Court Opinion

ID: 1086721
Source: CourtListenerOpinion
Date Created: 2013-10-23 21:12:32.981674+00
Date Added: 2024-06-11T12:06:27.538949
License: Public Domain

Filed 10/23/13 McCoy v. Raheel CA2/2

                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                                     SECOND APPELLATE DISTRICT
                                                  DIVISION TWO

PENNY MCCOY et al.,                                                     B240553

                   Plaintiffs and Appellants,                           (Los Angeles County
                                                                        Super. Ct. No. BC461679)
         v.

SYED RAHEEL et al.,

                   Defendants and Respondents.

         APPEAL from orders of the Superior Court of Los Angeles County. Mark V.
Mooney, Judge. Affirmed.

         Rosen & Associates, Robert C. Rosen, John B. Wallace, and David Paul Bleistein
for Plaintiffs and Appellants.

         Foley & Lardner, Tami S. Smason and Sonia Salinas for Defendants and
Respondents.
        Plaintiffs and appellants Penny McCoy (McCoy) and Chandrashekhar Joshi
(Joshi) (collectively “plaintiffs”) appeal from the trial court’s orders granting special
motions to strike, pursuant Code of Civil Procedure section 425.16,1 all of the causes of
action asserted against defendants and respondents Syed Raheel (Raheel) and Lifeforce
Cryobank Sciences, Inc. (Lifeforce) (collectively “defendants”) in this shareholder
derivative action brought by plaintiffs on behalf of Cryobanks International, Inc.
(Cryobanks). Plaintiffs also appeal from orders awarding defendants their respective
attorney fees and costs. We affirm the trial court’s orders.
                                     BACKGROUND
Parties
        Plaintiffs were shareholders of Cryobanks, a private, for-profit corporation that
had approximately 150 shareholders. Raheel was a secured creditor of Cryobanks who
foreclosed on Cryobanks’s assets after Cryobanks defaulted on one or more loans.
Lifeforce acquired all of Cryobanks’s assets following Raheel’s foreclosure action.
Florida action and judgment
        Raheel sued Cryobanks in a Florida foreclosure action (the Florida action) after
Cryobanks defaulted on one or more loans. Plaintiffs were initially named and served as
defendants in the Florida action, and Joshi appeared in that action by filing two motions
to dismiss the action against him.2 A default judgment in the Florida action was issued
against Cryobanks and in favor of Raheel on May 5, 2010. Pursuant to that judgment,
Cryobanks’s assets were sold to Lifeforce for $100 at a public auction held on June 8,
2010.
Entry and enforcement of sister state judgment
        On June 29, 2010, Raheel sought to have the Florida judgment against Cryobanks
entered in California by filing an application for entry of sister state judgment. On July

1     All further statutory references are to the Code of Civil Procedure, unless
otherwise stated. A special motion to strike is also referred as an anti-SLAPP motion.

2       Raheel subsequently dismissed both Joshi and McCoy from the Florida action.

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16, 2010, Raheel’s application was approved, and a judgment based on sister state
judgment was entered in the Los Angeles County Superior Court. Raheel served
Cryobanks with notice of the entry of the sister state judgment.
       In an effort to enforce the sister state judgment, Raheel filed, on August 23, 2010,
a notice of lien in an action pending in federal district court between plaintiffs and several
other defendants (the federal action). The federal action was a shareholder derivative
lawsuit brought by plaintiffs on behalf of Cryobanks. Raheel filed the notice of lien in
the federal action under the theory that any recovery by the plaintiffs in that action would
be on behalf of Cryobanks, the judgment debtor on the sister state judgment, and that
Raheel would be entitled to any recovery owed to Cryobanks. Raheel served plaintiffs
with notice of the lien by mail on August 26, 2010. The federal action ended in a mistrial
on September 16, 2010, and Cryobanks recovered nothing in that action.
       On November 22, 2010, plaintiffs filed a cross-complaint in the sister state
judgment action. Their cross-complaint was stricken pursuant to section 435.
The instant action and Raheel’s anti-SLAPP motion
       Plaintiffs filed the instant shareholder derivative action on May 19, 2011. Their
complaint alleges the following causes of action against Raheel and Lifeforce: (1)
tortious breach of the implied covenant of good faith and fair dealing, (2) negligence, (3)
unjust enrichment, (4) fraud, (5) declaratory relief, (6) usurping Cryobanks’s
opportunities, (7) misappropriation of trade secrets, (8) fraudulent inducement, (9)
suppression and concealment, (10) false promise, (11) fraudulent inducement, (12)
constructive fraud, (13) negligent misrepresentation, (14) gross negligence. Plaintiffs
sought damages, including punitive damages, restitution, disgorgement of profits,
cancellation of any Cryobanks stock issued to defendants, and appointment of a receiver
to maintain and protect Cryobanks’s assets.
       On October 12, 2011, Raheel filed an anti-SLAPP motion in which he argued that
all of the causes of action asserted against him arose out of his prosecution of the Florida
action against Cryobanks for money owed to him. On December 7, 2011, plaintiffs filed
a first amended complaint in which the factual allegations against Raheel remained the

