Court Opinion

ID: 2652998
Source: CourtListenerOpinion
Date Created: 2014-02-12 01:02:42.018142+00
Date Added: 2024-06-11T12:33:14.336092
License: Public Domain

Filed 2/11/14 Diabetes Research Restitution v. Katz CA4/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA

DIABETES RESEARCH RESTITUTION,                                      D062586
LLC,

         Plaintiff and Respondent,
                                                                   (Super. Ct. No.
         v.                                                         37-2012-00090260-CU-BT-CTL)

RONALD KATZ et al.,

         Defendants and Appellants.

         APPEAL from an order of the Superior Court of San Diego County, Steven R.

Denton, Judge. Affirmed.

         Wachtel Masyr & Missry, Elliot Silverman for Defendants and Appellants SMR

Trust III, Katz, Wachtel, EuroAmerican Investment Corporation, Knobel, Knobel

Children's Trust and Levine.

         Sandler, Lasry, Laube, Byer & Valdez, Jeffrey M. Byer; Baker Donelson Bearman

Caldwell & Berkowitz and William Edward Routt for Defendants and Apellants First

Tennessee Brokerage, Inc. and McConkey.
       Keker & Van Nest, Susan J. Harriman for Defendant and Appellant Hagenbuch.

       Klinedinst, PC, Robert Joseph Hatem, G. Dale Britton, and Gregory A. Garbacz

for Defendants and Appellants Anderson, Hoffman, Conn and Frankel.

       Edleson & Rezzo, L.B. Chip Edleson and Joan Rezzo; Reynolds APC, Paul

Anthony Reynolds for Plaintiff and Respondent.

                                              I.

                                     INTRODUCTION

       After acquiring the litigation claims of a former biotech company called

MicroIslet, Inc. (MicroIslet), Diabetes Research Restitution, LLC (DRR) brought this

action against several individuals who were formerly associated with MicroIslet. In its

complaint, DRR brought a claim for breach of fiduciary duty against a group of former

MicroIslet directors and officers and a claim for aiding and abetting breach of fiduciary

duty against a number of the company's former creditors and brokers. Both claims were

based on allegations that defendants pursued a scheme to acquire MicroIslet by providing

debt financing to the company on unfavorable terms, intending that the debt financing

would subsequently go into default and be converted to equity interests. DRR claimed

that the alleged scheme "caused MicroIslet's collapse and bankruptcy" and that, as a

result of defendant's conduct, MicroIslet "lost all value and assets."

                                              2
       Appellants filed a special motion to strike1 pursuant to the anti-SLAPP statute

(Code Civ. Proc., § 425.16)2 in which they contended that DRR's claims arose from

MicroIslet's filing of a petition for bankruptcy—an activity that is protected by the anti-

SLAPP statute. DRR opposed the motion on several grounds, including that its claims

did not arise from MicroIslet's filing of a bankruptcy petition, but rather, from defendants'

"layering [of MicroIslet's] balance sheet with toxic insider debt . . . in an ill-fated attempt

to take over the company . . . ." DRR further contended that references in the complaint

to MicroIslet's bankruptcy were merely incidental to, and not the gravamen of, DRR's

claims.

       The trial court denied the motion on the ground that DRR's claims did not arise

from MicroIslet's filing a bankruptcy petition, but rather, from appellants' alleged

implementation of a scheme to provide unfavorable debt to MicroIslet in an attempt to

take over the company.

       On appeal, appellants claim that the trial court erred in denying their special

motion to strike. We conclude that DRR's claims did not arise from the filing of the

1      Appellants are Ronald Katz, Keith B. Hoffman, Robert W. Anderson, Steven
Frankel, William Wacthel, EuroAmerican Investment Corporation (EuroAmerican), SMR
Trust III, Peter Knobel, Knobel Children's Trust, Harold Levine, John Hagenbuch, Brian
Conn, Philip McConkey, and First Tennessee Brokerage, Inc.
       The complaint also named Michael J. Andrews and Barry Ritholtz as defendants,
both of whom were alleged to be former directors of MicroIslet. Andrews and Ritholtz
did not join in the special motion to strike and, consequently, they are also not parties to
this appeal.

