Another SLAPP in the Face to Lawyers

The courts have again ventured into the turbulent waters of anti-SLAPP litigation in the ongoing controversy over whether lawyers can secure early dismissal of legal malpractice actions.

On Dec. 2, 2009, in PediWave Corp. v Simpson Thacher & Bartlett LLP (2009 DJDAR 16858), the 6th Appellate District reversed the granting of special motion to strike under the anti-SLAPP statute, Code of Civil Procedure Section 425.16.

PediWave had sued its former lawyers for failing to advise its board of directors about a conflict of interest in representing both PediWave and its former president, Jianping "Tony" Qu; failing to recommend that the board conduct an independent investigation of the allegations against Qu, and failing to establish an independent audit committee represented by separate and independent counsel.

The lawyers filed an anti-SLAPP motion, arguing that the causes of action were based on protected speech and petitioning activity in the underlying lawsuits, including filing pleadings and other motions, relying on Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658. The trial court granted the motion on the grounds that the claims were based in significant part on protected petitioning activities and that there was no reasonable probability that plaintiff would prevail because the claims were time-barred.

In PediWave, the battle lines were drawn over whether the causes of action "arose from" the protected activity. On Jan. 5, 2009, the California Supreme Court decided the Episcopal Church Cases, 45 Cal. 4th 467, which resolved a conflict among previous decisions by clearly holding that a cause of action is subject to an anti-SLAPP motion only if the alleged protected conduct is the "gravemen or principal thrust" of a plaintiff's claims. Peregrine had held that a cause of action was subject to an anti-SLAPP motion so long as the alleged protected conduct is not "merely incidental."

PediWave emphasizes that the mere fact that an action was filed after protected activity took place does not mean the action arose from that activity for the purposes of the anti-SLAPP statute. Moreover, that a cause of action arguably may have been "triggered" by protected activity does not mean that it is one "arising" from such activity. In the anti-SLAPP context, the critical consideration is whether the cause of action is based on the defendant's protected free speech or petitioning activity. Navellier v. Sletten (2002) 29 Cal.4th 82, 89.

When a pleading contains allegations regarding both protected and unprotected activity, "it is the principal thrust or gravamen of the plaintiff's cause of action that determines whether the anti-SLAPP statute applies." Martinez v. Metabolife Intern., Inc. (2003) 113 Cal.App.4th 181,188. Incidental allegations regarding protected activity do not subject the cause of action to the anti-SLAPP statute.

There have been a series of important decisions exploring whether or not legal malpractice actions come within the anti-SLAPP statute.

In Jespersen v. Zubiate-Beauchamp (2003) 114 Cal.App.4th 624, 627, clients sued their former attorneys for failing to serve timely discovery responses and failing to comply with two court orders. But the appellate court affirmed the denial of the anti-SLAPP motion because the lawyers had not demonstrated that the alleged misconduct constituted constitutionally protected speech or petition and rejected the "attempt to turn garden-variety attorney malpractice into a constitutional right."

In Benasra v. Mitchell Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179, plaintiffs sued their former attorneys for breach of the duty of loyalty in subsequently representing a rival in an arbitration proceeding. The appellate court again reversed the granting of the lawyers' anti-SLAPP motion, finding that the plaintiffs' claims were not based on written or oral statements made in the arbitration but rather on Rule 3-310(C) of the Rules of Professional Conduct prohibiting conflicts of interest.

In Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, the plaintiffs sued the law firm they had hired to handle a property dispute for failing to exercise reasonable care and skill. The appellate court upheld the denial of the law firm's anti-SLAPP motion, because a " malpractice claim focusing on an attorney's incompetent handling of a previous lawsuit does not have the chilling effect on advocacy found in malicious prosecution, libel, and other claims typically covered by the anti-SLAPP statute."

