Court Opinion

ID: 3185696
Source: CourtListenerOpinion
Date Created: 2016-03-15 20:15:36.952447+00
Date Added: 2024-06-11T14:19:58.719477
License: Public Domain

Filed 3/15/16 Zaghi v. Levy CA2/7
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                DIVISION SEVEN

KAROOSH ZAGHI,                                                       B258847

         Plaintiff and Respondent,                                   (Los Angeles County
                                                                     Super. Ct. No. SC120466)
         v.

SHAOUL LEVY et al.,

         Defendants and Appellants.

         APPEAL from an order of the Superior Court of Los Angeles County, Craig D.
Karlan, Judge. Affirmed.
         Murphy Rosen, Paul D. Murphy, Jodi M. Newberry and Mark J. Nagle, for
Defendants and Appellants Shaoul Levy, Aryeh Aslan, Jessie Liu and Raziel La Madrid
Valiente.
         Daar & Newman, Jeffrey J. Daar and Michael R. Newman, for Defendant and
Appellant Tony Frazier.
         Ervin Cohen & Jessup, Geoffrey M. Gold and Eric W. Cheung for Defendants and
Appellants Great American Chicken Corp., Inc. and U.S. Food Corp., Inc.
         Hamburg, Karic, Edwards & Martin, Steven S. Karic, Gregg A. Martin and
David A. Householder, for Plaintiff and Respondent Koorosh Zaghi.
                                               _________________
       Karoosh Zaghi was employed by, and held a 20 percent ownership interest in,
Great American Chicken Corp., Inc. and U.S. Food Corp., Inc., which operate a large
number of franchised KFC and Long John Silver’s fast-food restaurants. After his
employment was terminated and his shares of stock involuntarily repurchased, Zaghi
sued the two companies and several of his former business associates for fraud, breach of
fiduciary duty, breach of contract, defamation and related common law and statutory
causes of action. Zaghi’s lawsuit sought $20 million in compensatory damages and
restoration of his employment and ownership interests in the companies. Great American
Chicken and U.S. Food moved pursuant to Code of Civil Procedure section 425.16
(section 425.16) to strike several of the causes of action pleaded. Shaoul Levy and four
of the other individual defendants did as well. The trial court denied both motions, ruling
any allegations of protected speech or petitioning conduct in Zaghi’s first amended
complaint were incidental to the gravamen of the challenged causes of action. We affirm.
                 FACTUAL AND PROCEDURAL BACKGROUND
       1. Zaghi’s First Amended Complaint
       On November 26, 2013 Zaghi filed a 66-page, 237-paragraph first amended
complaint containing 15 causes of action and naming as defendants Great American
Chicken and U.S. Food (collectively corporate defendants), Levy, Tony Frazier, Aryeh
Aslan, Jessie Liu and Raziel La Madrid Valiente (collectively individual moving
defendants) and two other individuals and a (suspended) mortgage broker. Zaghi alleged
that he and his friend and business partner Ataollah Aminpour had originally formed
Great American Chicken and U.S. Food in 2011 to acquire 70 KFC and 21 Long John
Silver’s franchised restaurants through negotiations with Yum Brands, a publicly traded
Fortune 500 corporation that owned the two brands. Zaghi held a 20-percent interest in
each corporation and was employed as an officer and served as a director of both.
Zaghi’s employment was terminated in March 2013 (Aminpour had been discharged at
an earlier date) based on false allegations of misconduct and self-dealing; Levy and Aslan
then exercised their purposed right to repurchase his stock for a nominal amount and