2      "SLAPP" stands for Strategic Lawsuit Against Public Participation. (See Equilon
Enterprises v. Consumer Cause, Inc. (2002) 29 Cal. 4th 53, 57.) Unless otherwise
specified, all subsequent statutory references are to the Code of Civil Procedure.
                                               3
bankruptcy petition nor from acts taken in connection with that filing, and that appellants

failed to carry their burden of establishing that DRR's claims arose from activity that is

protected under the anti-SLAPP statute. Accordingly, we affirm the trial court's order.

                                             II.

                   FACTUAL AND PROCEDURAL BACKGROUND

A.     The parties and the complaint

       MicroIslet was a publicly traded corporation whose focus was on developing a

treatment for Type 1 diabetes. In late 2008, MicroIslet filed a bankruptcy petition

seeking reorganization (11 U.S.C. § 1101 et seq.). The company later converted the

petition to one seeking liquidation (11 U.S.C. § 701 et seq.). DRR's predecessors,

Bankruptcy Acquisition Company and Bankruptcy Acquisition Partners, purchased

MicroIslet's litigation claims during an auction of the company's assets conducted in the

bankruptcy proceedings, and assigned the claims to DRR.

       In January 2012, DRR filed a complaint in which it alleged a cause of action for

breach of fiduciary duty against a group of former directors and officers of MicroIslet

(the "director/officer defendants"),3 and a cause of action for aiding and abetting breach

of fiduciary duty against a group of individuals who had either loaned money to

3      The director/officer defendants are Katz, Andrews, Hoffman, Anderson, Frankel,
Ritholtz, and Conn.
                                             4
MicroIslet ("creditor defendants") or had assisted the company in raising funds ("broker

defendants") (collectively the "creditor/broker defendants").4

       In its breach of fiduciary duty cause of action, DRR alleged that after it became

apparent that MicroIslet was on the "verge of becoming immensely valuable," the

creditor defendants5 "developed and pursued a scheme to steal the business by saddling it

with expensive debt that could not or would not be repaid and that they could then

convert to ownership." According to DRR, the director/officer defendants eschewed

available equity funding for the company, and instead "arranged to make loans

themselves or through friends and related parties to provide financing to the [c]ompany

on terms unfavorable and unfair to the business, all designed to cause the debt to go

unpaid so that the [d]efendants would take over most or all of the ownership of the

business from existing shareholders."

       More specifically, DRR alleged that since MicroIslet's founding in 1998 and

through 2006, MicroIslet had been funded with equity contributions and research grants,

rather than with debt. By early 2006, according to DRR, MicroIslet's public equity

market value exceeded $120 million. DRR further alleged that beginning in 2007, the

4      The creditor/broker defendants are Katz, Wachtel, EuroAmerican, SMR Trust III,
Peter Knobel, Knobel Children's Trust, Levine, Hagenbuch, McConkey, and First
Tennessee Brokerage. Katz is a member of both the director/officer defendants and the
creditor/broker defendants.
       Although the complaint named all defendants in the aiding and abetting cause of
action, DRR withdrew its claim as to the director/officer defendants in its opposition to
the special motion to strike.

5     Many allegations of the complaint are unclear as to whether they refer to all
defendants or to particular subgroups of defendants.
                                             5
creditor defendants or their affiliates6 made loans to MicroIslet totaling approximately $7

million. DRR claimed that the loans were made pursuant to notes that contained

"onerous terms," including "a short maturity date after which the note[s] would be in

default and interest would increase to twenty-four percent." DRR also claimed that the

director/officer defendants falsely represented that many of these loans were made by

independent third parties rather than by corporate insiders.

