Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-01460/USCOURTS-casd-3_16-cv-01460-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441oc Removal- Other Contract

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

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11 HOYT HART, Case No.: 3:16-cv-01460-BEN-MDD

12 Plaintiff,

ORDER:

13 v.

(1) DENYING DEFENDANTS’

SPECIAL MOTION TO STRIKE

(ANTI-SLAPP)

14 SCOTT R. LARSON, SCOTT R.

LARSON, P.C., DOES 1-10, inclusive,

Defendants.

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16 (2) DENYING DEFENDANTS’

MOTION FOR PARTIAL

JUDGMENT ON THE PLEADINGS;

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(3) GRANTING PLAINTIFF’S

MOTION TO AMEND

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21 [Docket Nos. 6, 7, 24]

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Before the Court are the Special Motion to Strike (Anti-SLAPP)1 and the Motion

for Partial Judgment on the Pleadings filed by Defendants Scott Larson and Scott Larson,

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SLAPP is an acronym for “strategic lawsuit against public participation.” Mindys

Cosmetics, Inc. v. Dakar, 611 F.3d 590, 595 (9th Cir. 2010); see also Cal. Code Civ.

Proc. § 425.16.

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P.C. (hereinafter, “Larson”), and the Motion to Amend Complaint filed by PlaintiffHoyt

Hart. (Docket Nos. 6, 7,24.) The motions are fully briefed. The Court finds the motions

suitable for determination on the papers without oral argument, pursuant to Civil Local

Rule 7.1.d.l. For the reasons set forth below, Defendants’ Special Motion to Strike and

Motion for Partial Judgment are DENIED, and Plaintiffs Motion to Amend is

GRANTED.

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BACKGROUND2

In or around August 2014, Larson, a Colorado based attorney, contacted Plaintiff, a

California based attorney, by telephone “to request local counsel assistance” with a case

involving a substantial brain injury to a Colorado resident (the “Storm case”). (Compl. ^

5.) Larson indicated that “$5.8 Million had been offered from the latest mediation” with

the Storm defendants, and that filing a lawsuit in California was necessary to “effectively

prosecute the Storm claims.” (Id.) Larson and Plaintiff agreed that Plaintiffwould “file

the lawsuit in San Diego Superior Court and work as California counsel on behalf ofthe

Storm plaintiffs.” (Id.) The parties further agreed that Plaintiffwould receive, as

compensation for his services, forty percent (40%) of “the attorney fees attributable to an

award or settlement obtained in excess of $5.8 million, based on the contingency fee”

agreement between Larson and the Storm plaintiffs. (Id.)

The day after their initial conversation, Larson telephoned Plaintiff and told him

the Storm defendants “had just then raised their [settlement] offer to $8 million, and that

[the Storm] plaintiffs would accept $10 million to settle their case. (Id.) Based on these

representations, Plaintiff agreed to modify the original fee splitting agreement. Instead of

forty percent (40%) ofthe attorney fees obtained in excess of $5.8 million, Plaintiff

would receive forty-five percent (45%) ofthe attorney fees obtained in excess of $8

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2 The following overview ofthe facts are drawn from the allegations ofPlaintiffs

Complaint. The Court is not making findings offact. The allegations relevant to each

motion are detailed in analyzing the individual motions.

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million. Thereafter, Plaintifffiled the Storm case3 and spent over eighteen (18) months

litigating it, which ultimately resolved in settlement for the Storm plaintiffs in excess of

$10 million.

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After Plaintiffbegan representing the Storm plaintiffs, Larson allegedly concealed

from Plaintifftwo settlement offers from the Storm Defendants: one for $6.3 million in

October 2014, and one for $6.8 million in November 2014. Additionally, on May 18,

2015, Plaintiff attended a mediation in Larson’s Denver office, which Larson and one of

the Storm plaintiffs also attended. During the mediation, the Storm defendants offered $8

million to settle the case, and Plaintiff complained aloud to the mediator that the Storm

defendants “was offering no more than had been offered nine months earlier.” (Compl. f

8.) Neither Larson nor the Storm plaintiff corrected Plaintiffs statement to the mediator.