                                             2
excluded Zaghi from participating in the companies in any respect—the culmination of
defendants’ scheme to acquire full control of the companies and obtain Zaghi’s and
Aminpour’s ownership interests in them. Since February 2013 Zaghi has received no
wages, income or distributions from either company. All those actions, Zaghi alleged,
were fraudulent and in violation of various statutory and contractual rights he enjoyed as
a shareholder and employee of the companies.
       The first amended complaint alleged Zaghi was fraudulently induced into making
substantial personal financial commitments in connection with the acquisition of the KFC
and Long John Silver’s restaurants and his interests in the two companies were thereafter
misappropriated through a series of wrongful actions. The defendants allegedly made
misrepresentations about the plans for funding and operating the joint venture formed by
Zaghi, Aminpour, Frazier and Levy to acquire the restaurants; misrepresentations and
concealment of the status of bank signing authority, which gave Levy single signature
authority over corporate accounts; misrepresentations regarding Zaghi’s responsibility for
a loan from the Small Business Administration; and a false promise that Zaghi would
continue to be employed with the companies and retain his ownership interests if he
cooperated in litigation against Aminpour after Aminpour’s employment with the
companies had been terminated and his stock repurchased. As to this final category of
misconduct, Zaghi alleged he was improperly pressured into signing a false declaration
that described Aminpour’s purported wrongful conduct for use in the litigation. Zaghi
                                                                            1
also alleged he was defrauded into signing various corporate resolutions.
       In addition to Zaghi’s claims regarding his employment and stock interests, the
first amended complaint alleged he was defamed by written and oral statements by Levy,
Aslan and Frazier to Yum Brands that Zaghi had been dishonest in his business dealings

1
        The first amended complaint also contains allegations concerning interference
with Zaghi’s exercise of his rights under the California Family Rights Act (CFRA) after
he took leave to care for his wife, who was being treated for cancer, and denial of his
right to inspect corporate books and records.
                                             3
with Yum Brands and had purposefully failed to disclose information related to the
ownership of Great American Chicken and U.S. Food and the financing for the
acquisition of the KFC and Long John Silver’s restaurants. The false accusations were
made to hide defendants’ own wrongdoing from Yum Brands. Between late December
2012 and the date of his termination, March 11, 2013, Levy, Aslan and Frazier repeatedly
advised Zaghi that Yum Brands was seeking his removal from Great American Chicken
and the elimination of his equity interest, apparently based upon the false and misleading
statements made by the individual defendants to Yum Brands.
       2. The Motions To Strike
       Great American Chicken and U.S. Food moved pursuant to section 425.16 to
strike eight of the 15 causes of action in the first amended complaint: fraud, negligent
misrepresentation, breach of fiduciary duty, breach of shareholder agreements, breach of
employment agreement, interference with the California Family Rights Act, wrongful
termination in violation of public policy and defamation. The corporate defendants
emphasized that the first amended complaint alleged, as part of their scheme to
wrongfully terminate Zaghi and usurp his equity position in the companies, they had
conspired with their litigation attorneys to coerce Zaghi into signing a false declaration
for use in opposing Aminpour’s motion for preliminary injunction in Aminpour’s lawsuit
against the companies. Those allegations, they argued, brought the challenged claims
within the ambit of section 425.16 as an exercise of their right to petition.
       The companies’ special motion to strike made no separate argument with respect
to the nature of the protected activity involved in the defamation cause of action, as the
trial court noted in denying the motion: “The Company defendants’ sole argument to
support the first prong of the anti-SLAPP statute is based on the alleged coerced false
                                                                                      2
declaration, including the involvement of [litigation counsel] in its preparation.”

2
       The corporate defendants did cite Civil Code section 47, subdivision (b), in
arguing Zaghi would be unable to establish a probability of prevailing on that cause of
action because the statements were subject to the litigation privilege.
                                              4
       Levy, Frazier, Aslan, Liu and Valiente also moved to strike seven of the 15 causes
of action: fraud, negligent misrepresentation, breach of fiduciary duty, breach of joint
venture agreement, breach of shareholder agreements, removal of directors and
defamation. Like the corporate defendants, they argued the allegation that they had
improperly pressured Zaghi into signing a perjured declaration for use in the Aminpour
litigation, one of the four categories of false representations alleged in the complaint,
constituted protected petitioning activity, thus satisfying the first prong of the
section 425.16 analysis with respect to the six fraud-based causes of action they
challenged. As to Zaghi’s defamation claim, which they noted was made on information
and belief and was extremely vague, the individual moving defendants argued that any
statements made to Yum Brands during the time period identified were in furtherance of
the then-pending litigation against Aminpour (described as Zaghi’s coconspirator), as
well as the investigation of Zaghi himself, which resulted in the current litigation. They
relied upon a short paragraph in the declaration of Aryeh Aslan to support this
contention: “In the first three months of 2013, we communicated with representatives of
YUM including YUM’s in-house lawyers. These communications were done for several
reasons including but not limited to obtaining information to further our then pending
litigation against Aminpour as well as our ongoing investigation of Zaghi. . . .”
       3. The Trial Court’s Ruling
       After receiving opposition and reply papers, the trial court heard the two special
motions to strike, as well as demurrers filed by defendants, over a period of three days.
Following the final hearing the court denied both special motions to strike, finding that
protected speech or petitioning activity was not the principal thrust or gravamen of any of
the challenged causes of action and, therefore, not reaching the question whether Zaghi
                                                              3
had demonstrated a probability of prevailing on his claims. With respect to the causes of