       DRR maintained that the director/officer defendants "concealed their plan and

intentions," "fired or removed employees, officers and directors who questioned the

illegitimacy [sic] of their debt financing," and "actively misled shareholders and potential

investors to prevent further funding of the business in a manner that would undercut the

scheme." DRR also alleged that during the period in which the director/officer

defendants were "turning down offers of favorable financing," they were "pretend[ing] to

use the services of a broker [McConkey] to seek financing in order to further cover up

their scheme to take over ownership of MicroIslet by unnecessarily saddling the business

with toxic debt."

       According to DRR, the loans made by the creditor defendants and their affiliates

were "part of a plan by the [creditor] [d]efendants to dilute [sic] the debt they created into

new equity ownership." DRR alleged that the creditor defendants formalized their

scheme to convert their debt into ownership through a secret written plan called the

" 'Debt Harmonization Agreement,' " pursuant to which the creditor defendants planned

6     DRR alleged that Hagenbuch, Katz, SMR Trust III, Levine, Knobel, Knobel
Children's Trust, and EuroAmerican made loans to MicroIslet.
                                              6
to " 'harmonize' " various debt instruments into new convertible preferred shares, which

would, in turn, be converted to common stock. DRR alleged that this maneuver would

have had the effect of diluting the ownership interests of the existing shareholders and

permitting the creditor defendants to own approximately 92 percent of the company.7

DRR claimed that the creditor defendants signed the Debt Harmonization Agreement on

September 21, 2008. According to DRR, shortly after the Debt Harmonization

Agreement was executed, many defendants "dumped their shares of MicroIslet common

stock into the market."

       The complaint also contained several allegations related to MicroIslet's

bankruptcy.8 For example, DRR stated that in October 2008, MicroIslet's directors voted

to put the company into Chapter 11 (reorganization) bankruptcy and that shortly

thereafter, MicroIslet filed a Chapter 11 petition for bankruptcy.9 DRR also claimed that

the director/officer defendants "took steps to push through bankruptcy as quickly as

possible so they could propose a Plan of Reorganization in which the creditor

[d]efendants would receive approximately 92% of the common stock of the company."

7      In their opposition to appellant's motion to strike, DRR presented evidence that the
creditor defendants and their affiliates owned approximately 14 percent of MicroIslet as
of August 2012.

8     DRR alleged, "The plan adopted by [d]efendants expressly anticipated filing for
bankruptcy reorganization as a potential course of action to achieve their planned
takeover and to protect the [d]efendants from shareholder claims against them."

9       The complaint incorrectly states that, in 2009, MicroIslet's board of directors voted
to put the company into bankruptcy and filed a bankruptcy petition, but it is clear from
the record that these events occurred in 2008.
                                             7
DRR further alleged that the director/officer defendants undervalued the company's

assets in the bankruptcy petition, and falsely certified that EuroAmerican was not an

interested party in the bankruptcy proceedings.

       DRR claimed that MicroIslet's core shareholders formed an Ad Hoc Committee of

Shareholders (Committee) in the bankruptcy proceedings and successfully challenged

MicroIslet's undervaluing of assets. In addition, DRR alleged that the Bankruptcy Court

granted the Committee permission to conduct an investigation into the relationship and

identities of MicroIslet's creditors, through which defendants' wrongdoing was

discovered. DRR further claimed that in February 2009, "after [being] caught by the

Committee in their scheme to steal the business," the director/officer defendants voted to

convert the bankruptcy reorganization to a liquidation. DRR noted that MicroIslet's

assets have since been liquidated.

       Finally, DRR claimed that "while the [d]efendants' scheme failed, it caused

MicroIslet's collapse and bankruptcy" and that "[a]s a direct result of the [d]efendants'

wrongful conduct, MicroIslet lost all value and assets and was deprived of substantial

future value and profits."