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same. On December 20, 2011, Raheel filed an amended notice for the anti-SLAPP
motion informing the trial court that there was no substantive difference between the
complaint and the first amended complaint. Plaintiffs then filed their opposition to the
anti-SLAPP motion, and Raheel filed his reply to the opposition.
       The trial court granted Raheel’s anti-SLAPP motion as well as a subsequent
motion by Raheel for his attorney fees and costs, awarding him a total of $18,255.95.
Lifeforce’s anti-SLAPP motion
       On February 6, 2012, Lifeforce filed a demurrer to the first amended complaint
and an anti-SLAPP motion, which plaintiffs opposed. The anti-SLAPP motion was heard
and granted on April 9, 2012. The trial court granted Lifeforce’s subsequent motion for
attorney fees and costs and awarded Lifeforce a total of $13,896.12.
The instant appeal
       Plaintiffs appeal from four trial court orders: (1) a January 13, 2012 order
granting Raheel’s anti-SLAPP motion; (2) an April 9, 2012 order granting Lifeforce’s
anti-SLAPP motion; (3) an April 12, 2012 order awarding attorney fees and costs to
Raheel; and (4) a September 5, 2012 order awarding attorney fees and costs to Lifeforce.
                                       DISCUSSION
I. The statutory framework
       A. Section 425.16
       Section 425.16 was enacted in 1992 “to provide for the early dismissal of
unmeritorious claims filed to interfere with the valid exercise of the constitutional rights
of freedom of speech and petition for the redress of grievances. [Citation.]” (Club
Members for an Honest Election v. Sierra Club (2008) 45 Cal.4th 309, 315 (Club
Members).) As relevant here, subdivision (b)(1) of 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.”

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       Determining whether section 425.16 bars a given cause of action requires a two-
step analysis. (Navellier v. Sletten (2002) 29 Cal.4th 82, 88 (Navellier).) First, the court
must decide whether the party moving to strike a cause of action has made a threshold
showing that the cause of action “aris[es] from any act . . . in furtherance of the [moving
party’s] right of petition or free speech.” (§ 425.16, subd. (b)(1); Navellier, supra, at p.
88.) “‘A cause of action “arising from” [a] defendant’s litigation activity may
appropriately be the subject of a section 425.16 motion to strike.’ [Citations.] ‘Any act’
includes communicative conduct such as the filing, funding, and prosecution of a civil
action. [Citation.]” (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056 (Rusheen).) The
scope of the statute is broad. In authorizing the filing of a special motion to strike, the
Legislature “expressly provided that section 425.16 should ‘be construed broadly.’”
(Club Members, supra, 45 Cal.4th at p. 315.)
       If the court finds that a defendant has made the requisite threshold showing, the
burden then shifts to the plaintiff to demonstrate a “probability that the plaintiff will
prevail on the claim.” (§ 425.16, subd. (b)(1); Navellier, supra, 29 Cal.4th at p. 88.) In
order to demonstrate a probability of prevailing, a party opposing a special motion to
strike under section 425.16 “‘“must demonstrate that the complaint is both legally
sufficient and supported by a sufficient prima facie showing of facts to sustain a
favorable judgment if the evidence submitted by the plaintiff is credited.”’ [Citation.]”
(Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 741, fn. omitted.)
       A trial court’s order granting a special motion to strike under section 425.16 is
reviewed de novo. (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 999.)
       B. Section 425.17
       Section 425.17, subdivision (b) exempts certain public interest lawsuits from the
ambit of the anti-SLAPP statute. It provides: “Section 425.16 does not apply to any
action brought solely in the public interest or on behalf of the general public if all of the
following conditions exist: [¶] (1) The plaintiff does not seek any relief greater than or
different from the relief sought for the general public or a class of which the plaintiff is a
member. A claim for attorney’s fees, costs, or penalties does not constitute greater or