In February 2016, Plaintiffparticipated in settlement negotiations with counsel for

the Storm defendants. It was during these settlement negotiations that Plaintifflearned

from defense counsel about Larson’s alleged misrepresentation about the timing ofthe

Storm defendants’ $8 million offer and Larson’s alleged concealment ofthe October

2014 and November 2014 offers. On or about March 3,2016, Plaintiffreceived the

settlement checks for the Storm case, which totaled more than $10 million. Due to an

inadvertent error, Plaintiffs name was omitted from the settlement checks. At the

request of one ofthe Storm plaintiffs, Plaintiff did not have the checks reissued, and

instead sent the checks directly to the Storm plaintiffs. To date, Larson has paid Plaintiff

approximately ten percent (10%) ofthe attorney fees. Larson “agreed to hold another

$425,000” in trust pending resolution ofthe instant action. (Compl. f 10.)

On May 12, 2016, Plaintifffiled the instant action, asserting two claims for relief

for fraud and quantum meruit in a California Superior Court. (Docket No. 1.) On June

13, 2016, Defendants removed this action to the federal district court on the basis of

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28 3 San Diego Superior Court Case No. 37-2014-00297-CU-PO-CTL. (Compl. f 7.)

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diversity jurisdiction pursuant to 28 U.S.C. §§ 1441(b) and 1446. {Id.) On June 27,

2016, Defendants concurrently filed their Motion to Strike and Motion for Partial

Judgment. (Docket Nos. 6, 7.) On October 24, 2016, Plaintifffiled his Motion to

Amend. (Docket No. 24.)

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5 DISCUSSION

6 I. Defendants’ Special Motion to Strike (Anti-SLAPP)

Defendants filed a Special Motion to Strike (“anti-SLAPP Motion”) seeking

dismissal ofPlaintiffs fraud claim pursuant to California Code ofCivil Procedure section

425.16.4 (Docket No. 6.)

A. California’s Anti-SLAPP Statute5

“California's anti-SLAPP statute authorizes a ‘special motion to strike’ any ‘cause

of action against a person arising from any act ofthat person in furtherance ofthe

person's right ofpetition or free speech ... in connection with a public issue.’ ” Safari

Club Inti v. Rudolph, No. 14-56236, 2017 WL 192713, at *4 (9th Cir. Jan. 18, 2017)

(quoting Cal. Civ. Proc. Code § 425.16(b)(1)). A court evaluating an anti-SLAPP motion

first determines whether the defendant has shown the challenged claim “aris[es] from”

activity taken “in furtherance” ofthe defendant's right ofpetition or free speech. Ibid.

“Ifso, the burden shifts to the plaintiffto show ‘a [reasonable] probability of prevailing

on the challenged claims.’ ” Safari Club Int’l, supra, (quoting Mindys Cosmetics, Inc. v.

Dakar, 611 F.3d 590, 595 (9th Cir. 2010)).

As used in section 425.16, “an ‘act in furtherance of a person's right ofpetition or

free speech under the United States or California Constitution in connection with a public

issue’ includes:”

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25 4 All further statutory references in Section I ofthis Order are to the California Code of

Civil Procedure unless otherwise indicated.

5 The Court notes that this is a diversity case, and Plaintiff did not contest the

applicability ofCalifornia law. The Court concludes Plaintiff concedes his claims are

subject to California Code ofCivil Procedure section 425.16.

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(1) any written or oral statement or writing made before a

legislative, executive, orjudicial proceeding, or any other

official proceeding authorized by law,

(2) any written or oral statement or writing made in connection

with an issue under consideration or review by a legislative,

executive, orjudicial body, or any other official proceeding

authorized by law,

(3) any written or oral statement or writing made in a place

open to the public or a public forum in connection with an issue

of public interest, or

(4) any other conduct in furtherance ofthe exercise ofthe

constitutional right ofpetition or the constitutional right offree

speech in connection with a public issue or an issue ofpublic

interest.

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Cal. Civ. Proc. Code § 425.16(e).

Evaluating the merits of an anti-SLAPP motion requires a court to engage in a twopart inquiry. Doe v. Gangland Prods., Inc., 730 F.3d 946, 953 (9th Cir. 2013) (citing

Marijanovic v. Gray, York & Duffy, 137 Cal. App. 4th 1262, 1270 (2006); see also

Coretronic Corp. v. Cozen, 192 Cal. App. 4th 1381,1387 (2011). First, the defendant,

must make a prima facie showing that each claim against him aaris[es] from” activity

taken “in furtherance” of his or her right to petition or free speech. Safari Club Int 7,

supra, 2017 WL 192713, at *4 (quoting Cal. Civ. Proc. Code § 425.16(b)(1)). Ifthe

defendant meets this initial showing, the burden shifts to the plaintiffto demonstrate “a

[reasonable] probability of prevailing on the claims.” Id. at *7 (quoting Mindys

Cosmetics, Inc., supra, 611 F.3d at 595). Ifthe plaintifffails to demonstrate a probability

ofprevailing on a claim, the claim is stricken. Doe, supra, at 953 (citing Navellier v.