       In its aiding and abetting claim, DRR incorporated the allegations of its breach of

fiduciary duty cause of action and further claimed that the creditor/broker defendants

"knowingly conspired to implement the scheme described above so as to steal the

business of MicroIslet just before it realized its immense value."

                                             8
B.     The special motion to strike

       In April 2012, appellants filed a special motion to strike. In their supporting brief,

appellants argued that both of DRR's claims arose from appellants' "constitutionally and

statutorily protected activity of petitioning the U.S. Bankruptcy Court." Appellants

maintained that DRR had alleged in its complaint that the director/officer defendants

breached their fiduciary duties to the company by participating in a scheme to enable the

creditor defendants to " 'steal' " the business by " 'saddling' " MicroIslet with debt on

unfavorable terms that could later be converted to ownership interests in the company.

Appellants noted that, according to DRR, this scheme " 'expressly anticipated filing for

bankruptcy reorganization.' " Appellants argued that the bankruptcy filing was "hardly

'incidental' to [DRR's] [c]omplaint; [rather] it forms the very essence of its claims." In

support of this contention, appellants maintained that allegations relating to the

bankruptcy petition constituted the sole basis for DRR's claimed injuries.10

C.     The opposition

       DRR filed an opposition in which it argued that appellants had failed to

demonstrate that DRR's claims arose from appellants' petitioning activity, for two

independent reasons. First, DRR argued that any petitioning activity referred to in the

complaint was done on behalf of MicroIslet, and not appellants. Second, DRR argued

that its claims did not arise from the only protected activity referenced in the complaint,

10     Appellants also argued that DRR would be unable to establish a probability of
prevailing on its claims, and lodged several declarations in support of this contention.
                                              9
MicroIslet's bankruptcy filing. Instead, DRR maintained, references in the complaint to

the bankruptcy filing were merely incidental to DRRs claims. DRR explained:

          "[T]he principal thrust or gravamen of DRR's claims arise out of the
          layering of MicroIslet's balance sheet with toxic insider debt even
          though more favorable equity financing options were available in an
          ill-fated attempt to take over the company—actions that harmed the
          company and its balance sheet and capital structure as soon as the
          debt was placed in lieu of equity. It is that activity—not ultimately
          directing MicroIslet to file bankruptcy—that was the essence of
          defendants' wrongdoing."11

D.     The reply

       Appellants filed a reply in which they noted that DRR had conceded in its

opposition that MicroIslet's bankruptcy filing constituted activity that is protected by the

anti-SLAPP statute. Appellants reiterated their argument that DRR's two causes of action

"stem solely from the bankruptcy filing," contending that "the loss of MicroIslet's assets

in bankruptcy constitutes the only cognizable damages that DRR has alleged."

Appellants argued that for this reason, the bankruptcy filing was "indispensable," rather

than "incidental," to DRR's claims.12

11    DRR argued, in the alternative, that appellants' special motion to strike should be
denied because DRR had established a probability of prevailing on its claims. DRR
lodged several declarations in support of this contention.

12     Appellants also maintained that DRR was incorrect in arguing that MicroIslet's
bankruptcy filing did not constitute protected activity by appellants because "courts
recognize that anti-SLAPP protection extends to acts undertaken in support of another
person's protected activity." In addition, appellants contended that DRR had failed to
demonstrate a probability of prevailing of its claims.
                                             10
E.     The trial court's ruling

       The trial court issued a tentative ruling denying the special motion to strike on the

ground that appellants had failed to demonstrate that either of DRR's claims arose from

protected activity. After outlining the applicable law, the court reasoned:

           "[DRR's] claims are for breach of fiduciary duty and for aiding and
           abetting breach of fiduciary duty. [DRR] has alleged [d]efendants
           engaged in a scheme to load MicroIslet with unnecessary amounts of
           debt in order to drive the company into bankruptcy so that
           [d]efendants would be able to purchase the company at a discounted
           rate, thereby transforming the debt into a controlling percentage of
           equity. . . . It is the entire scheme to saddle the company with debt
           that is the gravamen, or principal thrust or predominant nature, of
           [DRR's] claims. This action would have resulted regardless of any
           bankruptcy filing."

