focus

on the certification of TE/VS as a line that the Commission could not license, the

Director was addressing the contrast between Nevada Hydro's priorities and those of the

District: as he stated, the District has made it clear that it has no interest in pursuing a

transmission line other than a primary line, while Nevada Hydro has insisted that limiting

it to construction of a primary line would undermine the successful development of the

LEAPS Project. It is this conflict in priorities and objectives that was the basis for the

Director's dismissal." (Footnote omitted.) The commission stated that whether "the

District's concerns are well-founded or consistent with its earlier position is not relevant

to our review of the Director's order; the Director dismissed the application not because

the District's concerns were necessarily valid but because the co-applicants' long-standing

disagreement suggests that they would be unlikely to cooperate as licensees." (Footnote

omitted.)

The commission noted the inconsistency in the parties' responses to the Director's

order: "It is worth noting that the District did not file a request for rehearing of the

dismissal order or oppose the dismissal in its response to Nevada Hydro's rehearing

request. We must infer from this that the District has no objection to the dismissal. The

District's failure to object to dismissal of the application, in contrast to Nevada Hydro's

strong objection to it, only reinforces the conclusion that the co-applicants have very

different attitudes about the project proposal as it has developed, such that they could not

be expected to cooperate as co-licensees."

10
 After the commission issued its order denying rehearing, Nevada Hydro filed a

new application for a FERC license for the LEAPS project, in its own name. Several

months later, the District's staff recommended to its board of directors that the District

file a notice of intent to file a competing application for the LEAPS project. The

District's staff believed that such a notice would allow the District more input into

Nevada Hydro's pending application. The District's board of directors did not adopt the

recommendation. The minutes of the board of directors meeting reflect several directors'

concerns that public sentiment was neutral or opposed to the LEAPS project.

The District later provided a second notice of default under the Development

Agreement. The second notice was based on Nevada Hydro's alleged failure to pay

additional fees to the State Water Board. The District contended that Nevada Hydro's

obligation to pay these additional fees arose before the District's termination of the

Development Agreement.

Several months later, Nevada Hydro brought this action. In its complaint, Nevada

Hydro alleged a single cause of action for breach of contract against the District. Nevada

Hydro's complaint recounted the history of the LEAPS project and the related

proceedings before the State Water Board, FERC, and the CPUC. In particular, the

complaint described the District's response to FERC's just cause letter, which, Nevada

Hydro alleged, failed to support the joint LEAPS application and wrongfully claimed that

Nevada Hydro was pursuing the TE/VS transmission line to the exclusion of water

quality certification for the LEAPS project. As to the District's alleged breach of

contract, Nevada Hydro made the following allegation: "The defendant, by reason of its

11
conduct alleged hereinabove, which resulted in the dismissal of the FERC application for

licensure of the LEAPS Project, has breached the Development Agreement."

In response, the District filed (1) an answer generally denying Nevada Hydro's

allegations and asserting various affirmative defenses; (2) a cross-complaint against

Nevada Hydro for breach of contract, contribution, and declaratory relief; and (3) a

special motion to strike, or anti-SLAPP motion, under section 425.16. In its anti-SLAPP

motion, the District argued that Nevada Hydro's claim for breach of contract arose from

acts in furtherance of the District's right of petition or free speech, i.e., its responses to

FERC's just cause letter and Nevada Hydro's request for rehearing. (§ 425.16,

subd. (b)(1).) The District further argued that Nevada Hydro could not show a

probability that it would prevail on its claim because the District's responses were not the

cause of FERC's dismissal of the joint application. (Ibid.) Nevada Hydro opposed the

District's anti-SLAPP motion, arguing that the District's wrongful conduct was not

limited to its FERC responses. Instead, the responses were merely evidence of the

District's breaches. Nevada Hydro also contended that the District's conduct fell within

the commercial speech exception to the anti-SLAPP statute under section 425.17,

subdivision (c), and that Nevada Hydro could show a probability of prevailing on its

claim.

The trial court granted the District's anti-SLAPP motion. The court found that

Nevada Hydro's claim arose from an act in furtherance of the District's right of petition or

free speech, and that the commercial speech exception did not apply. The court also

found that Nevada Hydro had not shown a probability of prevailing on its claim. The

12
court characterized the District's FERC responses as "simply informational" and did not

believe that they constituted breaches of the Development Agreement. The court also

determined that Nevada Hydro had not provided evidence of its own substantial

performance or excuse for nonperformance, i.e., its failure to pay required fees to the

State Water Board under the Development Agreement.