3
       The court sustained without leave to amend the corporate defendants’ demurrer to
the breach of fiduciary duty and declaratory relief causes of action and the individual
                                             5
action other than defamation, the court ruled, “[T]he incidental allegations of potentially
protected activity—i.e., fraudulently coercing Zaghi into signing the declaration against
Aminpour—do not constitute the ‘injury producing conduct’ that is the gravamen of
plaintiff’s causes of action.” Rather, those causes of action were based on false
representations regarding the joint venture, Zaghi’s subsequent wrongful termination and
the confiscation of his stock.
       As for the defamation claim, “[a]lthough there may have been pending litigation
and an investigation of Zaghi, the court finds defendants have failed to show the alleged
defamatory statements were made in furtherance of the litigation or investigation. To the
contrary, the allegations are that the defamatory statements were purportedly made to
Yum in order to force plaintiff’s termination and sale of his stock. Neither Yum nor
Zaghi was a party to the litigation between the Companies and Aminpour. As to the
current litigation, there is nothing to show that defamatory statements are protected
because they later may result in litigation.”
                                       DISCUSSION
       1. Section 425.16: The Anti-SLAPP Statute4
       Section 425.16 provides, “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.”
(§ 425.16, subd. (b)(1).) Pursuant to subdivision (e), an “‘act in furtherance of a person’s
right of petition or free speech under the United States or California Constitution in
connection with a public issue’ includes: (1) any written or oral statement or writing

defendants’ demurrer to the cause of action for interfering with CFRA rights. The
demurrers as to several other causes of action were sustained with leave to amend.
4
      SLAPP is an acronym for “strategic lawsuit against public participation.” (Oasis
West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 815, fn.1.)
                                                6
made before a legislative, executive, or judicial 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, or
judicial 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 of the exercise of
the constitutional right of petition or the constitutional right of free speech in connection
with a public issue or an issue of public interest.”
       In ruling on a motion under section 425.16, the trial court engages in what is now
a familiar 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. The moving defendant’s burden is to demonstrate that the act or acts of which
the plaintiff complains were taken ‘in furtherance of the [defendant]’s right of petition or
free speech under the United States or California Constitution in connection with a public
issue,’ as defined in the statute. (§ 425.16, subd. (b)(1).) 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. Under section 425.16, subdivision (b)(2), the trial
court in making these determinations considers ‘the pleadings, and supporting and
opposing affidavits stating the facts upon which the liability or defense is based.’”
(Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67; accord, Jarrow
Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 733.)
           a. Step one and mixed causes of action
       The moving party’s burden on the threshold issue is to show “the challenged cause
of action arises from protected activity.” (Rusheen v. Cohen (2006) 37 Cal.4th 1048,
1056; see Scalzo v. Baker (2010) 185 Cal.App.4th 91, 98.) “[T]he statutory phrase ‘cause
of action . . . arising from’ means simply that the defendant’s act underlying the
plaintiff’s cause of action must itself have been an act in furtherance of the right of
petition or free speech. [Citation.] In the anti-SLAPP context, the critical point is