       After oral argument, the trial court confirmed its tentative ruling and issued a final

order supplementing the confirmed tentative ruling. In its final order, the court quoted

several portions of the complaint, including an allegation that defendants " 'deliberately

set[] up circumstances so that MicroIslet would fail and so that the [c]ompany would be

forced into a reorganization to the detriment of MicroIslet.' " After quoting this portion

of the complaint, the trial court stated:

           "Bankruptcy is not the only form of reorganization a company can
           undergo. Indeed, [DRR] also alleges an alternative reorganization
           plan [d]efendants created, called the 'Debt Harmonization
           Agreement.' [Citation.] While bankruptcy was the ultimate result,
           the gravamen of [DRR's] causes of action is the scheme to load the
           company with unfavorable, short-term debt in order to necessitate a
           reorganization through which [d]efendants would gain a controlling
           interest in MicroIslet. Defendants' mere contemplation of
           bankruptcy as a potential result of their actions does not convert their
           conduct into protected petitioning activity."

                                             11
F.        The appeal

          Appellants timely appealed the trial court's order denying their special motion to

strike.

                                                III.

                                           DISCUSSION

                The trial court properly denied appellants' special motion to strike

          Appellants contend that the trial court erred in denying their special motion to

strike.

A.        Governing law

          1.      The anti-SLAPP statute

          Section 425.16, subdivision (b)(1) 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."

          Section 425.16, subdivision (e) provides in relevant part:

               "As used in this section, '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 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 . . . ."

                                                12
       2.     The two-step process for resolving an anti-SLAPP motion

       "Resolution of an anti-SLAPP motion 'requires the court to engage in a two-step

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

that the challenged cause of action is one arising from protected activity. 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.' [Citation.]" (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal. 4th 728, 733,

italics added.)

       On appeal, this court " 'review[s] an order granting an anti-SLAPP motion de

novo . . . .' " (Jay v. Mahaffey (2013) 218 Cal. App. 4th 1522, 1536.)

       3.     The "arising from" requirement

       In determining whether a cause of action arises from protected activity, a court

must "disregard the labeling of the claim [citation] and instead 'examine the principal

thrust or gravamen of a plaintiff's cause of action to determine whether the anti-SLAPP

statute applies' and whether the trial court correctly ruled on the anti-SLAPP motion.

[Citation.] [A court] assess[es] the principal thrust by identifying '[t]he allegedly

wrongful and injury-producing conduct . . . that provides the foundation for the claim.'

[Citation.] If the core injury-producing conduct upon which the plaintiff's claim is

                                             13
premised does not rest on protected speech or petitioning activity, collateral or incidental

allusions to protected activity will not trigger application of the anti-SLAPP statute.

[Citation.]" (Hylton v. Frank E. Rogozienski, Inc. (2009) 177 Cal. App. 4th 1264, 1272

(Hylton).)

       In City of Colton v. Singletary (2012) 206 Cal. App. 4th 751, the court summarized

the law to be applied in analyzing a claim that contains allegations pertaining to acts that

are protected under the anti-SLAPP statute as well as nonprotected acts:

             "When a [complaint] presents a mixed cause of action that involves
             protected and nonprotected activities . . . the question presented is
             'whether the gravamen of the cause of action targets protected
             activity. [Citation.] If liability is not based on protected activity, the
             cause of action does not target the protected activity and is therefore
             not subject to the SLAPP statute. [Citations.]' Stated differently, the
             question is whether the protected activity is merely an incidental part
             of the cause of action. [Citation.]" (Id. at p. 767.)

       "[A]n alleged act is incidental to a claim, and incidental to any unprotected activity

on which the claim is based, only if the act is not alleged to be the basis for liability."

