1 Filed 12/11/14 Harris v. Wachovia Mortgage CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELL ATE DISTRICT DIVISION TWO

STEPHEN HARRIS et al., Plaintiffs and Appellants,

v. WACHOVIA MORTGAGE, FSB, Defendant and Respondent. E056084 (Super.Ct.No . CIVSS811443)

OPINION

APPEAL from the Superior Court of San Bernardino County. Donald R. Alvarez, Judge. Affirmed. Monique Harris for Plaintiffs and Appellants. Anglin Flewelling Rasmu ssen Campbell & Trytten, Ro bert Collings Little and Robin C. Campbell for De fendant and Respondent. Plaintiffs Stephen and Ozelia Harris appe al a judgment dismissing their second amended complaint for breach of contract, misrepresentation and fraud, following the court’s grant of a special motion to stri ke, or anti-SLAPP motion (Code Civ. Proc.,2 § 425.16), 1 as to all three causes of action. The court’s ruling was based on its

conclusion that all three causes of action were based on st atements allegedly made by

counsel for Wachovia duri ng settlement negotiations. The issue arose as follows, as discussed in plaintiffs’ prior appeal. “In their first amended complaint, plaintiffs alleged that th ey entered into an ag reement for home loan services with World Savings, Inc. Wachovia Mortgage, FSB (Wachovia) is the successor in interest to World Savings, Inc. Plai ntiffs had two home loans through Wachovia, secured by a first and second deed of trust on their property in Fontana. During the pendency of the loans, Wachovia failed to apply payments made by plaintiffs to plaintiffs’ accounts, causing pl aintiffs’ accounts to go into default. Wachovia falsely claimed that it did not receive plaintiffs’ pa yments and concealed the fact that it had received the payments and had cr edited them to its own account rather than to plaintiffs’ accounts.” ( Harris v. Wac hovia Mortgage , FSB (2010) 185 Cal.App.4th 1018, 1021 ( Harris I ).) “On June 15, 2007, plaintiffs filed a co mplaint in the Superior Court of San Bernardino County for conversi on and other causes of action. On February 26, 2008, plaintiffs and Wachovia entered into a writte n settlement agreement. In that agreement, Wachovia agreed to credit plain tiffs' first loan acco unt with the disputed amount and to modify the loan agreemen t from bearing an ad justable interest rate to a fixed interest rate. [¶] Plaintiffs agreed to dismiss thei r complaint upon executio n of the settlement

1 All further statutory citations refer to the Code of Civil Procedure unless another code is specified.3 agreement and did so. However, Wachovia fa iled to bring plaintiffs’ loan account current and failed to modify the loan as agre ed. Plaintiffs further alleged that Wachovia acted in bad faith in failing to comply with the terms of the settlement agreement and falsely represented that it would do so, with the intent to deceive plaintiffs and induce them to dismiss their prior action.” ( Harris I , supra , 185 Cal.App.4th at pp. 1021-1022.) Plaintiffs filed a first amended complain t for breach of contract, breach of the implied covenant of good faith and fair deal ing, and unfair busine ss practices. The trial

court sustained Wachovia’s demurrer without l eave to amend. It held that all three causes of action were preempted by the fede ral Home Owners’ Loan Act, or HOLA. (12 U.S.C. § 1461 et seq.) “The court also held that the thir d cause of action, for unfair business practices, was impermissibly added to the first amended co mplaint without leave of court.” ( Harris I , supra , 185 Cal.App.4th at p. 1021.) On appeal, we held that the demurrer was properly sustained as to the claims for breach of the covenant of good faith and fair dealing and unfair business practi ces for reasons unrelated to HOLA. ( Harris I , at pp. 1022-1023.) However, we held that plai ntiffs’ claim for breach of contract is not preempted by HOLA. We revers ed the judgment as to that cause of action and remanded the cause for further proceedings. ( Harris I , at pp. 1023-1026, 1027.) On remand, plaintiffs filed a second amended complaint, alleging breach of contract, fraud and misrepresentation. The co mplaint alleged that Wachovia, through its attorney, made false representations to plainti ffs with the intent to induce plaintiffs to enter into the settlement agre ement and that Wachovia failed to perform its obligations under the settlement agreement. Plaintiffs alle ged that their oral agreement, which was to4 be memorialized in a written settlement ag reement, included Wach ovia’s agreement to apply a credit in the amount of $6,500 to plain tiffs’ first loan and bring both the first and