The court dismissed Nevada Hydro's complaint and awarded the District its

reasonable attorney's fees under section 425.16, subdivision (c). Nevada Hydro appeals.

DISCUSSION

I

Section 425.16, subdivision (b)(1), provides as follows: "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 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

plaintiff will prevail on the claim." The statute "requires the court to engage in a two-step

process. First, the court decides whether the defendant has made a threshold showing

that the challenged cause of action is one arising from protected activity."

(Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.) "If the court

finds such a showing has been made, it then determines whether the plaintiff has

demonstrated a probability of prevailing on the claim." (Ibid.)

"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

13
SLAPP, subject to being stricken under the statute." (Navellier v. Sletten (2002)

29 Cal.4th 82, 89 (Navellier).) If Nevada Hydro demonstrates a probability of prevailing

on its claim for breach of contract, therefore, its claim is not a SLAPP and may not be

stricken as such. (See ibid.; see also § 425.16, subd. (b)(1).) We review de novo the trial

court's determination that Nevada Hydro did not demonstrate a probability of prevailing.

(Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820; Morrow v. Los Angeles

Unified School Dist. (2007) 149 Cal.App.4th 1424, 1436.)

"In order to establish a probability of prevailing on the claim [citation], a plaintiff

responding to an anti-SLAPP motion must ' "state[] and substantiate[] a legally sufficient

claim." ' [Citation.] Put another way, the plaintiff 'must demonstrate that the complaint

is both legally sufficient and supported by a sufficient prima facie showing of facts to

sustain a favorable judgment if the evidence submitted by the plaintiff is credited.'

[Citations.]" (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821.) "[T]he

plaintiff cannot rely on the allegations of the complaint, but must produce evidence that

would be admissible at trial." (Integrated Healthcare Holdings, Inc. v. Fitzgibbons

(2006) 140 Cal.App.4th 515, 527; see Roberts v. Los Angeles County Bar Association

(2003) 105 Cal.App.4th 604, 613.)

"In making a probability of prevailing assessment, a court evaluates the pleadings

and evidentiary submissions of both parties. [Citations.] But as explained by our

Supreme Court, we do not weigh the competing evidence: '[T]he court does not weigh

the credibility or comparative probative strength of competing evidence, it should grant

the motion if, as a matter of law, the defendant's evidence supporting the motion defeats

14
the plaintiff's attempt to establish evidentiary support for the claim. [Citation.] In

making this assessment it is "the court's responsibility . . . to accept as true the evidence

favorable to the plaintiff . . . ." [Citation.] The plaintiff need only establish that his or

her claim has "minimal merit" [citation] to avoid being stricken.' [Citation.] Our

Supreme Court has described the plaintiff's probability of prevailing obligation: '[The

statute] requires only "a minimum level of legal sufficiency and triability[.]" [Citation.]'

[Citation.]" (Anschutz Entertainment Group, Inc. v. Snepp (2009) 171 Cal.App.4th 598,

638-639 (Anschutz).) "If the plaintiff 'can show a probability of prevailing on any part of

its claim, the cause of action is not meritless' and will not be stricken; 'once a plaintiff

shows a probability of prevailing on any part of its claim, the plaintiff has established

that its cause of action has some merit and the entire cause of action stands.' [Citation.]"

(Oasis West Realty, LLC v. Goldman, supra, 51 Cal.4th at p. 820.)

II

A

We assess Nevada Hydro's claim for breach of contract under the substantive law

governing that cause of action. "The standard elements for a claim for breach of contract

are: '(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3)

defendant's breach, and (4) damage to plaintiff therefrom. [Citation.]' [Citation.]"

(Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1179

(Wall Street).)

For purposes of this appeal, the District does not appear to dispute that the

Development Agreement was a valid and enforceable contract and that Nevada Hydro

15
has suffered damages.5 Based on our review, we similarly conclude that Nevada Hydro

has established a probability of prevailing on the first and fourth elements of its breach of

contract claim. We therefore address only the disputed second and third elements

below.6

B

The second element of Nevada Hydro's breach of contract claim requires evidence

of Nevada Hydro's performance or excuse for nonperformance. (Wall Street, supra,

164 Cal.App.4th at p. 1179.) Nevada Hydro provided admissible evidence of its efforts,

over more than a decade, to fulfill its obligations under the Development Agreement to

develop the LEAPS project. For example, Nevada Hydro applied to FERC for a license,

which required substantial time, effort, and money to prepare. Nevada Hydro pursued

other required licenses and permits from additional government agencies, as well. As

part of the FERC licensing process, Nevada Hydro submitted annual applications to the

State Water Board for water quality certification. When certification was denied, Nevada

Hydro filed a challenge to the State Water Board's action in superior court. Nevada

5 The District raises one argument that could be interpreted as bearing on causation,
although it is not denominated as such. We address this argument together with the third
element in section II.C., post.