                                              7
whether the plaintiff’s cause of action itself was based on an act in furtherance of the
defendant’s right of petition or free speech. [Citations.] ‘A defendant meets this burden
by demonstrating that the act underlying the plaintiff’s cause [of action] fits one of the
categories spelled out in section 425.16, subdivision (e). . . .’” (City of Cotati v.
Cashman (2002) 29 Cal.4th 69, 78.) “If the defendant does not demonstrate this initial
prong, the court should deny the anti-SLAPP motion and need not address the second
step.” (Hylton v. Frank E. Rogozienski, Inc. (2009) 177 Cal.App.4th 1264, 1271.)
       When a special motion to strike pursuant to section 425.16 challenges a cause of
action that involves both protected and nonprotected activity (sometimes referred to as a
“mixed” cause of action), “if the allegations of protected activity are only incidental to a
cause of action based essentially on nonprotected activity, the mere mention of the
protected activity does not subject the cause of action to an anti-SLAPP motion.” (Scott
v. Metabolife Internat., Inc. (2004) 115 Cal.App.4th 404, 414; accord, Kenne v. Stennis
(2014) 230 Cal.App.4th 953, 967-968; World Financial Group, Inc. v. HBW Ins. &
Financial Services, Inc. (2009) 172 Cal.App.4th 1561, 1574.) On the other hand, if the
allegations of nonprotected conduct are collateral to the substance of the cause of action,
their presence does not prevent the court from applying the statute. As we explained in
Fox Searchlight Pictures, Inc. v. Paladino (2001) 89 Cal.App.4th 294, 308, “[A] plaintiff
cannot frustrate the purposes of the SLAPP statute through a pleading tactic of combining
allegations of protected and nonprotected activity under the label of one ‘cause of
action.’” (Accord, Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th
90, 103.)
       In applying section 425.16 to mixed causes of action, “it is the principal thrust or
gravamen of the plaintiff’s cause of action that determines whether the anti-SLAPP
statute applies [citation], and when the allegations referring to arguably protected activity
are only incidental to a cause of action based essentially on nonprotected activity,
collateral allusions to protected activity should not subject the cause of action to the anti-
SLAPP statute.” (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181,

                                               8
188; see Episcopal Church Cases (2009) 45 Cal.4th 467, 477-478 [“This dispute
[involving ownership of property] and not any protected activity, is ‘the gravamen or
principal thrust’ of the action. [Citation.] The additional fact that protected activity may
lurk in the background—and may explain why the rift between the parties arose in the
first place—does not transform a property dispute into a SLAPP suit.”]; see also Club
Members for an Honest Election v. Sierra Club (2008) 45 Cal.4th 309, 319 [“[t]he
‘principal thrust or gravamen’ test has been used to determine whether an action fits
within the scope of the anti-SLAPP protection provided by section 425.16 when a
pleading contains allegations referring to both protected and unprotected activity”].)
       “The ‘“meaning of ‘gravamen’ is clear; ‘gravamen’ means the ‘material part of a
grievance, charge, etc.’ [Citation.]” [Citation.] [¶] In the context of the anti-SLAPP
statute, the “gravamen is defined by the acts on which liability is based.” [Citation.] The
“focus is on the principal thrust or gravamen of the causes of action, i.e., the allegedly
wrongful and injury-producing conduct that provides the foundation for the claims.”’”
(Olive Properties, L.P. v. Coolwaters Enterprises, Inc. (2015) 241 Cal.App.4th 1169,
1175; accord, Hunter v. CBS Broadcasting Inc. (2013) 221 Cal.App.4th 1510, 1520.)
Phrased somewhat differently, but to the same effect, “a cause of action can only be said
to arise from protected conduct if it alleges at least one wrongful act—conduct allegedly
breaching a duty and thereby injuring the plaintiff—that falls within the act’s definition
of protected conduct.” (Old Republic Construction Program Group v. The Boccardo
Law Firm, Inc. (2014) 230 Cal.App.4th 859, 869; see id. at p. 868 [“a cause of action
arises from protected conduct if the wrongful, injurious act(s) alleged by the plaintiff
constitute protected conduct”].)
       This analysis does not require an either-or determination or mean the gravamen of
a cause of action must be based only on protected activity or on nonprotected activity.
Rather, the proper statement of the rule, as articulated in Haight Ashbury Free Clinics,
Inc. v. Happening House Ventures (2010) 184 Cal.App.4th 1539, 1551, footnote 7 is:
“[W]here the defendant shows that the gravamen of a cause of action is based on