(Wallace v. McCubbin (2011) 196 Cal. App. 4th 1169, 1183 (Wallace).) However,

allegations concerning acts that "could each be the sole and adequate basis for liability

under the cause of action" are not incidental to the cause of action. (Haight Ashbury Free

Clinics, Inc. v. Happening House Ventures (2010) 184 Cal. App. 4th 1539, 1551 (Haight

Ashbury).) In determining whether allegations pertaining to protected activity are

incidental to a cause of action, courts have often considered whether such allegations

constitute a substantial and/or significant part of the factual allegations underlying a

claim. (See, e.g., A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply,

                                                14
Inc. (2006) 137 Cal. App. 4th 1118, 1125 (A.F. Brown Electrical Contractor, Inc.) [a

"cause of action is vulnerable to a special motion to strike under the anti-SLAPP statute

only if the protected conduct forms a substantial part of the factual basis for the claim"

(italics added)]; Salma v. Capon (2008) 161 Cal. App. 4th 1275, 1288 ["allegations of

protected conduct in the original intentional interference claim were not merely incidental

to the allegations of unprotected conduct. They represent the bulk of the allegations

underlying the cause of action" (italics added)]; Peregrine Funding, Inc. v. Sheppard

Mullin Richter & Hampton LLP (2005) 133 Cal. App. 4th 658, 675 ["Because we conclude

both of plaintiffs' claims are based in significant part on Sheppard's protected petitioning

activity in the SEC litigation, the burden shifts to plaintiffs under section 425.16 to make

a prima facie showing their claims have merit" (italics added)].)

B.     DRR's causes of action do not arise from activity protected under the anti-SLAPP
       law

       It is clear from the allegations of the complaint that the principal thrust or

gravamen of DRR's causes of action is that appellants engaged in a scheme to enable the

creditor defendants to take over MicroIslet by "saddling" it with unfavorable insider debt

even though more favorable equity financing options were available to the company. It is

appellants' alleged acts in connection with MicroIslet's debt financing that form the basis

of DRR's claims for breach of fiduciary and aiding and abetting breach of fiduciary duty.

For example, DRR alleged that the creditor defendants provided loans to MicroIslet with

onerous terms that were approved by the director/officer defendants, the director/officer

defendants eschewed more attractive and available equity financing, and the

                                              15
director/officer defendants engaged in acts designed to conceal their misdeeds. DRR

alleged that this conduct caused MicroIslet to lose all of its value and assets.

       While DRR's complaint referred to acts taken in relation to MicroIslet's

bankruptcy filing—acts that are undisputedly protected by the anti-SLAPP law (§ 425.16,

subd. (e)(1), (2))—the fact that a cause of action refers to protected activity does not, by

itself, subject the cause of action to a special motion to strike. (See Freeman v.

Schack (2007) 154 Cal. App. 4th 719, 729 ["the fact plaintiffs' claims are related to or

associated with Schack's litigation activities is not enough" to subject such claims to the

anti-SLAPP law]; Hylton, supra, 177 Cal.App.4th at p. 1272 [concluding that breach of

fiduciary claim did not arise under anti-SLAPP law because, "[a]lthough petitioning

activity is part of the evidentiary landscape within which [plaintiff's] claims arose, the

gravamen of [plaintiff's] claims is that [defendant] engaged in nonpetitioning activity

inconsistent with his fiduciary obligations owed to [plaintiff]"].) In its complaint, DRR

neither sought to impose liability on appellants for acts related to the bankruptcy

proceeding (see Wallace, supra, 196 Cal.App.4th at p. 1183), nor did it present

allegations related to the bankruptcy filing as the "sole and adequate basis for liability."

(Haight Ashbury, supra, 184 Cal.App.4th at p. 1551.) Further, DRR's allegations

pertaining to MicroIslet's bankruptcy do not form a "substantial part" of the factual basis

of its causes of action. (A.F. Brown Electrical Contractor, Inc., supra, 137 Cal.App.4th

at p. 1125.)