6 The District contended for the first time at oral argument that its statements to
FERC are protected by the absolute litigation privilege (Civ. Code, § 47, subd. (b)), and
that Nevada Hydro thus cannot demonstrate a probability of prevailing. Because the
District did not include this argument in its briefing, and raised it for the first time at oral
argument, we decline to consider its merits. (Palp, Inc. v. Williamsburg National
Insurance Co. (2011) 200 Cal.App.4th 282, 291, fn. 2 [" 'We do not consider arguments
that are raised for the first time at oral argument.' "].)
16
Hydro also secured an environmental review of the LEAPS project under CEQA by the

CPUC. Nevada Hydro's vice president estimated that Nevada Hydro had spent

approximately $24 million in development costs in connection with the LEAPS project.

This evidence constitutes a prima facie showing of Nevada Hydro's performance under

the Development Agreement.

The District argues that Nevada Hydro has not made a prima facie showing of

performance because Nevada Hydro materially breached the Development Agreement by

failing to pay approximately $260,000 in State Water Board fees for the years 2010-2011

and 2011-2012. In order to rebut Nevada Hydro's prima facie showing, the District

would have to establish that Nevada Hydro's alleged breach forecloses Nevada Hydro's

breach of contract claim as a matter of law. (See Soukup, supra, 39 Cal.4th at p. 269, fn.

3 [" '[We] 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.' "]; see also Anschutz, supra, 171 Cal.App.4th at p. 638)

"When a party's failure to perform a contractual obligation constitutes a material

breach of the contract, the other party may be discharged from its duty to perform under

the contract." (Brown v. Grimes (2011) 192 Cal.App.4th 265, 277 (Brown).) "Normally

the question of whether a breach of an obligation is a material breach, so as to excuse

performance by the other party, is a question of fact." (Ibid.) Only where reasonable

minds could not differ on the question of materiality may the issue be resolved as a

matter of law. (Insurance Underwriters Clearing House, Inc. v. Natomas Co. (1986) 184

Cal.App.3d 1520, 1526-1527.) We note that the District has alleged, at most, a partial

17
breach of Nevada Hydro's obligations under the Development Agreement. "Whether a

partial breach of a contract is material depends on 'the importance or seriousness thereof

and the probability of the injured party getting substantial performance.' [Citations.]"

(Brown, supra, 192 Cal.App.4th at p. 278.)

On the current record, a reasonable trier of fact could determine that Nevada

Hydro's alleged breach was not material. Nevada Hydro spent over $24 million on

development in connection with the LEAPS project. The unpaid State Water Board fees

were comparatively small, approximately one percent of that total. In light of Nevada

Hydro's history of performance, and its expenditure of $24 million, it would be

reasonable for a trier of fact to conclude that Nevada Hydro's alleged breach was not so

serious that the District could be entirely excused from its own obligations to perform

under the Development Agreement. (See Brown, supra, 192 Cal.App.4th at p. 277.)

Moreover, even after the alleged breach, Nevada Hydro continued to actively pursue the

LEAPS project before FERC and through the environmental review conducted by the

CPUC. In light of these activities, District has not shown that it could not have received

substantial performance of the Development Agreement even with Nevada Hydro's

alleged breach.7 (See id. at p. 278.)

7 The District did not give notice of Nevada Hydro's failure to fulfill its obligation to
pay the first portion of the State Water Board fees until after the District's own alleged
breach and after FERC had dismissed the joint application. The timing of the District's
notice would also support a finding that Nevada Hydro's alleged breaches were
immaterial because the District did not raise Nevada Hydro's alleged breaches until after
the LEAPS project had failed.
18
 The District contends, in passing, that Nevada Hydro also breached the

Development Agreement by failing to timely pursue the FERC license. The District does

not explain this assertion, and we find it unpersuasive. Based on the current record, and

given the many hurdles to FERC licensing, some of which appear to have been

exacerbated by the District itself, a reasonable trier of fact could find that Nevada Hydro

did not breach the Development Agreement by failing to timely pursue the FERC license.