                                              9
nonincidental protected activity as well as nonprotected activity, it has satisfied the first
prong of the SLAPP analysis.” (Accord, Kenne v. Stennis, supra, 230 Cal.App.4th at
pp. 967-968; World Financial Group, Inc. v. HBW Ins. & Financial Services, Inc., supra,
172 Cal.App.4th at p. 1574.)
           b. Step two
       If the defendant establishes the statute applies, the burden shifts to the plaintiff to
demonstrate a “probability” of prevailing on the claim. (Equilon Enterprises v.
Consumer Cause, Inc., supra, 29 Cal.4th at p. 67.) In deciding the question of potential
merit, the trial court properly considers the pleadings and evidentiary submissions of both
the plaintiff and the defendant but may not weigh the credibility or comparative strength
of any competing evidence. (Taus v. Loftus (2007) 40 Cal.4th 683, 713-714; Wilson v.
Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821.) The question is whether the
plaintiff presented evidence in opposition to the defendant’s motion that, if believed by
the trier of fact, is sufficient to support a judgment in the plaintiff’s favor. (Zamos v.
Stroud (2004) 32 Cal.4th 958, 965.) Nonetheless, the court should grant the motion “‘if,
as a matter of law, the defendant’s evidence supporting the motion defeats the plaintiff’s
attempt to establish evidentiary support for the claim.’” (Taus, at p. 714; Wilson, at
p. 821; Zamos, at p. 965.)
           c. Standard of review
       The trial court’s rulings on a special motion to strike are subject to our
independent or de novo review. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th
811, 820; accord, Flatley v. Mauro (2006) 39 Cal.4th 299, 325.)
       2. The Trial Court Properly Denied the Special Motions To Strike
           a. The fraud-related and contract causes of action
       Zaghi’s first case of action alleged all defendants were liable for committing fraud
based on their false representations of material facts and concealment or intentional
failure to disclose material information to Zaghi (or their participation in an alleged
conspiracy to defraud him). He further alleged, but for those misrepresentations,

                                              10
concealments and failures to disclose, he would not have entered into the various
agreements described in the complaint, incurred expenses, fees and costs, “or otherwise
performed as alleged hereinabove.” That same core charge of misconduct by the
defendants (that is, their lengthy series of fraudulent acts) also underlies Zaghi’s causes
of action for negligent misrepresentation, breach of fiduciary duty, breach of joint venture
agreement, breach of shareholders agreements, breach of employment agreement and
                                                     5
wrongful termination and for removal of directors.
       As discussed, among the misrepresentations alleged was the promise that Zaghi
would remain employed by Great American Chicken and U.S. Food if he cooperated in
providing a declaration for use by the companies in their litigation with Aminpour. That
promise, Zaghi further alleged, was paired with threats that, if he refused to sign the
declaration, he would suffer the same fate as had Aminpour (loss of employment and
stock interests in the companies). As a result of these threats and duress, Zaghi executed
a declaration that contained errors and misstatements, as well as matters outside his
personal knowledge.
       Starting from the premise that encouraging a witness to provide false testimony in
a pending lawsuit constitutes a statement made in connection with an issue under
consideration by a judicial body and is thus protected activity within the scope of
section 425.16, subdivision (e)(2) (see Haight Ashbury Free Clinics, Inc. v. Happening
House Ventures, supra, 184 Cal.App.4th at p. 1548 [conspiring to give false deposition
testimony was protected activity under § 425.16, subd. (e)(2)]; see generally Flatley v.
Mauro, supra, 39 Cal.4th at p. 322 [“[t]he litigation privilege has been applied in

5
       The corporate defendants, but not the individual moving defendants, also suggest
the claimed misrepresentations and concealment are at issue in Zaghi’s CFRA cause of
action. Although the first 148 paragraphs of the first amended complaint (the “common
allegations”) and the five operative paragraphs of the fraud cause of action are
incorporated by reference into each of the other 14 causes of action, it is difficult to
understand how any of the misrepresentations alleged relate to this cause of action, even
incidentally; and in their briefs Great American Chicken and U.S. Food do not separately
address this issue.
                                             11
‘numerous cases’ involving ‘fraudulent communication or perjured testimony’”]; Briggs
v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115
[“‘communications preparatory to or in anticipation of the bringing of an action or other
official proceeding are within the protection of the litigation privilege of Civil Code
section 47, subdivision (b) [citation], [and] such statements are equally entitled to the
benefits of section 425.16’”]), the corporate and individual moving defendants contend
the trial court erred in concluding their purported misconduct in coercing Zaghi to
prepare a false declaration was merely incidental to the unprotected conduct at issue in
the challenged causes of action.
       The causes of action at issue here unquestionably refer (through incorporation by
reference of earlier paragraphs in the first amended complaint) to Zaghi’s preparation of
an inaccurate declaration under duress. And there can be little doubt, if given the
opportunity, Zaghi will present evidence at trial that coercion and illusory promises were
used to induce him to sign the false declaration as part of defendants’ overall scheme to
force both him and Aminpour from the companies they had founded. But use of evidence
of protected activity to establish a defendant’s nonprotected misconduct does not bring a
claim within the ambit of section 425.16. (Gallimore v. State Farm Fire & Casualty Ins.
Co. (2002) 102 Cal.App.4th 1388, 1399 [first-prong analysis properly considers
plaintiff’s allegations of defendant’s wrongful acts, not evidence plaintiff will need to
prove such misconduct]; see Baharian-Mehr v. Smith (2010) 189 Cal.App.4th 265, 273
[allegations of hiring attorneys and filing a lawsuit were only a few of many examples of
defendant’s alleged mismanagement and misuse of corporate funds; this mention of
protected activity was “‘only incidental’ to a business dispute based on nonprotected
activity”]; see also Wang v. Wal-Mart Real Estate Business Trust (2007) 153 Cal.App.4th
790, 809.) The gravamen of this business dispute—“‘“the allegedly wrongful and injury-
producing conduct that provides the foundation for the claims”’” (Olive Properties, L.P.
v. Coolwaters Enterprises, Inc., supra, 241 Cal.App.4th at p. 1175)—is that, through
misrepresentations and concealment, defendants first induced Zaghi unknowingly to