Sletten, 29 Cal. 4th 82, 89 (2002)). In conducting its evaluation of an anti-SLAPP

motion, a court must “consider the pleadings, and supporting and opposing affidavits

stating the facts upon which the liability or defense is based.” Id. (quoting Cal. Code Civ.

Proc. § 425.16(b)(2)).

The Court finds Defendants failed to establish the requisite initial showing that

Plaintiffs fraud claim arose out ofprotected activity.

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1 “Arising from” Protected Activity

As discussed above, it is the defendant’s burden to make an initial showing that

one or more claims arise from an act in furtherance ofthe defendant’s constitutional right

ofpetition or free speech in connection with a public issue. Safari Club Int’l, supra,

2017 WL 192713, at *4. “[T]he critical consideration is whether the cause of action is

based on the defendant's protected” conduct. Id. (quoting Navellier, supra, 29 Cal. 4th at

89). More specifically, “the act underlying” the plaintiffs claim or the act “which forms

the basis of’ the plaintiffs claim “must itselfhave been an act in furtherance ofthe right

ofpetition or free speech.” Id. (quoting Equilon Enters, v. Consumer Cause, Inc., 29 Cal.

4th 53, 66 (2002) (internal citation omitted)).

In the first-step ofthe anti-SLAPP analysis, arguments about the merits ofthe

claims are irrelevant. Coretronic Corp., supra, 192 Cal. App. 4th at 1388 (citing

Freeman v. Schack, 154 Cal. App. 4th 719, 733 (2007) (it is irrelevant that defendant

might prevail on the merits ofthe claims where defendant cannot meet the first prong of

the analysis)); see also Birkner v. Lam, 156 Cal. App. 4th 275, 284 (2007) (affirmative

defenses, such as the litigation privilege, are not relevant to the first prong inquiry). “The

motion must be denied ifthe required prima facie showing is not made by the moving

defendant.” Id. (citing City ofCotati v. Cashman, 29 Cal. 4th 69, 80 (2002)).

Citing GeneThera, Inc. v. Troy & GouldProfessional, 171 Cal. App. 4th 901, 908

(2009), Defendants’ anti-SLAPP Motion summarily concludes, in a single paragraph, that

Plaintiffs fraud claim is based on Defendants’ protected activity because “[i]t is already

settled that an attorney’s settlement communications fall within the “protected activity”

ofboth the Anti-SLAPP statute and the litigation privilege contained in California Civil

Code section 47[.]” (Docket No. 6-1 at 5.) Defendants did not specify which provision

ofsection 425.16 applied to their alleged protected activity.

The Court finds the facts in GeneThera, Inc. are clearly distinguishable from

Plaintiffs action. In GeneThera, Inc., the appellants had sued the respondents (an

attorney and his firm) for intentional interference with contractual relations and

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negligence based on respondents’ communication of a settlement offer to one ofthe

appellants in a separate lawsuit. Id., supra, at 905-906. The appellants’ claims were

based on allegations that the respondents’ settlement offer communication was designed

to raise a conflict ofinterest. Id. at 906.

The trial court granted the respondents’ anti-SLAPP motion after it “expressly

found appellants’ complaint arose from respondents’ protected activity ofsending a

settlement offer,” and appellants failed to show a reasonable probability ofsuccess on the

merits oftheir case. Id. The California Court ofAppeal affirmed the trial court’s

decision, finding “[a]n attorney’s communication with opposing counsel on behalf of a

client regarding pending litigation directly implicates the right to petition and thus is

subject to a special motion to strike.” Id. at 908 (citing Navellier, supra, 29 Cal. 4th at

88-89) (emphasis added).

In contrast, Plaintiffs Complaint alleges he and Defendants were contemplating a

potential partnership in prosecuting the Storm plaintiffs’ claims, which had not yet been

filed. (Compl. 15.) As noted in Plaintiffs’ Opposition, Defendants anti-SLAPP Motion

did not discuss how Larson’s communications about the Storm defendants’ settlement

offers to Plaintiff amounted to protected activity under any ofthe circumstances

identified in section 425.16(e). Instead, Defendants conflate the two-part analysis by

asserting Larson’s statements constituted protected activity on the assumption that the

statements fell under the litigation privilege pursuant to California Code ofCivil

Procedure section 47. (Docket No. 6-1 at 5.)

