Plaintiff prevails in case that made new anti-SLAPP law

It was a fairly typical breach of fiduciary duty case in Los Angeles Superior Court that resulted in a $3.5 million jury verdict recently, but only after it made new case law regarding the anti-SLAPP statute used to knock down frivolous lawsuits seeking to chill speech.

The jury delivered $2.5 million for breach of fiduciary duty and $1 million in punitive damages in late November to Robert Baral, who sued fellow partner David Schnitt over control of business services outsourcing company IQ BlackOffice LLC. The jury rejected Schnitt's claim Baral was merely a passive investor in IQ and held Schnitt accountable for engaging in self-dealing after negotiating favorable terms for himself while denying Baral the same opportunity to negotiate on his own behalf.

But before the matter got to the jury, it made a stop at the state Supreme Court in 2016. The high court's ruling would make it harder for plaintiffs to overcome an anti-SLAPP motion, but that decision did not stop plaintiff Baral from ultimately prevailing back down at the trial court level.

In Baral v. Schnitt, the state high court resolved a long-running dispute among appellate courts about how to treat mixed causes of action that contained protected and unprotected activity.

Previously, some appellate courts said a mixed cause of action could survive an anti-SLAPP challenge, but the state high court nixed the "Mann rule" and allowed for distinct claims within pleaded counts to be struck. This allows defendants to more easily chip away parts of the suit. Baral v. Schnitt, S225090. (Cal. Sup. Ct., Aug. 1, 2016).

At issue in the Baral case was a fraud audit report his attorney, Gerald Sauer of Sauer & Wagner LLP. wanted to come to light, but it was deemed SLAPP-able on remand by the 2nd District Court of Appeal.

Wagstaffe

During trial, Los Angeles County Superior Court Judge Randolph Hammock instructed jurors the report did not form any basis for liability.

"Just because it was slapped and was not the basis for liability, it was still admissible as evidence to show why Baral did certain things," said Sauer. "I didn't believe the fraud report should have been cloaked in the litigation privilege."

In the end, the jury found Schnitt acted with malice, fraud or oppression, due to Baral being divested of ownership interest in the company and barred from having the chance to own stock. Prejudgment interest came to $1.4 million.

Sauer said the state Supreme Court's anti-SLAPP ruling only became "a tool to delay and increase costs."

James Wagstaffe of Kerr & Wagstaffe, who represented Schnitt, did not respond to a request for comment. He told the Daily Journal at the time of the state high court's ruling the plaintiffs used the so-called "Mann rule" to link unrelated claims in order to survive judicial review in anti-SLAPP challenges.

Supporters of the state Supreme Court ruling said it would also lower discovery expenses and avoid protracted litigation.

Sauer said the discovery expenses were small potatoes within the overall Baral case. He said Hammock told him the number of anti-SLAPP motions have increased dramatically as a result of this ruling.

Time will tell how the new law will play out.

"The state Supreme Court needed to look in the trenches in terms of the impact of the ruling," Sauer said. "This should have been part of the traditional motion to strike, and it should have been changed by the Legislature."