Indy Litigation Update

In a hearing yesterday, Santa Barbara Superior Court Judge Denise de Bellefeuille denied attorney Joseph Cole’s anti-SLAPP motion to strike Santa Barbara Independent publisher Randy Campbell’s first amended cross-complaint against Cole, which alleges Cole was “financing, advising, encouraging or otherwise being involved” in litigation involving the weekly newspaper. As the judge notes, the litigation arises out of Campbell’s alleged attempt to sell his shares in the company, and Independent editor-in-chief Marianne Partridge’s offer to purchase those shares.

Rather than reporting on the hearing in the traditional manner, we present to you the judge’s ruling for you to analyze yourself. As well, comments on the matter will be disabled. As a relatively small and tight-knit company, we feel unable to objectively monitor and police comments related to this situation, and have determined that this is the most neutral policy. We will continue this policy for future hearings as well.

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Nature of Proceedings: Motion: Special ANTI-SLAPP Motion to Strike; Case Management Conference

The court denies cross-defendant Joseph Cole’s Special Anti-SLAPP motion to strike cross-complainant Randy Campbell’s first amended cross-complaint. The court sustains cross-complainant Randy Campbell’s objections ## 4-14 and 16-21 to the declaration of cross-defendant Joseph Cole and overrules objections ## 1-3 and 15. The court sustains cross-defendant Joseph Cole’s objections ##3 (as to the last sentence of ¶ 3 only) and 8-13 to cross-complainant Randy Cole’s declaration and overrules the balance of objection #3 and all of objections ## 4, 5 and 7.

On February 11, 2010, plaintiff Marianne Partridge filed her complaint against defendant Randy Campbell for breach of contract — specific performance, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty. Campbell filed a first amended cross-complaint for breach of contract, breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing against Partridge and breach of fiduciary duty and injunctive relief against Joseph L. Cole. He seeks to enjoin Cole from “financing, advising, encouraging or otherwise being involved in the litigation between Partridge and Campbell” and from in any way facilitating the transfer of Campbell’s shares.

The dispute between Partridge and Campbell arises out of his alleged offer to sell his 1,530 shares in The Santa Barbara Independent, Inc. on terms as outlined in an offer from Southland Publishing and Partridge’s alleged offer to purchase those shares for $1,377,000 pursuant to a Stock Purchase Buy-Sell Agreement. Campbell alleges that Cole loaned Partridge $1,200,000 to purchase Campbell’s shares without repayment terms, has advised Partridge and drafted documents in her attempted purchase of Campbell’s shares, is paying for Partridge’s attorney fees, and financed the $250,000 undertaking in this case. Campbell says that, in 1997, a dispute arose between him and Partridge, Richard Grand-Jean and Richard Parker over whether to continue publishing the Ventura Independent. Campbell retained Cole as his attorney. He alleges that he provided Cole with his thoughts, strategies, theories on litigation and opinions of the other shareholders. He alleges that Cole also provided legal assistance to the Santa Barbara Independent on various matters. He alleges that, starting in November 2009, Cole began taking actions in conflict with his former client by financing Partridge’s buyout of Campbell’s shares in exchange for Cole obtaining the shares. Campbell alleges that this scheme was kept secret from him.

Cole moves to strike the first amended cross-complaint as a SLAPP. Cole argues as follows:

The Anti-SLAPP statute applies because, by funding and encouraging Partridge’s litigation, Cole was exercising his constitutional right to petition. Cole’s pre-litigation activities in funding Partridge’s purchase of Campbell’s shares is encompassed within the ambit of CCP § 425.16 as “any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest,” i.e., the purchase of The Independent and Cole’s interest in insuring local control and editorial independence of The Independent. Cole also is a potential publisher of the paper and his own free speech rights are involved in who ultimately owns the paper. This is private conduct that impacts a broad segment of society or affects a community in a manner similar to a governmental agency. When a cause of action is directed to activities subject to the Anti-SLAPP statute, the entire cause of action is subject to the statute unless the protected activities are incidental to the cause of action.