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different relief for purposes of this subdivision. [¶] (2) The action, if successful, would
enforce an important right affecting the public interest, and would confer a significant
benefit, whether pecuniary or nonpecuniary, on the general public or a large class of
persons. [¶] (3) Private enforcement is necessary and places a disproportionate financial
burden on the plaintiff in relation to the plaintiff's stake in the matter.” (§ 425.17, subd.
(b).)
        The Legislature enacted section 425.17 in 2003 to curb the “disturbing abuse” of
section 425.16. (Club Members, supra, 45 Cal.4th at p. 316.) “‘According to the sponsor
of Code of Civil Procedure section 425.17, Senator Sheila Kuehl, the same types of
businesses who used the SLAPP action were inappropriately using the anti-SLAPP
motion against their public-interest adversaries. Hence, the Legislature expressly
designed subdivision (b) of section 425.17 to prevent the use of the anti-SLAPP device
against “specified public interest actions,” among others. (Assem. Com. on Judiciary,
Rep. on Sen. Bill No. 515 (2003-2004 Reg. Sess.) as amended June 27, 2003, p. 2.)’
[Citation.]” (People ex rel. Strathmann v. Acacia Research Corp. (2012) 210
Cal.App.4th 487, 499 (Strathmann).)
        Not all public interest or class actions, however, are intended to be exempt from
the anti-SLAPP law. (Blanchard v. DIRECTV, Inc. (2004) 123 Cal.App.4th 903, 913
(Blanchard).) To be exempt, the action must be brought solely in the public interest or
on behalf of the general public. (Club Members, supra, 45 Cal.4th at p. 317, fn. 6.) “The
‘public interest’ referred to in section 415.17(b), does not simply describe topics that
members of the public might find interesting. Instead, the term ‘public interest’ is used to
define suits brought for the public’s good or on behalf of the public. To qualify under
section 425.17(b)’s exemption, suits must be brought solely to secure this public benefit.”
(Club Members, at p. 318.) “The term ‘solely’ as used in section 425.17(b) ‘expressly
conveys the Legislative intent that section 425.17(b) not apply to an action that seeks a
more narrow advantage for a particular plaintiff.’ [Citation.]” (Strathmann, supra, 210
Cal.App.4th at p. 499.) An action is not subject to a motion to strike if it is brought

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solely in the public interest and all of the conditions set forth in section 425.17 are met.
(Club Members, supra, 45 Cal.4th at p. 316.)
        Whether plaintiffs’ action comes within the public interest exception of section
425.17, subdivision (b) is a threshold issue that we address prior to examining the
applicability of section 425.16. (Navarro v. IHOP Properties, Inc. (2005) 134
Cal.App.4th 834, 840.)
II. Plaintiffs’ action is not exempt under section 425.17
        Plaintiffs’ shareholder derivative action does not come within the public interest
exemption accorded by section 425.17. A shareholder derivative action, by definition, is
brought by shareholders for the benefit of the corporation. (Villari v. Mozilo (2012) 208
Cal.App.4th 1470, 1478 [“A derivative action and any recovery in such an action belong
to the corporation”].) Cryobanks, and not the general public, is the only party that would
benefit from any recovery resulting from the successful prosecution of plaintiffs’ action.
Plaintiffs’ shareholder derivative action, brought for the benefit of a private corporate
entity, does not meet the statutory requirement that an action be brought solely in the
public interest or on behalf of the general public. (Club Members, supra, 45 Cal.4th at p.
318.)
        Plaintiffs argue that section 425.17 is similar in language and purpose to section
1021.5, the private attorney general statute that awards attorney fees to a party whose
action has resulted in the enforcement of an important right affecting the public interest.
Plaintiffs maintain that actions in the “public interest” should include private civil actions
that achieve a common benefit on behalf of a group of persons, such as the instant
derivative action, that could achieve a substantial benefit for all of Cryobanks’s
shareholders. Plaintiffs’ argument has been expressly rejected by the California Supreme
Court. In Club Members, supra, 45 Cal.4th at pages 318-319, the Supreme Court
underscored the differences between section 425.17 and section 1021.5 and explained
why the two statutory schemes are not analogous:
               “While section 425.17 is similar to section 1021.5 in certain
        respects, the two statutes are also different in significant ways. First,

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       unlike the private attorney general statute, the text of section 425.17(b)
       requires that an action be brought ‘solely in the public interest,’ and cannot
       seek ‘any’ relief greater than or different from the relief sought for the
       general public. [Citation.] Section 1021.5 does not contain these
       limitations. [¶] The two statutes also involve different functions. Section
       1021.5 is an attorney fees statute. It authorizes a trial court at the end of
       litigation to determine whether attorney fees should be awarded to the
       prevailing party. Section 425.17(b) comes into play at the outset of
       litigation and pertains to a special motion to strike. The viability of the
       underlying action itself is at issue in an anti-SLAPP motion and in the
       public interest exception to the anti-SLAPP statute. Attorney fees are
       separately available to a prevailing party in such instances under the anti-
       SLAPP statute. [Citation.] Because of these functional differences,
       section 425.17(b) cannot simply be intended to parallel the private attorney
       general statute.”