C

The third element of Nevada Hydro's breach of contract claim requires evidence of

the District's breach. (Wall Street, supra, 164 Cal.App.4th at p. 1179.) "The wrongful,

i.e., the unjustified or unexcused, failure to perform a contract is a breach." (1 Witkin,

Summary of Cal. Law. (10th ed. 2005) Contracts, § 847, p. 935.) "Ordinarily, a breach is

a result of an intentional act, but negligent performance may also constitute a breach,

giving rise to alternative contract and tort actions." (Ibid.)

Nevada Hydro relies primarily on the District's response to FERC's just cause

letter to establish the District's breach. Nevada Hydro contends that the District's

response undermined Nevada Hydro's efforts to obtain a FERC license for the LEAPS

project and thus breached the District's obligations under the terms of the Development

Agreement to "make every reasonable effort necessary or appropriate to effectuate"

Nevada Hydro's development rights and to "use its reasonable best efforts to obtain all

permits . . . necessary in the reasonable opinion of [Nevada Hydro], desirable for the

purpose of . . . enabling [Nevada Hydro] to proceed with development of the Project."

19
 The District contends that its response to FERC's just cause letter was not a breach

of the Development Agreement because FERC requested the District's input, and the

District did not expressly advocate that the joint application be dismissed. On the record

before us, we disagree that these facts establish as a matter of law that the District did not

breach the Development Agreement. (See Soukup, supra, 39 Cal.4th at p. 269, fn. 3.)

The District has provided no authority to support its argument that the mere fact that

FERC requested the District's input immunizes the District from any subsequent breach

of contract claim based on the District's response, and we find that argument

unpersuasive.8 To the contrary, the Development Agreement required the District to

"make every reasonable effort necessary or appropriate to effectuate" Nevada Hydro's

8 The implicit basis for the District's argument appears to be that a breach of
contract action can never rest on statements made in furtherance of a party's right of
petition or free speech. In its brief, the District quotes a statement from the trial court to
that effect: "I am just not sure you can ever get a breach of contract out of what they said
to FERC, and that is what I'm really struggling with, that that wouldn't fall under their
free speech rights at that point." The Supreme Court has expressly rejected this view:
"[P]laintiffs fall prey . . . to the fallacy that the anti-SLAPP statute allows a defendant to
escape the consequences of wrongful conduct by asserting a spurious First Amendment
defense. [Citation.] In fact, the statute does not bar a plaintiff from litigating an action
that arises out of the defendant's free speech or petitioning [citation]; it subjects to
potential dismissal only those actions in which the plaintiff cannot 'state[] and
substantiate[] a legally sufficient claim' [citation]." (Navellier, supra, 29 Cal.4th at p. 93;
see DaimlerChrysler Motors Co. v. Lew Williams, Inc. (2006) 142 Cal.App.4th 344, 351-
352 [finding probability of prevailing on breach of contract claim after determining that
the claim was based on the opposing party's constitutional right to petition].) Indeed, the
District's argument would render the second prong of the anti-SLAPP statute entirely
superfluous, since any action that satisfied the first prong, i.e., that arose from an act in
furtherance of a party's right of petition or free speech, would have to be dismissed under
the District's interpretation.
20
development rights. The Development Agreement did not exclude the District's direct

interactions with FERC from its scope.

FERC's letter asked the parties to "provide an explanation why the license

application for the LEAPS Project should not be dismissed." A reasonable trier of fact

could find that the District's response -- which highlighted the disagreements between the

parties, drew attention to the stand-alone TE/VS transmission line, expressed concern

over Nevada Hydro's ability to satisfy the conditions for the FERC license, and likely

exacerbated FERC's concerns over the parties' ability to work together as co-licensees --

was inconsistent with the District's obligations under the Development Agreement.

Indeed, a reasonable trier of fact could find that the District's focus on the stand-alone

TE/VS transmission line in its response to FERC's request was improper because FERC

did not have the authority to license such a line in any event, as FERC well understood.