Defendants’ assertion that the litigation privilege establishes the prima facie

showing ofprotected activity is misplaced because affirmative defenses are not relevant

to determining whether a defendant engaged in protected activity. See Birkner, supra,

156 Cal. App. 4th at 284. Further, in Neville v. Chudacoff, 160 Cal. App. 4th 1255

(2008), a case cited by Defendants in their Reply, the court found protected activity under

section 425.16 is not synonymous with activity protected by California’s litigation

privilege. Id. at 1262-63 (citing Jarrow Formulas, Inc. v. LaMarche, 31 Cal. 4th 728,

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737 (2003)); see also Garretson v. Post, 156 Cal. App. 4th 1508,1517, 1519 (2007)

(“Although the interpretation oflanguage in Civil Code section 47 has been used to

interpret similar language in the anti-SLAPP statute [citation], we reject the broad

conclusion that conduct deemed communicative for purposes ofCivil Code section 47

automatically qualifies as constitutionally protected speech under section 425.16”). The

Neville court concluded that whether communications “might be protected by section 47”

is relevant to the analysis, but does not resolve whether the communication is a protected

activity under 425.16. Neville, supra, at 1263.

Nevertheless, Defendants maintain in their Reply that “Larson met his initial

burden ofshowing his communications fall within the protection ofthe Anti-SLAPP

statute” because Plaintiffs fraud claim alleges Larson “misrepresented and concealed

settlement offers for purposes ofhiring Hart and filing the California lawsuit.” (Docket

No. 21 at 2.) In other words, Defendants reiterate that their statements amounted to

protected activity because they were “settlement communications.” (Id.) However, the

four cases relied upon by Defendants, including GeneThera, Inc., supra, discussed above,

are similarly distinguishable from Plaintiffs action because they involve settlement

communications between opposing counsel or interested parties. See Navellier, supra, 29

Cal. 4th at 709 (defendant’s activity protected under section 425.16 where plaintiffs

alleged: (1) defendant failed to disclose he was secretly not in agreement with the terms

of a settlement release, and (2) defendant breached terms ofsettlement release by filing

of counterclaims); Suarez v. Trigg, 3 Cal. App. 5th 118,123 (2016) (opposing party’s

communications “in the course ofsettlement negotiations are protected activity within the

scope ofsection 425.16”); Seltzer v. Barnes, 182 Cal. App. 4th 953, 961-969 (2010)

(attorney’s settlement communications to opposing counsel protected activity under

section 425.16).

In sum, none ofthe cases cited by Defendants supports their broad conclusion that

all communications regarding settlement, regardless ofthe context in which they were

delivered, are protected activity under section 425.16. Indeed, courts in California have

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stated that “where a lawsuit involves both protected and unprotected activity, the court

looks to the gravamen ofthe claims to determine ifthe case is a SLAPP.” Coretronic

Corp., supra, 192 Cal. App. 4th at 1388-89, citing Peregrine Funding, Inc. v. Sheppard

Mullin Richter & Hampton LLP, 133 Cal. App. 4th 658, 672 (2005). “Determining the

gravamen ofthe claims requires examination ofthe specific acts of alleged wrongdoing

and notjust the form ofthe plaintiffs causes of action.” Id., citing Peregrine, supra, at

671-673. Additionally, California courts have stated that, where protected conduct “is

merely incidental to the claims” it “does not fall within the ambit ofsection 425.16.” Id.,

citing Martinez v. Metabolife Internal, Inc., 113 Cal. App. 4th 181, 188 (2003);

Peregrine, supra, at 672 (emphasis in original).

Here, Plaintiffs fraud claim alleges Defendants made fraudulent statements to

induce him to enter a fee-splitting agreement for the Storm case. (Compl. 5-9.)

Although the statements concern settlement offers from the Storm defendants, it is clear

from the face ofthe Complaint that the statements were not “in the course ofsettlement

negotiations.” Suarez, supra, 3 Cal. App. 5th at 123. It is equally clear that the

gravamen ofPlaintiffs fraud claim is that Defendants made intentional, material

misrepresentations that induced him into entering a fee-splitting agreement, and that he

would not have entered into said agreement but for those misrepresentations. That the

allegedly fraudulent statements happen to be about settlement communications by the

opposing party does not magically convert those statements into protected activity that

would shield Defendants from liability for fraud where the statements are not

communicated by opposing counsel or an interested party for the purpose ofsettlement.

See Seltzer, supra, 182 Cal. App. 4th at 962 (cases construing section 425.16, subdivision

(e)(2) hold that “a statement is ‘in connection with’ litigation under section 425.16,

subdivision (e)(2), ifit relates to the substantive issues in the litigation and is directed to

persons having some interest in the litigation”) (internal citations omitted) (emphasis

added).