       Courts have also rejected the argument that section 425.17 applies to lawsuits that
achieve a common benefit for a large group of persons. In Blanchard, supra, 123
Cal.App.4th 903, Division Three of this court concluded that section 425.17 did not apply
to a class action lawsuit against DIRECTV, a satellite television provider, for sending
demand letters to thousands of customers who had purchased electronic devices enabling
them to obtain unauthorized access to DIRECTV’s programming. (Id. at p. 909) The
court in Blanchard concluded: “[P]laintiffs want to enjoin DIRECTV from sending this
particular demand letter concerning this specific electronic device to users of this device.
They are not seeking to assert some general right not to receive demand letters or notices.
Nor do they seek a declaration about demand letters in general. Notwithstanding the
number of the recipients of the letters rank in the thousands, there is no public interest
principle being vindicated by this action. [Citation.]” (Id. at pp. 914-915.) Here, as in
Blanchard, plaintiffs’ derivative action does not benefit corporations or corporate
shareholders generally, but only Cryobanks and its former shareholders. The action
accordingly does not come within the statutory exemption accorded by section 425.17,
subdivision (b).

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III. The anti-SLAPP motions were properly granted
         Having determined that plaintiffs’ action does not come within the statutory
exemption accorded by section 425.17, subdivision (b), we now address whether that
action is within the ambit of section 425.16.
         A. Arising from protected activity
         The causes of action asserted against Raheel and Lifeforce arise from Raheel’s
filing and prosecution of the Florida action or the enforcement of the Florida judgment
and were therefore subject to a motion to strike under section 425.16. Filing a lawsuit is
an exercise of a party’s constitutional right of petition. (Briggs v. Eden Council for Hope
& Opportunity (1999) 19 Cal.4th 1106, 1115 (Briggs); Chavez v. Mendoza (2001) 94
Cal.App.4th 1083, 1087 (Chavez).) “‘“[T]he constitutional right to petition . . . includes
the basic act of filing litigation or otherwise seeking administrative action.”’ [Citations.]”
(Briggs, supra, at p. 1115.) Thus, “a cause of action arising from a defendant’s alleged
improper filing of a lawsuit may appropriately be the subject of a section 425.16 motion
to strike. [Citation.]” (Chavez, supra, at p. 1087.) An action to enforce a judgment is
also a protected activity under section 425.16. (Rusheen, supra, 37 Cal.4th at pp. 1063-
1065.)
         Each of the causes of action asserted against Raheel and Lifeforce include the
allegations that Raheel “committed extrinsic fraud in Raheel’s Two Lawsuits in order to
acquire CRYO’s assets,” that “RAHEEL agreed to foreclose on CRYO’s assets” pursuant
to a secret agreement with Zubair Kazi (another defendant in this action but who is not a
party to this appeal), that the Florida action “was filed to foreclose on all of CRYO’s
assets as a result of CRYO’s non-payment of a loan from Raheel,” that Raheel filed an
application “for entry of a sister state judgment based on the Judgment in the Foreclosure
Case,” and that “as a result of Raheel’s Foreclosure Case, a foreclosure sale was held in
Florida” and “CRYO’s assets were acquired for $100.00 by LIFEFORCE.” All of these
alleged misdeeds arise out of the filing and prosecution of the Florida action or
enforcement of the judgment obtained in that action -- conduct that is protected under
section 425.16. (§ 425.16, subd. (b)(1); Rusheen, supra, 37 Cal.App.4th at p. 1065.)