second loans current. Both loans were then past due because of defendant’s failure to apply payments to plaintiffs’ account. Wa chovia also agreed to change the monthly payment on plaintiffs’ first loan “t o an amount less than” $2,700. Plaintiffs further alleged that upon their receipt of the written settlement agreement, Ozelia Harris contacted Wachovia ’s attorney, Mark Flewelling, and that Flewelling assured her that Wachovia would a pply a credit of $6,500 to the first loan, bring the first and second loans current, and change the monthly payment to an amount less than $2,700. They allege d that in justifiable reliance on Flewelling’s representations,

which were made to induce them to enter into the written settleme nt agreement, they signed the written agreement. 2 However, when plaintiffs received a statement on the

their account a month after havi ng executed the written settleme nt agreement, plaintiffs discovered that Wachovia failed to apply a cr edit of $6,500, failed to bring the first and second loans current, and did not reduce the monthly payment on the first loan to $2,562.27, as stated in the lo an modification prepared pursua nt to the written agreement. Thereafter, Wachovia continued to send th em past due notices and threatened

2 This seems to imply that these terms were omitted from the written agreement. However, the written settlement agreement incl udes the provision that Wachovia will apply a credit in the amount of $6,500 to pl aintiffs’ account, and the loan modification agreement which was executed pu rsuant to the settlement ag reement also applies that credit. It also reduces plain tiffs’ monthly principal and inte rest payments to $2,562.27, effective with the payment due on March 15, 2008. Neither document contains any provision for bringing both accounts current, however.5 foreclosure. In addition, Wachovia continue d to charge plaintiffs accrued interest and late fees, despite its promis e to bring both loans current. Incorporating those factual allegations in to their cause of action for breach of contract, plaintiffs allege that although they dismissed their first lawsuit against Wachovia as agreed in the se ttlement agreement, Wachovia intentionally, willfully and maliciously breached the parties’ contract wh en it failed to apply th e credit, failed to bring both loans current and failed to reduce th e monthly payment on the first loan “to an amount less than $2,700.00.” They allege that after the settlement agreement was executed, Wachovia informed them that their monthly payment was $3,194.92. 3 Based on the same factual allegations, which they incorporated by reference into their second and third causes of action, plaintiffs also a lleged that Wachovia intentionally made false representations with knowledge of their falsity or with reckless disregard for the truth and with the intent to induce plain tiffs to enter into the written settlement agreement, and that plaintiffs did so in reasonable relia nce on Wachovia’s representations. Wachovia filed a demurrer to the operative second amended complaint and a motion to strike portions of the operative se cond amended complaint, and then filed a special motion to strike, or anti-SLAPP motion, pursuant to section 425.16, arguing that

3 In support of its sect ion 425.16 motion, Wachovia explained that plaintiffs’ postsettlement monthly payment for principal and interest was modified as agreed to $2,562.27, but that plaintiffs were also required by the te rms of their original loan agreement to make a monthly payment into an escrow acco unt for fire/hazard insurance and property taxes. That term of the ag reement was not modified by the settlement agreement. Following the se ttlement agreement, the mont hly escrow account payment was $632.65.6 all three causes of action were based on representations made during negotiations to settle a lawsuit, in furtherance of Wachovia’s Firs t Amendment right of petition. Plaintiffs responded that their breach of contract claim was based exclusively on Wachovia’s failure to perform under the wr itten settlement agreement and was therefore not subject to section 425.16. After hearing argument, the court granted the motion and dismissed plaintiffs’ complaint. Judg ment was entered for Wachovia . This appeal followed.