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Therefore, the Court finds Defendants have failed to establish a prima facie

showing that Plaintiffs fraud claim arises out of protected activity as defined by section

425.16.

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2. Reasonable Probability ofPrevailing

The Court need not evaluate whether Plaintiffhas demonstrated a reasonable

probability ofprevailing on the merits ofhis claim because Defendants have not met their

initial burden to demonstrate that their alleged actions constituted protected activity under

section 425.16. See Doe, supra, 730 F.3d at 953 (citing Marijanovic v. Gray, York &

Duffy, 137 Cal. App. 4th 1262,1270 (2006)). Accordingly, Defendants’ Special Motion

to Strike is DENIED.

II. Defendants’ Motion for Partial Judgment on the Pleadings

Defendants next move for Partial Judgment as to Plaintiffs fraud claim pursuant to

Rule 12(c) ofthe Federal Rules ofCivil Procedure. (Docket No. 7.)

Rule 12(c) provides: “After the pleadings are closed-but early enough not to delay

trial—a party may move forjudgment on the pleadings.” Fed. R. Civ. P. 12. The Ninth

Circuit has stated that Rule 12(c) is “ ‘functionally identical’ to Rule 12(b)(6) and that

‘the same standard ofreview’ applies to motions brought under either rule.” See Cafasso,

U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, n. 4 (9th Cir. 2011) (citing

Dworkin v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989)).

Under Federal Rule ofCivil Procedure 12(b)(6), dismissal is appropriate if, taking

all factual allegations as true, the complaint fails to state a plausible claim for relief on its

face. Fed. R. Civ. P. 12(b)(6); BellAtl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007);

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (requiring plaintiffto plead factual content

that provides “more than a sheer possibility that a defendant has acted unlawfully”). In

considering a Rule 12(b)(6) motion, the court must “accept as true facts alleged and draw

inferences from them in the light most favorable to the plaintiff.” Stacy v. Rederite Otto

Danielsen, 609 F.3d 1033, 1035 (9th Cir. 2010) (citing Barker v. Riverside Cnty. Office

ofEduc., 584 F.3d 821, 824 (9th Cir. 2009)).

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Under this standard, dismissal is appropriate ifthe complaint fails to state enough

facts to raise a reasonable expectation that discovery will reveal evidence ofthe matter

complained of, or ifthe complaint lacks a cognizable legal theory under which reliefmay

be granted. Twombly, 550 U.S. at 556. “A claim is facially plausible ‘when the plaintiff

pleads factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.’” ZixiangLi v. Kerry, 710 F.3d 995, 999

(9th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). “Threadbare recitals ofthe elements of

a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556

U.S. at 678.

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In addition, allegations offraud must be stated with particularity. Fed. R. Civ. P.

9(b). “In order to plead fraud with particularity, the complaint must allege the time,

place, and content ofthe fraudulent representation; conclusory allegations, do not

suffice.” Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 1035, 1042 (9th Cir.

2010) (citing Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir.

1989)); Kearns v. FordMotor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (requiring

plaintiffs plead who, what, when, where, and how).

Defendants contend that the Court should grant their Motion for Partial Judgment

on the grounds that Plaintiffs claim for fraud is barred as a matter oflaw by California’s

statutory litigation privilege. The Court finds Plaintiffs fraud claim is not barred by

California’s litigation privilege and that the Complaint sufficiently alleges facts to state a

claim for fraud.

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22 California Litigation Privilege

California Civil Code section 47, provides in relevant part that a “privileged

publication” is one made:

A.

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(b) In any (1) legislative proceeding, (2) judicial proceeding, (3)

in any other official proceeding authorized by law, or (4) in the

initiation or course of any other proceeding authorized by law

and reviewable pursuant to Chapter 2 (commencing with

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Section 1084) ofTitle 1 ofPart 3 ofthe Code ofCivil

Procedure...

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Cal. Code Civ. Proc. § 47(b). The courts have formulated a general rule, finding the

litigation privilege:

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[A]pplies to any communication (1) made injudicial or quasijudicial proceedings; (2) by litigants or other participants

authorized by law; (3) to achieve the objects ofthe litigation;

and (4) that have some connection or logical relation to the

action.

