Appellate courts split on indemnity claims and anti-SLAPP

Three appellate courts recently reached different conclusions regarding whether a claim for contractual indemnity "arises from" protected petitioning activity within the meaning of California's anti-SLAPP statute. On Dec. 9, Division 4 of the 2nd District Court of Appeal held that such a claim does arise from protected activity. See Long Beach Unified School District v. Margaret Williams, LLC, 2019 DJDAR 11472. On Dec. 13, the 1st District held that such a claim does not. See Wong v. Wong, 2019 DJDAR 11669. On Dec. 19, Division 7 of the 2nd District also held that such a claim does not arise from protected activity. See C.W. Howe Partners Inc. v. Mooradian, 2019 DJDAR 11913. All of these opinions were certified for publication, and they all address the question of whether the anti-SLAPP statute protects a litigant's decision not to fund an opponent's litigation defense.

All three cases relied on the 4th District's decision in Lennar Homes of California, Inc. v. Stephens, 232 Cal. App. 4th 673 (2014), a case that arose out of an indemnity provision in a homebuyer disclosure statement. After two homebuyers sued a developer in federal court, the developer sued the homebuyers, and the wife of one of the homebuyers, for indemnity under the disclosure statement, seeking to recover attorney fees and costs incurred in defending the federal action. The homebuyers successfully moved to strike the indemnity claim under the anti-SLAPP statute, arguing that the claim "arose from" the filing and funding of the federal litigation. The Court of Appeal affirmed the granting of the motion.

Much of the Lennar Homes opinion focused on the wife who was not a plaintiff in the federal action. In holding that the anti-SLAPP statute also applied to her, the court commented on the nexus between the indemnity claim and the homebuyers' protected activities and concluded that the claim arose from protected conduct because "it is indisputable that [the] claim is 'based on' the federal court litigation." Thus, the Lennar Homes court reasoned, "but for the federal litigation," the indemnity claim "would have no basis."

Finding Lennar Homes "persuasive," Division 4 of the 2nd District adopted the "but for" test to reach a similar result in Williams, a case concerning an indemnity provision in a consulting contract. The consultant sued a school district for retaliation in terminating her contract, and the district cross-complained for indemnity under the contract. In bringing an anti-SLAPP motion, the consultant argued that the indemnity cross-claim "arose from" her pursuit of legal claims. The trial court granted the motion, and the Court of Appeal affirmed. Pointing to the federal litigation underlying the indemnity action in Lennar Homes, the Williams court held: "Here, the District's cross-claims for defense and indemnity likewise would have no basis without the Underlying Action in which it seeks to be defended and indemnified."

Four days later, the 1st District decided Wong, a case relating to an indemnity provision in a marital settlement agreement. Under the agreement, the husband transferred his ownership interest in a real estate company to the wife, who as a result held a majority interest in the company. After the husband and wife passed away, the company (controlled and funded by the wife's estate) sued the husband's estate to recoup loan proceeds that the husband had allegedly misappropriated. The husband's estate then sued the wife's estate for indemnity under the settlement agreement. In response, the wife's estate brought an anti-SLAPP motion citing Lennar Homes and arguing that the indemnity claim "arose from" its instigation and funding of the company's action against the husband's estate.

In Wong, the Court of Appeal expressly declined to follow Lennar Homes and held that the indemnity claim did not "arise from" protected activity, but rather arose from the alleged breach of the marital settlement agreement. The court relied on the elements-based test outlined by the California Supreme Court's post-Lennar Homes decision in Park v. Board of Trustees of California State University, 2 Cal. 5th 1057 (2017). In Wong, the court explained that the elements-based test directs courts to "'consider the elements of the challenged claim and what actions by the defendant supply those elements and consequently form the basis for liability.'" Under the test, the protected activity cannot merely be "a step leading to some different act for which liability is asserted; it must itself be the wrong complained of."

Therefore, the Wong court found that the funding of the litigation against the husband's estate was merely a step leading to the indemnity claim. The wife's estate, the court reasoned, "has not been sued for pursuing the [company's] litigation but for breaching its obligation to indemnify the [husband's estate] for expenses incurred in that litigation."

Six days after Wong, Division 7 of the 2nd District reached a result in Mooradian that is in line with the result in Wong but at odds with the same appellate district's ruling in Williams. Mooradian concerned an indemnity provision in an engineering contract relating to the construction of residential property. Homeowners sued the engineer for fraud and related claims, and the engineer cross-complained for indemnity to recover costs incurred in defending those claims. The homeowners filed an anti-SLAPP motion arguing that the cross-claims "arose from" their filing of the complaint. The trial court denied the motion, and the Court of Appeal affirmed that ruling.

Following Park's elements-based test, Mooradian, like Wong, held that the engineer's indemnity claim did not arise from the homeowners' litigation activity. Instead, "the alleged wrongful act that forms the basis for the express indemnity cause of action is the [homeowners'] failure to indemnify, defend and hold harmless the [engineer] in breach of" the engineering contract. In so holding, Mooradian rejected the "but for" test used by Lennar Homes and Williams as "facile."

These opinions create a conflict in the law. Whereas Lennar Homes and Williams held that a claim for contractual indemnity arose from the indemnitor's litigation activity and not from the indemnitor's alleged breach of contract, Wong and Mooradian held that such a claim arose from the alleged breach of contract and not from litigation activity.

In the first-party indemnity context, the decision not to fund an opponent's defense would seem to satisfy the elements-based test, since such a decision would not only be a breach of contract (an element of the claim for contractual indemnity) but also seemingly an act in furtherance of one's own right of petition. In distinguishing Lennar Homes, Wong seemed to reject the possibility that the decision "not to fund" an opponent's defense is an act in furtherance of one's right of petition. Williams, in contrast, at least implicitly seemed to recognize that such a decision was protected petitioning activity.

Although the different language of the indemnity provisions in each case creates some nuance in the decisions, the split between Williams, on the one hand, and Wong and Mooradian, on the other, seems to reflect a disagreement about the nexus that the anti-SLAPP statute requires between the challenged claim and the protected activity purportedly underlying the claim. While the California Supreme Court has clarified that nexus in recent years, the split created by these opinions may warrant the high court revisiting the issue. In the meantime, practitioners would be well advised to carefully read these three opinions before filing a complaint that includes a claim for contractual indemnity. 

Benjamin W. Clements is an associate at TroyGould PC.