                                             12
over-commit his personal financial resources to the project, then fraudulently
manipulated corporate documents so they had full control of the companies’ accounts and
operations and, finally, manufactured false grounds to terminate both men and to trigger
repurchase agreements that provided only a nominal price for their valuable stock.
       To be sure, Zaghi’s ninth cause of action for breach of employment agreement not
only incorporates by reference the earlier allegations regarding preparation of the
declaration for the Aminpour lawsuit but also expressly alleges that he was told his
employment would continue indefinitely if he cooperated with Great American Chicken
and U.S. Food in their defense of that litigation. Breaking that promise is identified as
one of eight alleged breaches of his employment agreement. The wrongful conduct at
issue in this aspect of Zaghi’s claim, however, is not the defendants’ arguably protected
efforts to obtain Zaghi’s cooperation in pending litigation, but the failure to honor the
nontermination agreement that purportedly had been made. The consideration for this
agreement may have involved protected activity; the breach—the injury producing
conduct—did not. (See Ben-Shahar v. Pickart (2014) 231 Cal.App.4th 1043, 1053
[breach of contract suit based on defendant’s alleged failure to comply with settlement
agreement not based on protected activity; “[p]laintiff’s complaint is not directed to the
act of defendants’ filing the unlawful detainer proceeding or the parties’ act of settling the
matter. Rather, it is directed the [defendants’] acts constituting a purported breach of the
settlement agreements”]; Applied Business Software, Inc. v. Pacific Mortgage Exchange,
Inc. (2008) 164 Cal.App.4th 1108, 1117 [breach of contract suit based on defendant’s
alleged failure to comply with settlement agreement not based on protected activity]; see
also Personal Court Reporters, Inc. v. Rand (2012) 205 Cal.App.4th 182, 190 [cause of
action for breach of contract based on nonpayment of overdue invoices for court reporter
fees did not arise from protected activity even though court reporting services were
provided in litigation matters for defendant attorneys’ clients].)
       In short, preparation and use of the declaration in litigation may be constitutionally
protected speech or petitioning activity, but Zaghi’s fraud and contract causes of action

                                             13
do not arise from that protected conduct. (See Old Republic Construction Program
Group v. The Boccardo Law Firm, Inc., supra, 230 Cal.App.4th at pp. 868-869; Hunter v.
CBS Broadcasting Inc., supra, 221 Cal.App.4th at p. 1520.) Thus, the trial court properly
denied the special motions to strike to the extent they were directed to the fraud-related
and contract causes of action.
              b. The defamation cause of action
       Certain prelitigation communications are both protected by the litigation privilege
                                      6
of Civil Code section 47, section (b), and covered by section 425.16, subdivision (e)(2):
“[A]lthough litigation may not have commenced, if a statement ‘concern[s] the subject of
the dispute’ and is made ‘in anticipation of litigation “contemplated in good faith and
under serious consideration”’ [citation] then the statement may be petitioning activity
protected by section 425.16.” (Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1268;
accord, A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc. (2006)
137 Cal.App.4th 1118, 1128 [a cause of action arising from a defendant’s prelitigation
communications is covered by § 425.16, subd. (e)(2), if litigation is “‘contemplated in
good faith and under serious consideration’”]; see Flatley v. Mauro, supra, 39 Cal.4th at
pp. 319, 322, fn. 11 [communications in connection with anticipated litigation are
considered to be under consideration or review by a judicial body within the meaning of
§ 425.16].)