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Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990). The California Supreme Court in Jacob

B. v. Cnty. ofShasta, 40 Cal. 4th 948, 955 (2007), explained that:

The purposes ofsection 47, subdivision (b), are to afford

litigants and witnesses free access to the courts without fear of

being harassed subsequently by derivative tort actions, to

encourage open channels of communication and zealous

advocacy, to promote complete and truthful testimony, to give

finality to judgments, and to avoid unending litigation.

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Id., citing Rusheen v. Cohen, 37 Cal. 4th 1048, 1063 (2006). With this public interest in

mind, the courts have broadly defined this litigation privilege to cover any publication

that is “required or permitted by law in the course of a judicial proceeding to achieve the

objects ofthe litigation, even though the publication is made outside the courtroom and

no function ofthe court or its officers is invoked.” Id. (citing Albertson v. Raboff, 46 Cal.

2d 378, 381 (1956)). “Ifthe publication has a reasonable relation to the action and is

permitted by law, the absolute privilege attaches.” Ibid.

Whether a communication “has ‘some connection or logical relation to the action’”

is determined by “the subject matter or context ofthe misstatement, not the isolated

misstatement itself.” Sacramento Brewing Co. v. Desmond, Miller & Desmond, 75 Cal.

App. 4th 1082, 1089-90 (1999) (quoting Silberg, supra, 50 Cal. 3d at 212). “Ifthere is

no dispute as to the operative facts, the applicability ofthe litigation privilege is a

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1 question oflaw. Any doubt about whether the privilege applies is resolved in favor of

applying it.” Kashian v. Harriman, 98 Cal. App. 4th 892, 913 (2002).

Although reviewing courts have interpreted the scope ofthe litigation privilege

broadly, the privilege does not apply in all situations. For example, courts have found

that the litigation privilege does not apply where the false statements made were not

logically related or connected to the underlying suit. See Nguyen v. Proton Technology

Corp., 69 Cal. App. 4th 140, 151 (1999); LiMandri v. Judkins, 52 Cal. App. 4th 326, 346

(1997); Shahvar v. Superior Court, 25 Cal. App. 4th 653, 657 (1994). The privilege was

also not found where application ofthe privilege did not promote truthfulness in a

witnesses' testimony. Mattco Forge, Inc. v. Arthur Young & Co., 5 Cal. App. 4th 392,

404 (1992). Moreover, “[t]he question ofwhether the litigation privilege should, or

should not, apply to particular communications has always depended upon a balancing of

the public interests served by the privilege against the important private interests which it

sacrifices.” Rothman v. Jackson, 49 Cal. App. 4th 1134, 1146-47 (1996). Thus, when

applying the litigation privilege to specific situations, courts must be mindful ofthe

general purpose ofthe litigation privilege, and whether applying the privilege will further

the stated public interests.

Analysis

As set forth above, the litigation privilege:

[A]pplies to any communication (1) made injudicial or quasijudicial proceedings; (2) by litigants or other participants

authorized by law; (3) to achieve the objects ofthe litigation;

and (4) that have some connection or logical relation to the

action.

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24 Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990). The parties dispute the existence ofthe

25 third and fourth elements ofthe litigation privilege.6

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6 Although the parties did not briefthe issue, the Court questions the existence ofthe first

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“The requirement that the communication be in furtherance ofthe objects ofthe

litigation is, in essence, simply part ofthe requirement that the communication be

connected with, or have some logical relation to, the action, i.e., that it not be extraneous

to the action.” Id. at 219. A communication falls under the litigation privilege ifit is

logically related or connected to the underlying litigation. Id. at 212. Also known as the

“logical relation test”:

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the “connection or logical relation” which a communication

must bear to litigation in order for the privilege to apply, is a

functional connection. That is to say, the communicative act..

. must function as a necessary or useful step in the litigation

process and must serve its purposes. This is a very different

thing from saying that the communication's content need only

be related in some way to the subject matter ofthe litigation.

Rothman, supra, 49 Cal. App. 4th at 1146 (emphasis in original).

Relying solely on Olsen v. Harbison, 191 Cal. App. 4th 325 (2010), Defendants

broadly assert that the litigation privilege immunizes from tort liability “all

communications between attorneys concerning the fee split.” (Docket No. 7-1 at 4.) The

Court disagrees, and finds the facts in Olsen distinguishable from Plaintiffs action.7

In Olsen, the plaintiffwas an attorney who had been retained by Kathleen

Klawitter in a separate lawsuit (the “Klawitter action”). Id., supra, at 328. The defendant

was an attorney whom the plaintiff contacted to associate in as trial counsel in the

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22 were imminent at the time ofthe disputed communications. Additionally, Plaintiffs

Opposition raised an argument that Defendants’ communications amounted to the illegal

conduct ofwire fraud because the communications were made from Colorado, “using the

telephone and internet mail systems ofinterstate commerce,” and thus Defendants were

not entitled to the litigation privilege. (Docket No. 14 at 2-3.) The Court may not

consider this argument at this time, as wire fraud was not alleged in Plaintiffs Complaint.