There is no probability that Campbell will prevail on the claim against Cole. The breach of fiduciary duty claim fails because there is no attorney-client relationship between Campbell and Cole. Cole has not represented Campbell in over 12 years. The duty to a former client is to preserve confidences and it applies when the attorney accepts employment that is adverse to his former client. First, Cole is not Partridge’s lawyer. He is acting on his own behalf as an interested party. Even if he were counsel for Partridge, the matter is not substantially related to Cole’s previous employment by Campbell. Cole is not in possession of any confidential information that could be used against him in this matter and no such information has been communicated to Partridge. Knowing only Campbell’s general litigation or settlement strategy is not enough. This is not a disqualification matter but a breach of fiduciary duty cause of action and Campbell must show causation and damages. But Campbell cannot establish that Cole has used confidential information adversely to him.

Campbell executed a waiver of any conflict of interest when Cole began representing the Santa Barbara Independent in 1998. The prohibition against entering into a business transaction with or adverse to a client in Cal. R. Prof. Conduct 3-300 does not apply because Cole has not obtained any interest in the Independent and Campbell is not an existing client.

Campbell argues as follows:

Cole’s activities are not protected. An attorney’s breach of fiduciary duty to his client is not protected by the right of free speech. The gravamen of the suit is based on the actions prior to Partridge’s lawsuit and involve the attempted purchase of Campbell’s shares. Funding of the litigation is incidental to the cause of action. The lawsuit is not targeted at activities concerning the continued local ownership of a local media voice but rather Cole’s breach of fiduciary duty by secretly advising Partridge on how to gain control of Campbell’s shares.

Cole has breached his fiduciary duty to Campbell by assuming a position adverse or antagonistic to his client. The ethical prohibition against acceptance of adverse employment includes potential as well as actual use of confidential information. The two representations are substantially related. The Ventura Independent shareholder agreement and right of first refusal closely resemble the provisions of the Santa Barbara Independent buy-sell agreement. Cole did counsel and advise Partridge by giving her legal advice and drafting documents, even though he did not charge for his services. Campbell claims he has not waived the attorney-client privilege.

Cole responds:

Campbell fails to address the pertinent authorities or fails to make any relevant distinctions. Campbell is not Cole’s client and Campbell repeatedly conflates the duty of loyalty to a current client with the duty of maintaining confidences applicable to a former client. Campbell has not shown that Cole has used any confidential information to Campbell’s disadvantage. Campbell claims that Cole’s funding of the litigation is incidental to his claims when the Fifth Cause of Action seeks to enjoin Cole from funding or participating in the litigation. The focus of the Anti-SLAPP definitions is not the form of plaintiff’s cause of action but the defendant’s activity that gives rise to his asserted liability and whether that activity constitutes protected speech or petitioning.

Campbell’s opposition is not based on admissible or competent evidence. Cole maintains that the substantial relationship test regarding two representations applies to disqualification, not breach of fiduciary duty. In any event, the prior representation and the current litigation are not related because the Ventura Independent matter involved preemptive rights upon issuance of new shares by the corporation as opposed to rights of first refusal upon a shareholder’s sale of existing stock. The former rights are in the articles of incorporation and the latter are in a buy-sell agreement. Cole was not Partridge’s attorney. His drafting of documents does not mean he represented Partridge since his own financial interests were at stake.

Campbell objects to most of the Joseph Cole declaration.

Objections ##1-3: Campbell’s first three objections are to background information about Cole and his beliefs regarding the newspaper business on relevancy grounds. This is background information and the court will overrule the objections. There is no hearsay in ¶4. Overruled.

Objection #4: Cole makes comments about Partridge’s background and what she told Cole about shares transaction. These statements lack foundation and are hearsay. Sustained.

Objections ##5-9: ¶¶ 6-10 of the declaration contain a discussion of Partridge’s and Campbell’s motivations, conclusions about the buy-sell agreement, opinions about local control of the newspaper, a description of the Independent’s circulation and editorial policy, opinion about the entity trying to purchase the newspaper and Partridge’s role at the newspaper. These statements lack foundation, are hearsay and include an improper legal conclusion. Sustained.

Objection #10: In ¶11, Cole gives information about an unspecified newspaper chain that filed bankruptcy and the potential buyer shuttering one newspaper. The statements lack foundation. Sustained.

Objection #11: ¶ 12 contains hearsay from Partridge and double hearsay from Campbell. Sustained.