6       “The usual formulation of the litigation privilege is that it ‘applies to any
communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other
participants authorized by law; (3) to achieve the objects of the litigation; and (4) that
have some connection or logical relation to the action.’ [Citation.] The principal purpose
of the litigation privilege ‘is to afford litigants and witnesses [citation] the utmost
freedom of access to the courts without fear of being harassed subsequently by derivative
tort actions.’ [Citation.] The litigation privilege ‘promotes the effectiveness of judicial
proceedings by encouraging “open channels of communication and the presentation of
evidence” in judicial proceedings.’” (GetFugu, Inc. v. Patton Boggs, LLP (2013)
220 Cal.App.4th 141, 152-153.) Case law has expanded the scope of the litigation
privilege to include publication to nonparties with a substantial interest in the
proceedings. (Ibid.)
                                             14
       Citing the companies’ pending litigation with Aminpour and asserting they were
also investigating Zaghi’s possible misconduct that “resulted in this very litigation,” the
individual moving defendants contend any alleged defamatory statements fell within
section 425.16, subdivision (e)(2), as protected prelitigation communications and, as a
result, the trial court erred in rejecting their special motion to strike directed to Zaghi’s
defamation cause of action without considering whether he had established a probability
of prevailing on the claim. (Although the corporate defendants also advance this
argument on appeal, as discussed, in their moving papers they relied solely on the
allegations they had conspired with litigation counsel to coerce Zaghi into signing a
perjured declaration to establish the applicability of section 425.16 as to all challenged
causes of action, including the cause of action for defamation.)
       This argument is fatally flawed. Zaghi alleged he had been defamed by
statements, intended to hide defendants’ own wrongdoing, that he had been dishonest in
his business dealing with Yum Brands, including that he had concealed information
related to acquisition financing for the KFC and Long John Silver’s restaurants and the
                                                                 7
actual ownership of Great American Chicken and U.S. Food. Yet the only evidence
proffered to satisfy the required threshold showing that the defamatory statements were
protected prelitigation communications was Aslan’s declaration that communications by
the individual defendants during the first three months of 2013 with representatives of
Yum Brands “were done for several reasons including but not limited to obtaining
information to further our then pending litigation against Aminpour as well as our
ongoing investigation of Zaghi.”

7
        Although Zaghi’s allegations of defamation were made on information and belief
and are somewhat general in terms of content and timing, the trial court overruled the
demurrers of Levy, Aslan and Frazier, as well as Great American Chicken and U.S. Food,
to this cause of action. The demurrers of Liu and Valiente to the defamation cause of
action were sustained with leave to amend because, as to them, Zaghi alleged in the first
amended complaint only that the tortious actions of Levy, Aslan and Frazier had been
committed “with the knowledge, consent, encouragement and support of the remaining
Defendants.”
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       Even if Yum Brands, as the franchisor/owner of the KFC and Long John Silver’s
names, had a substantial interest in litigation involving the principals in Great American
Chicken, Aslan’s declaration fails to explain how statements made about Zaghi were
designed to obtain information about Aminpour or were otherwise logically related to the
subject matter of the pending Aminpour litigation. Similarly, given that Zaghi is the
plaintiff in the case at bar and is suing defendants for their allegedly fraudulent activities,
which culminated in his wrongful termination, it is difficult to understand how it can be
asserted in good faith that Levy, Aslan or Frazier were contemplating “this very
litigation” at the time they made their defamatory statements about Zaghi to personnel at
Yum Brands.
       Moreover, Aslan’s declaration clearly states the communications with Yum
Brands during the relevant time period were done for “several reasons” and were “not
limited” to information-gathering for pending or anticipated litigation. That carefully
phrased testimony, with its cavernous hole for statements made for other, nonlitigation
purposes, precludes a finding that the gravamen of Zaghi’s defamation cause of action is
based on nonincidental protected activity. The trial court properly denied the special
motions to strike the defamation cause of action, as well.
                                       DISPOSITION
       The order denying the special motions to strike is affirmed. Zaghi is to recover his
costs on appeal.

                                                                  PERLUSS, P. J.

       We concur:

                             ZELON, J.                            BLUMENFELD, J.*

*     Judge of the Los Angeles County Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
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