As discussed above, in ruling on a Rule 12(c) motion, the Court is limited to review of

the factual pleadings in the operative complaint.

7 The Court also notes Olsen v. Harbison is persuasive authority; neither party briefed a

California Supreme Court case with facts similar to Plaintiffs case.

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Klawitter action. Id. According to the plaintiffs complaint, the defendant made

“disparaging comments regarding [plaintiff] to Klawitter” {id. at 334), which allegedly

resulted in Klawitter firing the plaintiff and entering into a new fee agreement with the

defendant Id. at 328-329. The plaintifffurther alleged that the defendant made various

misrepresentations to induce the plaintiffinto requesting his association in the case. Id. at

332. The Klawitter action ultimately settled for $775,000, ofwhich the plaintiff did not

receive any fees. Id. at 329.

Subsequently, the Olsen plaintiffsued the defendant on number oftheories of

liability, including fraud, ofwhich the trial court granted summary adjudication after

concluding the challenged communications were protected by the litigation privilege. Id.

The trial court, without identifying the content ofthe statements, divided the alleged

fraudulent communications into two categories: (1) statements made by defendant to

Klawitter about plaintiff, and (2) statements made by defendant to plaintiffto induce

plaintiffinto asking defendant to associate into the case. Id. at 332-333.

The trial court first ruled that the defendant’s allegedly disparaging

communications about the plaintiffto Klawitter were within the litigation privilege. Id.

Specifically, the trial court found that:

Application ofthe litigation privilege in this context promotes

the public policy behind the protection by encouraging first and

foremost co-counsels' duty ofloyalty and complete candor to

the client which in turn promotes the utmost freedom of access

to the courts, and curtailing the propagation oftangential

derivative litigation arising from communications seemingly

compelled by several ethical rules that guide co-counsel.

Id. (emphasis added). Next, the trial court considered the defendant’s “alleged false and

fraudulent statements that induced [plaintiff] to invite [defendant] into the Klawitter

representation, or accompanied the parties negotiation ofterms.” Id. It found that,

because the communications were “intended to serve the necessarypurpose ofidentifying

and securing co-counsel able to competently represent Ms. Klawitter in the pending

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action ... these communications also fall within the bounds ofthe broad litigation

privilege.” Id. at 333 (emphasis added).

The California Court ofAppeal affirmed, finding that the statements were

connected to Klawitter’s litigation because the conversations between plaintiff and

defendant “occurred in order to provide Klawitter with the bestpossible representation

in her personal injury case,” and that “[t]he purposes behind the litigation privilege are

furthered when the privilege is applied to communications made in this setting.” Id. at

336 (emphasis added).

Here, assuming the Plaintiffs factual allegations as true,

Defendants’ made the following fraudulent material misstatements or omissions:

a) Larson stated the Storm defendants had raised their settlement offer from $5.8

million to $8 million, which was untrue at the time Larson made the statement.

(Compl. If 5, 7.)

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b) Larson concealed the fact that the Storm defendants had made prior settlement

offer of $6.3 million after Plaintiff had been retained in the case. (Id. f 8.) 14

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c) Larson concealed the fact that the Storm defendants had made a settlement offer

of $6.8 million after Plaintiffhad been retained in the case. (Id.) 16

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Although Plaintiff alleges Larson sought his association as counsel in the Storm

case to file and prosecute the Storm claims, Plaintiff also alleges that Larson’s

misrepresentations about facts relevant to the case were made in the context of

determining how the fee between them would be split. (Compl. ff 5-6.) Notably,

Plaintiff alleged Larson already had an existing fee agreement with the Storm plaintiffs,

and Larson’s alleged misrepresentations arose out their discussions on division ofthe

existing fee arrangement. (Id.) Thus, unlike in Olsen, where the statements between the

attorneys were for the purposes of “identifying and securing co-counsel to competently

represent” a client, the statements here were delivered for the purposes ofnegotiating a

fee arrangement, presumably after Defendants determined Plaintiffs competency. Olsen,

supra, 191 Cal. App. 4th at 333.