Objection ##12-13: ¶ 14 contains a statement that Campbell willingly offered shares to Partridge, Partridge’s request of Cole to consider a role at the paper and the reasons for her offer. These statements lack foundation and are hearsay. Sustained.

Objection #14: Campbell objects to the sentence in ¶ 16: “Campbell breached his agreement to sell his shares and failed to show up at the closing.” This is an improper legal conclusion as to any breach of an agreement and there is no foundation for the failure to show up. Sustained.

Objection #15: In ¶ 17, Cole says he never represented Partridge as her attorney. This is a mixed statement of law and fact. The court will overrule the objection, though Cole’s characterization of his relationship with Partridge is not binding on the court. Overruled.

Objections ##16-17: In ¶ 23, Cole says that Campbell agreed to a waiver regarding Cole’s prior representation of Campbell. This is a legal conclusion and the court will sustain the objection. The balance of ¶ 23 is a characterization of an acknowledgement Campbell was making in the purported waiver. There is no foundation for this statement and/or it is a legal conclusion as to the effect of the waiver. Sustained.

Objections 18-19: In ¶¶ 29 & 30, Cole opines that his loan commitment to Partridge was not adverse to Campbell, again opines that Campbell reneged on an agreement, characterizes his actions as in furtherance of his constitutional rights to petition and free speech, and characterizes Campbell’s intent in filing the cross-complaint. These statements are legal conclusions, speculation and they lack foundation. Sustained.

Objection#20: Cole gives his account on the state of the economy and Partridge’s lack of options for obtaining a loan. These statements lack foundation and are speculation. Sustained.

Objection #21: In the first sentence of ¶ 32, Cole speculates about Campbell’s motivations. This statement lacks foundation and is speculation. Sustained.

Objections to Campbell Declaration:

Objection #1: Cole claims that statements in ¶ 1 about Santa Barbara Independent, Inc.’s ownership of the Ventura Independent lack foundation. Cole confuses alleged falsity with lack of foundation. Overruled.

Objection #3 (there is no #2, Cole’s objections are not consecutively numbered, rather, the numbers correspond to the paragraphs of the Campbell declaration to which he is objecting): In ¶ 3, Campbell says he provided confidential information to Cole regarding this thoughts, strategies, theories on litigation and opinions of the other shareholders and he describes the advice Cole gave him regarding a substantially similar buy-sell agreement. This is relevant and it does not lack foundation. It is not necessarily a legal conclusion because it reflects what information Campbell thinks is confidential. The opinion is not binding on the court. Campbell does not demonstrate foundation for his identification of correspondence between Cole and Thomas Foley. Sustained as to the last sentence of ¶ 3; overruled as to the balance of the objection.

Objections ##4-5: Cole simply disagrees with the statements. Overruled.

Objection #7: Campbell describes a proposal Southland made to him and his subsequent notice to the other shareholders. There is foundation for the first sentence regarding the proposal made to him and the objection, on hearsay grounds, to what Campbell says Campbell said to shareholders is nonsensical. Overruled.

Objections #8-9: Campbell describes Cole’s transaction with Partridge, shareholder statements of which Cole was aware, Cole’s participation in a plan to “unfairly surprise” Campbell, a conference call and its purpose. There is no foundation for these statements and some are hearsay. Sustained.

Objection #10: In ¶ 10 and its nine subparagraphs, Campbell describes the content of e-mails produced in litigation. He has not established a foundation for introduction of these documents. Sustained.

Objections ## 11-12: Campbell states that Cole drafted notices, his purpose in drafting them, Cole drafted a new buy-sell agreement, terms reflecting that Cole anticipated purchasing Campbell’s shares from Partridge and the sharing of this information with other shareholders. There is no foundation for these statements and they are hearsay. Sustained.

Objection #13: Campbell argues that Cole has orchestrated, directed and facilitated the attempted takeover of his shares, he only learned of Cole’s involvement when Partridge turned over documents and Campbell was shocked. This statement lacks foundation, contains speculation, is irrelevant and is argumentative. Sustained.

CCP § 425.16(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.”

CCP § 425.16(e), defines acts in furtherance of free speech or petition rights in connection with a public issue as including: “(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; (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; [or] (4) . . . any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.”