In Freeman v. Schack (2007) 154 Cal.App.4th 719, 722, plaintiffs accused their attorney of abandoning them in order to represent adverse interests in the same and different litigation. The appellate court found that the activity giving rise to the attorney's alleged liability was "his undertaking to represent a party with interests adverse to plaintiffs, in violation of the duty of loyalty he assertedly owed them" and the litigation related allegations were merely "incidental" to the otherwise actionable conduct.

In U.S. Fire Ins. Co. v. Sheppard, Mullin, Richter & Hampton (2009) 171 Cal.App.4th 1617, U.S. Fire claimed that its former law firm had a disqualifying conflict of interest and sought to enjoin the firm from representing another party in a pending action involving U.S. Fire. The appellate court concluded that the complaint did not arise out of protected activity since the "the principal thrust" of the misconduct was the acceptance of representation adverse to U.S. Fire.

In contrast to this string of decisions denying lawyers any anti-SLAPP relief, Peregrine held that certain causes of action against a law firm were subject to the anti-SLAPP statute. The Peregrine case involved investors who had lost millions of dollars in a large Ponzi scheme carried out by PinnFund USA, Inc and others. The plaintiffs sued Sheppard Mullin Richter & Hampton, claiming its negligence and affirmative misconduct helped the perpetrators avoid detection and prosecution by securities regulators.

The appellate court ruled that legal opinion letters, which were not issued in connection to any litigation, were not writings made before a judicial proceeding, or in connection with an issue under review by a court. It also agreed that some of the law firm's challenged conduct did not involve speech or petitioning activities, such as the law firm's failure to disclose potential conflicts of interest or obtain informed consent from all clients to its joint representation. But the court found the law firm's opposition to the Securities and Exchange Commission's efforts to obtain restraining orders and to appoint a receiver in a lawsuit "necessarily involved 'written or oral statement[s]...made before a.... judicial proceeding' under Section 425.16, subd. (e)(1))" and the law firm's alleged litigation tactics, which included non-communicative conduct such as stopping deposition testimony and withholding documents, "constitute[d] 'conduct in furtherance of the exercise of the constitutional right of petition' (Section 425.16, subd. (e)(4))"

The lawyers who were sued in PediWave urged the court to follow Peregrine, maintaining that the complaint alleges they "breached their duties by initiating a lawsuit, filing motions, taking an appeal, stonewalling discovery, and engaging in other protected litigation activity."

But the court rejected these arguments and instead held that "the principal thrust" of PediWave's causes of action was that the lawyers simultaneously represented both PediWave and Qu in matters in which they had an irreconcilable conflict of interest. The court found that the continuation of joint representation, their legal strategy and implementing non-communicative conduct, and their alleged failures to act are not statements or writings within the meaning of Section 425.16, subdivision (e).

Even assuming PediWave was seeking to hold the lawyers liable in damages for litigation activities, the court held that this does not necessarily make PediWave's causes of action subject to the anti-SLAPP statute. Although the lawyers impliedly engaged in speaking and writing in connection with the underlying litigation, they engaged in those activities as their client's legal representative. The court reasoned that clients do not bring such lawsuits to deter the speech and petitioning activities done by their own attorneys on their behalf but rather to complain about the quality of their former attorneys' performance, citing Kolar.

The court acknowledged that although the anti-SLAPP statute has been interpreted broadly to protect qualifying statements made or conduct undertaken by a person on behalf of another person against a cause of action by a third person, the court found that it was "unreasonable to interpret this language to include a client's causes of action against the client's own attorney arising from litigation-related activities undertaken for that client.

Consequently, the court announced that it disagreed with Peregrine to the extent it indicates that the anti-SLAPP statute applies to clients' causes of action against their former attorneys based upon the attorneys' statements made or conduct undertaken in representing the clients.

In this complex area, we're still waiting for the day that a lawyer, sued for mishandling an anti-SLAPP motion, files an anti-SLAPP motion to defend himself.

Stephen Rohde, a frequent contributor to the Daily Journal, is a partner at the firm of Rohde & Victoroff, focusing on civil litigation, appellate practice, intellectual property and constitutional law.