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Furthermore, a reasonable inference may be drawn that Larson’s purpose in

making the alleged misrepresentations was to secure the most advantageous fee splitting

arrangement for himself, rather than “providing] [the Storm plaintiffs] with the best

possible representation.” Id. at 336; see also Rothman, supra, 49 Cal. App. 4th at 1146

(emphasis in original) (“the communicative act... must function as a necessary or useful

step in the litigation process and must serve its purposes. This is a very different thing

from saying that the communication's content need only be related in some way to the

subject matter ofthe litigation.)

Additionally, Defendants’ assertions that the litigation privilege should apply to the

statements concerning the Storm defendants’ settlement offers are not persuasive. The

Court must consider the context in which the Defendant’s alleged misstatements were

delivered, not only “the isolated misstatement itself.” Sacramento Brewing Co., supra,

75 Cal. App. 4th at 1089-90. In short, conversations between opposing counsel in the

context ofnegotiating a settlement is markedly different from conversations between

potential co-counsel in the context ofnegotiating a fee-splitting agreement. While the

former is clearly covered under the litigation privilege, the Court finds Defendants have

failed to demonstrate how or why the latter should also fall under the litigation privilege.

As a matter ofpolicy, the Court disagrees that extension ofthe litigation privilege

to Defendants’ statements in this context would further the stated purpose ofproviding

“litigants and witnesses free access to the courts without fear ofbeing harassed

subsequently by derivative tort actions, to encourage open channels of communication

and zealous advocacy, to promote complete and truthful testimony, to give finality to

judgments, and to avoid unending litigation.” Jacob B., supra, 40 Cal. 4th at 955 (2007).

To the contrary, such application would appear to hinder these purposes, such as where

an attorney allegedly defrauds another attorney representing the same client into agreeing

to accept a smaller fee, and at the same time attempts to bar the defrauded attorney out of

any form ofrecourse for such fraud by hiding behind the litigation privilege. See

Rothman, supra, 49 Cal. App. 4th at 1146-47 (“the question ofwhether the litigation

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privilege should, or should not, apply to particular communications has always depended

upon a balancing ofthe public interests served by the privilege against the important

private interests which it sacrifices.”).

In sum, the Court finds the functional context ofthese communications do not

“have some connection or logical relation to the action” to warrant application ofthe

litigation privilege. Silberg, supra, 50 Cal. 3d at 212; see also Rothman, supra, 49 Cal.

App. 4th at 1146. Therefore, Defendants’ Motion for Partial Judgment is DENIED.

Plaintiffs Motion to Amend

Finally, Plaintiffrequests leave to amend his complaint to add two additional

defendants to his claim for quantum meruit. (Docket No. 24.) Defendants oppose

Plaintiffs Motion on the grounds that the proposed amendments are futile. (Docket No.

25.)

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Leave to amend under Rule 15(a)(2) should be “freely give[n] ... when justice so

requires.” Fed. R. Civ. P. 15(a)(2). The Ninth Circuit “has noted on several occasions ..

. that the Supreme Court has instructed the lower federal courts to heed carefully the

command ofRule 15(a),... by freely granting leave to amend when justice so requires.”

DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). “This policy is ‘to

be applied with extreme liberality.”’ Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d

1048, 1051 (9th Cir. 2003) (quoting Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d

708, 712 (9th Cir. 2001)).

Courts consider “undue delay, bad faith, dilatory motive, repeated failure to cure

deficiencies by previous amendments, undue prejudice to the opposing party, and futility

ofthe proposed amendment” in deciding whetherjustice requires granting leave to amend

under Rule 15. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 538 (9th Cir.

1989) (citing Foman v. Davis, 370 U.S. 178, 182 (1962)). Although each factor may

warrant consideration, “prejudice to the opposing party ... carries the greatest weight.”

Eminence Capital, 316 F.3d at 1052. None ofthese factors weigh against granting leave.

Accordingly, Plaintiffs request for leave to amend is GRANTED.

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1 CONCLUSION

For the reasons set forth above, Defendants’ Special Motion to Strike (AntiSLAPP) and Motion for Partial Judgment on the Pleadings are DENIED. Plaintiffs

Motion to Amend is GRANTED. Plaintiffs need not file a new amended complaint, the

Proposed First Amended Complaint, attached as Exhibit A to his Motion, shall be filed

nuncpro tunc to the date ofthis Order. Defendants shall file an answer or otherwise

respond to the First Amended Complaint in accordance with the Federal Rules ofCivil

Procedure and Civil Local Rules.

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9 IT IS SO ORDERED.

10 r

February ^^2017 11 DATED:

HONTROdER T. BENITEZ^

Urmed States District Judge 12

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