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Defendants accordingly met the threshold requirement of establishing that the causes of
action asserted against them arise from activity protected under section 425.16.
         B. Probability of prevailing
         Because defendants’ actions to obtain and enforce a judgment were protected
activities under the anti-SLAPP statute, we must now determine whether plaintiffs met
their burden of demonstrating a probability of prevailing on their causes of action. To do
so, plaintiffs were required to present evidence showing they could establish a prima
facie case at trial. (Evans v. Unkow (1995) 38 Cal.App.4th 1490, 1496.) They failed to
do so.
         Defendants argued that plaintiffs’ claims are barred under the doctrine of res
judicata. “‘Res judicata’ describes the preclusive effect of a final judgment on the merits.
Res judicata, or claim preclusion, prevents relitigation of the same cause of action in a
second suit between the same parties or parties in privity with them.” (Mycogen Corp. v.
Monsanto Co. (2002) 28 Cal.4th 888, 896.) “Claim preclusion applies when ‘(1) the
decision in the prior proceeding is final and on the merits; (2) the present proceeding is
on the same cause of action as the prior proceeding; and (3) the parties in the present
proceeding or parties in privity with them were parties to the prior proceeding.’
[Citation.] Upon satisfaction of these conditions, claim preclusion bars ‘not only . . .
issues that were actually litigated but also issues that could have been litigated.’
[Citation.]” (Planning & Conservation League v. Castaic Lake Water Agency (2009) 180
Cal.App.4th 210, 226.)
         Plaintiffs’ action is an attempt to relitigate claims that either had been or could
have been litigated in the Florida action. Their complaint alleges that Raheel “claimed”
to be a secured creditor of Cryobanks; that the Florida action was the result of a collusive
secret agreement between Raheel and Zubair Kazi; and that Lifeforce acquired
Cryobanks’s assets at a substantial discount, to the detriment of Cryobanks and its
shareholders. Plaintiffs were named as defendants in the Florida action and were served
with a copy of the amended complaint in that action. Joshi appeared in the Florida
action. Despite having actual knowledge of the Florida action and the relief sought -- the

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foreclosure of Cryobanks’s assets -- plaintiffs did not attempt to litigate the claims they
now seek to assert, nor did they subsequently seek to vacate the Florida judgment based
on their allegations of fraud and collusion. Cryobanks was a party to the Florida action.
Plaintiffs, as shareholders of Cryobanks, are considered to be in privity with Cryobanks
for purposes of applying the doctrine of res judicata. (See Gagnon Co. v. Nevada Desert
Inn, Inc. (1955) 45 Cal.2d 448, 453.) The conditions for applying the doctrine of res
judicata are met in this case.
       Plaintiffs failed to demonstrate why their claims are not barred by res judicata.
Their opposition to Raheel’s anti-SLAPP motion was premised entirely on the argument
that their lawsuit came within the exemption accorded by section 425.17. Their
opposition to Lifeforce’s anti-SLAPP motion relies on the allegations asserted in their
complaint and “compelling inferences” therefrom. In this appeal, plaintiffs argue that
their complaint is “full of allegations relating to the Secret Agreement” between Raheel
and Kazi to acquire Cryobanks’s assets out of foreclosure. The unsupported allegations
in the complaint are insufficient to show that plaintiffs could establish a prima facie case
at trial. “It would defeat the obvious purposes of the anti-SLAPP statute if mere
allegations in an unverified complaint would be sufficient to avoid an order to strike the
complaint. Substantiation requires something more than that. Once the court determines
the first prong of the statute has been met, a plaintiff must provide the court with
sufficient evidence to permit the court to determine whether ‘there is a probability that
the plaintiff will prevail on the claim.’ (§ 425.16, subd. (b)(1).)” (DuPont Merck
Pharmaceutical Co. v. Superior Court (2000) 78 Cal.App.4th 562, 568.) Plaintiffs
accordingly failed to demonstrate a probability of prevailing on their claims.
       C. Plaintiffs’ discovery request was properly denied
       Plaintiffs contend the trial court should have permitted the taking of discovery
before ruling on the anti-SLAPP motions. The filing of an anti-SLAPP motion stays all
discovery proceedings in an action. (§ 425.16, subd. (g).) Notwithstanding the stay, a
court may, upon the filing of a noticed motion and a showing of good cause, order that
specified discovery may be conducted. (Ibid.) Plaintiffs did not file a noticed motion

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requesting discovery, nor did they show that there was good cause for such discovery.
The trial court’s refusal to allow discovery was not an abuse of discretion. (Tuchscher
Development Enterprises, Inc. v. San Diego Unified Port Dist. (2003) 106 Cal.App.4th
1219, 1248.)
IV. Attorney fees motions
         Plaintiffs’ challenge to the orders awarding defendants their attorney fees after
prevailing on their respective anti-SLAPP motions is based solely on the argument that
the anti-SLAPP motions were improperly granted. Defendants are entitled to reasonable
attorney fees and costs incurred in connection with their respective anti-SLAPP motions.
(§ 425.16, subd. (c).) Plaintiffs have failed to establish any abuse of discretion by the
trial court in awarding such fees and costs. (Ketchum v. Moses (2001) 24 Cal.4th 1122,
1130.)
                                        DISPOSTION
         The orders granting the special motions to strike and the orders awarding
defendants their respective costs and attorney fees are affirmed. Defendants are awarded
their costs on appeal.
         NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                                   ___________________________, J.
                                                   CHAVEZ

We concur:

___________________________, P. J.
BOREN

___________________________, J.
ASHMANN-GERST

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