LEGAL ANALYSIS

THE TRIAL COURT PROPERLY GRANTED THE SPECIAL MOTION TO STRIKE Section 425.16 provides in pertinent pa rt: “A cause of action against a person arising from any act of that person in furthe rance of the person’s ri ght 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.” (§ 425.16, subd. (b)(1).)

Consideration of a section 42 5.16 motion to strike involves a two-step process. First, the defendant must show that the cause of action arises from protected activity, i.e., activity by the defendant in furtherance of his constitutio nal right of petition or free speech. If the trial court determines that the defendant has met his initial burden, the burden shifts to the plaintiff to demonstrat e a reasonable probability of prevailing on the merits of his cause of action. ( Equilon Enterprises v. Consumer Cause, Inc . (2002) 29 Cal.4th 53, 67 ( Equilon ).) Review of an order grantin g or denying a mo tion to strike under section 425.16 is de novo. ( Flatley v. Mauro (2006) 39 Cal.4th 299, 325.)7 As used in section 425.16, an “‘act in fu rtherance of a person’ s right of petition or free speech under the United States or Califor nia Constitution in conne ction with a public issue’ includes . . . any written or oral stat ement or writing made in connection with an issue under consideration or review by a legi slative, executive, or judicial body.’” (§ 425.16, subd. (e)(2).) This includes communications made by parties or their representatives as part of negotiati ons for settlement of a lawsuit. ( Navellier v. Sletten (2002) 29 Cal.4th 82, 90 ( Navellier ) [“negotiation, execution, and repudiation” of a release are acts arising from th e right of petition]; see also Seltzer v. Barnes (2010) 182 Cal.App.4th 953, 963-964 and cas es discussed therein.) Plai ntiffs allege that false statements were made by Wachov ia’s attorney, Mark Flewelling, in his effort to induce

them to settle the lawsuit. Ergo, the statements were ma de in connection with litigation and fall within section 425.16. Accordingly, plaintiffs’ causes of action for fraud and misrepresentation, which are based entirely on Flewelling’s statements, unquestionably arise from protected petitioning activity. And, to the extent that plai ntiffs’ complaint for

breach of contract is based on Wachovia’s alleged breach of oral promises made by Flewelling, it arises from prot ected petitioning activity as well. Plaintiffs contend, however, that their fraud and misrepresentation causes of action are based solely on Wachovia ’s failure to perform its ob ligations under the settlement agreement. This is nonsen se. Their second amended complaint alleges that “Wachovia intentionally induced the Plai ntiffs to enter into the se ttlement agreement by falsely representing to Plaintiffs” that it would perf orm the obligations contained in the written settlement agreement, specifica lly to apply a credit of $6,500 to their account, to bring8 both loan accounts current and to reduce th eir monthly payments to $2,562.27 or an amount less than $2,700. Plaintiffs allege th at but for these representations, they would not have entered into the settlement agreemen t and would not have dismissed their prior lawsuit. They allege that they did so in reasonable relia nce on Wachovia’s intentionally false representations. Promises made to induce a party to enter into a settlement agreement are necessarily acts in furtherance of th e right of petition. (See Navellier , supra , 29 Cal.4th at p. 90; Seltzer v. Barnes , supra , 182 Cal.App.4th at pp. 963-964.) Accordingly, the burden shifte d to plaintiffs to demonstr ate the probability that they would prevail on the fraud and mi srepresentation claims. ( Equilon , supra , 29 Cal.4th at p. 67.)