       Instead, as discussed above, DRR's breach of fiduciary and aiding and abetting

causes of action are based on appellants' unprotected acts related to MicroIslet's insider

                                              16
debt financing and the alleged scheme to take over ownership of the company. Under

these circumstances, the bankruptcy allegations are merely incidental to DRR's causes of

action, and do not form the gravamen of its claims. (See Aguilar v. Goldstein (2012) 207
Cal. App. 4th 1152, 1161 [breach of fiduciary cause of action that contained allegation that

defendants engaged in protected activity of filing lawsuit against hospital did not arise

from protected activity because that allegation merely constituted evidence of defendants'

wrongful unprotected activity of terminating negotiations with hospital]; Baharian-Mehr

v. Smith (2010) 189 Cal. App. 4th 265, 273 [concluding cause of action for breach of

fiduciary duty and related claims did not arise from protected activity of hiring attorneys

and filing a lawsuit because ["[plaintiff's] allegations relating to the hiring of attorneys

and filing a lawsuit . . . do not constitute the 'overall thrust' of the complaint, which

relates to mismanagement and misuse of corporate funds"].)

       We are not persuaded by appellants' argument that "[t]he [c]omplaint . . . alleges

that DRR . . . was damaged solely by MicroIslet's bankruptcy." (Second italics added.)

The complaint broadly alleges, "As a direct result of the [d]efendants' wrongful conduct,

MicroIslet lost all value and assets and was deprived of substantial future value and

profits." (Italics added.) Nothing in this allegation limits DRR's claimed damages to

those flowing from MicroIslet's filing of a bankruptcy petition.

       We also reject appellants' contention that DRR's allegation that defendants

engaged in a scheme that involved making onerous loans to MicroIslet could not give rise

to liability because, according to appellants, "the loans were never repaid" and a breach

of fiduciary duty claim may not be brought based on alleged harm to a company's "capital

                                              17
structure and balance sheet." These are arguments that go to the merits of DRR's claims,

and are irrelevant in assessing whether DRR's claims arise from protected activity. (See,

e.g., Coretronic Corp. v. Cozen O'Connor (2011) 192 Cal. App. 4th 1381, 1388

["Arguments about the merits of the claims are irrelevant to the first step of the anti-

SLAPP analysis"].)

       Accordingly, we reject appellants' contention that "the loss of MicroIslet's assets in

bankruptcy constitutes the only cognizable damages that [DRR] has alleged" and that

DRR would be unable to state a cause of action but for the bankruptcy allegations.

(Compare with Navellier v. Sletten (2002) 29 Cal. 4th 82, 90.) [concluding claim arose

from protected activity because "but for the federal lawsuit and [defendant's] alleged

actions taken in connection with that litigation, plaintiffs' present claims would have no

basis"]; Mindys Cosmetics, Inc. v. Dakar (9th Cir. 2010) 611 F.3d 590, 598 [concluding

breach of fiduciary claim against attorney arose from attorney's protected act of filing

trademark application because "[b]ut for the trademark application, [plaintiff] would

have no reason to sue [defendant]" (italics added)].)

       We conclude the trial court properly determined that DRR's claims do not arise

from activity protected under the anti-SLAPP law.13

13     In light of our conclusion, we need not consider DRR's contention that none of
appellants engaged in any protected activity because the "bankruptcy petition was filed
by, and for the benefit of, MicroIslet," rather than appellants. (Italics added.) We also
need not consider DRR's contention that we may affirm the order on the alternative
ground that DRR established a probability of prevailing on its claims and we express no
opinion concerning whether DRR will ultimately prevail on the merits of its claims.
                                             18
                                           IV.

                                       DISPOSITION

       The trial court's order denying the special motion to strike is affirmed. DRR is

entitled to recover costs on appeal.

                                                                               AARON, J.

WE CONCUR:

         HUFFMAN, Acting P. J.

                   O'ROURKE, J.

                                            19