The consideration of an anti-SLAPP motion is 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.” Equilon Enterprises v. Consumer Cause, Inc., 29 Cal.4th 53, 67 (2002). “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.” Id.

Cole argues that the lawsuit targets his protected activity in funding and encouraging litigation, preserving an independent newspaper voice in Santa Barbara and his own first amendment rights as a potential publisher of the newspaper. Both parties discuss cases discussing whether the anti-SLAPP statute applies to actions against a party’s former attorney. But the court concludes that the FACC does not arise from protected activity regardless of Cole’s status as Campbell’s former attorney.

This case is about the control over a privately-held for-profit corporation. The fact that the corporation publishes a newspaper in which people exercise rights of free speech does not make a shareholder fight within that corporation a constitutionally protected activity. Necessarily, Cole’s involvement in one side of the shareholder fight is not protected activity. Cole focuses on allegations regarding his funding and encouragement of Partridge’s lawsuit. The act of inducing litigation can be protected by the constitutional right to petition. Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1136 (1990). Hence, the court of appeal issued a writ of mandate instructing the trial court to grant an anti-SLAPP motion to strike in Ludwig v. Superior Court, 37 Cal.App.4th 8 (1995). In that case, the plaintiff had planned to build a mall competing with the defendant’s mall. Plaintiff brought an action alleging unfair competition based on the defendant’s alleged interference by having third parties pursue litigation in opposition of plaintiff’s mall and appear at public meetings to request environmental hearings on plaintiff’s proposed mall. The court held that the plaintiff was trying to hold the defendant liable for his exercise of a protected right. Id. at 18.

But the suit in Ludwig was based solely on the petitioning activities. This case is based on Cole’s actions in assisting Partridge in her efforts to purchase Campbell’s shares in the corporation. Cole must demonstrate that the FACC alleges acts in furtherance of Cole’s right of petition. Kajima Engineering & Construction, Inc. v. City of Los Angeles, 95 Cal.App.4th 921, 929 (2002). The action here does allege that Cole has financed and encouraged Partridge’s litigation. “[W]here a cause of action alleges both protected and unprotected activity, the cause of action will be subject to section 425.16 unless the protected conduct is ‘merely incidental’ to the unprotected conduct.” Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP, 133 Cal.App.4th 658, 672 (2005). “Thus, it is the principal thrust or gravamen of the plaintiff’s cause of action that determines whether the anti-SLAP statute applies.” Scott v. Metabolife Internat., Inc., 115 Cal.App.4th 404, 414 (2004). Campbell has not engaged in “the artifice of including extraneous allegations concerning nonprotected activity.” Id. Rather, the allegations regarding the attempted purchase of his stock constitute the gravamen of the cross-complaint.

Cole relies on Haight Ashbury Free Clinics, Inc. v. Happening House Ventures, 184 Cal.App.4th 1539 (2010), in which the court stated that “the gravamen test “is not to be applied to mixed causes of action.” Id. at 1551 n7. But that is contrary to the authority in the Second District Court of Appeal, Div. Six: The principal thrust or gravamen of a cause of action determines whether the anti-SLAPP statute applies. [Citation] “The anti-SLAPP statute’s definitional focus is not the form of the plaintiff’s cause of action but, rather, the defendant’s activity that gives rise to his or her asserted liability—and whether that activity constitutes protected speech or petitioning.” [Citation] The anti-SLAPP statute does not apply where protected activity is only collateral or incidental to the purpose of the transaction or occurrence underlying the complaint. California Back Specialists Medical Group v. Rand, 160 Cal.App.4th 1032, 1036-1037 (2008).

The suit to enforce Partridge’s attempted stock purchase obviously would not exist without the attempted stock purchase. Nor would there be a cross-complaint absent the attempted stock purchase. This case is not about protected activity. It is a shareholder dispute within a closely held corporation. Allegations regarding the funding of the litigation are incidental to the attempted stock purchase transaction. The court concludes that the FACC does not arise out of protected activity. Therefore, the court does not need to proceed to the question of whether Campbell has demonstrated a probability of success on his claims. Nothing in this decision should be interpreted as evincing the court’s assessment of the merits of the FACC.