Plaintiffs also contend that their claim for breach of co ntract is based solely on Wachovia’s failure to perform provisions of the written settle ment agreement and that it does not depend on any statements made dur ing settlement negotiations. They contend

that the breach of contract claim therefor e does not implicate Wachovia’s right to petition. They are correct that a breach of a settlement contract which does not implicate a party’s right to petition, such as, for exampl e, Wachovia’s alleged failure to apply the $6,500 credit which is provided for in the sett lement agreement, is not protected activity within the meaning of section 425.16 beca use it was not undertaken by Wachovia in furtherance of its right of petition or free sp eech; rather, it is mere ly a garden-variety breach of contract. (See Applied Business Software, Inc. v. Pacific Mortgage Exchange,

Inc . (2008) 164 Cal.App.4th 1108, 1117-1118.) However, plaintiffs’ allegations are not limited to conduct which breached express provisions of the settlement agreement9 without regard to statements made during the settlement process. Plaintiffs alleged in part (or appear to; their pleading is vague, whether intentionally or unintentionally) that some of Wachovia’s oral promises were not reduced to writing in the settlement agreement, but that Flewelling assured them that Wachovia would honor those promises and that promises which were not expre ssly stated in the written agreement are nevertheless implied. They now also asse rt that Flewelling’s alleged promises are admissible parol evidence as to the meaning of the written agreement. Accordingly, their breach of contract allegations depend in part on protected activity, i.e., Flewelling’s statements made during settlement negotiations.

Where a cause of action is “mixed”— based upon both protected acts and unprotected acts, within the meaning of section 425.16—section 425.16 applies unless the protected acts are “merely incidental” or “collateral” to the unprotected conduct. ( Peregrine Funding, Inc. v. Sheppa rd Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 672-673.) Here, the protecte d activity—the alleged oral promises made

in furtherance of settlement of the lawsuit—is not merely incidental . Plaintiffs allege

three breaches of the written contract. Two of them are express terms of the written contract: Wachovia’s failure to apply the $6, 500 credit to their acco unt and its failure to reduce their monthly payments to $2,562.27. Howe ver, neither the settlement agreement nor the loan modification agreement contains a provision for bringing both of plaintiffs’

loan accounts current. On the contrary, the written settlement agreement explicitly states that the $6,500 credit was to be applied to the first loan only. However, the complaint alleges that after plaintiffs received th e written agreement, Ozelia Harris contacted10 Flewelling and obtained his assu rances that both loan accounts would be brought current, as well as his assurance that the monthly pa yment would be reduced to an amount less than $2,700. Plaintiffs now contend that the promise to br ing both accounts current was implied in the written contract, based on Flew elling’s statements on which they relied in deciding to execute the settlement agreement. Flewe lling’s statements are therefore essential to plaintiffs’ claim a nd are not merely incidental to the breach of contract as alleged by plaintiffs. Accordingly, becaus e the cause of action depends in substantial part on protected activity which is not mere ly incidental to th e unprotected activity, plaintiffs’ claim for breach of cont ract is subject to section 425.16. Section 425.16 does not bar a plaintiff fro m litigating an action that arises from the defendant’s free speech or pe titioning activity, if it is s upported by a sufficient prima facie showing of facts to sustain a favorable judgment if the plai ntiff’s evidence is credited. ( Navellier , supra , 29 Cal.4th at pp. 88-89, 93.) However, to meet its burden under section 425.16, th e plaintiff must produce substan tial evidence in support of the claim. ( South Sutter , LLC v. LJ Sutter Partners , L

. P

. (2011) 193 Cal.App.4th 634, 670.) Plaintiffs produced no evidence be low, and on appeal they asse rt, as they did below, that

their burden to do so never arose because sec tion 425.16 categorically does not apply to11 either their fraud/misrepresentation claim or to their breach of cont ract claim. Because they did not meet their burden, the motion was properly granted. 4

DISPOSITION The judgment is affirmed. Defendant Wa chovia Mortgage, FSB, is awarded costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

McKINSTER J. We concur:

HOLLENHORST Acting P. J.

RICHLI J.

4 We note as well that the litigation privile ge set forth in Civil Code section 47, subdivision (b), would also bar the fraud/ misrepresentation claim. (See, e.g., Home Ins. Co. v. Zurich Ins. Co. (2002) 96 Cal.App.4th 17, 20-21, 23-24 [litigation privilege bars derivative tort claims based on allegedly fra udulent statements made during settlement negotiations].)