The fact that the District did not expressly advocate for dismissal is irrelevant. A

reasonable trier of fact could find that the District's response hindered, rather than

"effectuate[d]," Nevada Hydro's right to develop the LEAPS project, contrary to the

District's obligations under the Development Agreement.9

9 Indeed, as previously noted, in its review of the proceedings, FERC reached a
similar conclusion: "It is worth noting that the District did not file a request for rehearing
of the dismissal order or oppose the dismissal in its response to Nevada Hydro's rehearing
request. We must infer from this that the District has no object to the dismissal. The
District's failure to object to dismissal of the application, in contrast to Nevada Hydro's
strong objection to it, only reinforces the conclusion that the co-applicants have very
different attitudes about the project proposal as its has developed, such that they could
not be expected to cooperate as co-licensees."
21
 The District also contends that its response to FERC's just cause letter was not a

breach because the Development Agreement did not apply to a stand-alone TE/VS

transmission line. In making this argument, the District fails to acknowledge that the

FERC license under consideration was for the LEAPS project itself, which was the object

of the Development Agreement. As FERC recognized, it could not license the stand-

alone TE/VS transmission line: "[A]uthorization and construction of the transmission line

is not dependent on the status of the license application filed with [FERC]." (Emphasis

added.) Whatever the District's attitude toward that line, it was not part of the FERC

license. The Development Agreement obligated the District to support Nevada Hydro in

its pursuit of the FERC license for the LEAPS project. For the reasons that we have

explained, a reasonable trier of fact could find that the District's response breached this

obligation.

In a related vein, the District argues that its response was "not the cause of FERC's

ultimate dismissal of the parties' application" because Nevada Hydro's pursuit of the

stand-alone TE/VS transmission line "took the project outside of the FERC's

jurisdiction." " 'The test for causation in a breach of contract . . . action is whether the

breach was a substantial factor in causing the damages.' " (Haley v. Casa Del Rey

Homeowners Ass'n (2007) 153 Cal.App.4th 863, 871.) " 'The term "substantial factor"

has no precise definition, but "it seems to be something which is more than a slight,

trivial, negligible, or theoretical factor in producing a particular result." ' " (Id. at

pp. 871-872.)

22
 Based on the current record, the evidence amply supports a finding that the

District's response was a substantial factor in causing the dismissal of the joint FERC

application and, therefore, Nevada Hydro's alleged damages. As we have explained, the

FERC license at issue covered only the LEAPS application itself, not the stand-alone

TE/VS transmission line, as FERC recognized. The FERC order denying rehearing,

issued by the commission itself, expressly rejected the idea that Nevada Hydro's pursuit

of the stand-alone line was the reason for the dismissal of the joint application: "[T]he

Director did not dismiss the application because Nevada Hydro decided to develop the

TE/VS as an open-access line or because the TE/VS, as a stand-alone transmission line,

would not be subject to [the FERC's] jurisdiction . . . . Nor did the Director imply that a

hydro facility could not be connected with an open access, non-primary transmission

line . . . ." In the commission's view, the dismissal rested solely on the divergence of

interests demonstrated by the parties' responses and the apparent inability of the parties to

cooperate. Because the District's response created, or at least highly exacerbated, this

divergence, a reasonable trier of fact could find that the District's response was a

substantial factor in causing the dismissal. (See DaimlerChrysler Motors Co. v.

Lew Williams, Inc., supra, 142 Cal.App.4th at p. 354; see also Haley v. Casa Del Rey

Homeowners Ass'n, supra, 153 Cal.App.4th at pp. 871-872.) Nevada Hydro has thus

made a prima facie showing on this element of its breach of contract claim, as well.

D

Based on the foregoing, we conclude that Nevada Hydro has stated and

substantiated a prima facie claim for breach of contract against the District. Nevada

23
Hydro has therefore established a probability of prevailing on that claim. (See Wilson v.

Parker, Covert & Chidester, supra, 28 Cal.4th at p. 821.) Because such a showing

requires reversal of the trial court's order granting the District's anti-SLAPP motion

(see Navellier, supra, 29 Cal.4th at p. 88), we need not decide whether Nevada Hydro's

claim arises from an act on the part of the District in furtherance of its right to petition or

free speech (§ 425.16, subd. (b)(1)) or whether the commercial speech exception to the

anti-SLAPP statute applies (§ 425.17, subd. (c)). Even assuming that the trial court

correctly decided these two issues, the District's anti-SLAPP motion should have been

denied. (See Navellier, supra, 29 Cal.4th at p. 88.)

DISPOSITION

The order is reversed. The court is directed to enter a new and different order

denying the District's special motion to strike under section 425.16.

AARON, J.

WE CONCUR:

NARES, Acting P. J.

O'ROURKE, J.

24