[Blog note: After this firm, joined by Jeff Lewis Law, filed a request for publication, on September 7, 2022 the court granted publication. The opinion is now published. ]
Put on your anti-SLAPP issue-spotting glasses and see if you spot the issue in this fact pattern: Plaintiff sues his business partner for taking money from the partnership. But the plaintiff also alleges that the partner used the money to pay his lawyers on litigation.
Probably your ears perked up at the mention of “litigation.” And that’s what got the defendant’s attention in Manlin v. Milner (D2d1 Aug. 10, 2022 Nos. B313253, B315077) 2022 WL 3223817 (nonpub. opn.). But he was wrong: merely spending money on litigation does not transform the misappropriation of the money into protected conduct.
The parties in this case were in eight real-estate investment LLCs together. Manlin sued Milner on contract and business-tort claims, alleging various self-serving activities. Milner turned around and cross-complained against Manlin. Adding a third layer of pleadings, Manlin cross-complained, this time against Milner and his attorneys.
It was Manlin’s cross-complaint that drew the anti-SLAPP motion. Manlin alleged Milner had diverted funds from the LLCs to pay his legal expenses in this lawsuit.
Milner filed an anti-SLAPP motion, citing caselaw that funding litigation is protected petitioning activity. (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056.) The trial court granted the motion.
The Court of Appeal reversed the order granting Milner’s anti-SLAPP motion. The court explained:
“Here, the element of Manlin's claim for breach of fiduciary duty is the self-dealing act of diverting funds from the LLCs in which Manlin owns an interest. The allegation that the cross-defendants engaged in this self-dealing completes the claim. Why they did so, for example to fund litigation,—is not an element of the claim, and therefore forms no basis for liability.”
For this proposition that motives are not germane to the anti-SLAPP analysis, the court cited to Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1061 (Park), where a professor sued the university for denying him tenure, and alleging several statements reflecting racial animus. The university filed an anti-SLAPP motion, arguing that the statements were protected conduct. That may be true, the Park court reasoned, but the plaintiff did not allege the statements were actionable, only that they were evidence of wrongdoing.
The same analysis applied here: Manlin was suing Milner and his attorneys for taking the money, not for what they spent it on (i.e., protected litigation activity). As the court put it:
“No element of Manlin's claim depends on the purpose for that diversion, but only on the diversion itself and whether it constituted self-dealing. The diversion may have been to further some protected activity—for example to fund a political campaign or publish a newsletter or fund litigation—but that purpose does not convert Manlin's suit to one arising from the protected activity. The protected use to which cross-defendants put the diverted funds may supply evidence of the selfishness of their self-dealing but does not convert the use itself into the basis for liability.”
The opinion is unpublished, but the court should publish it. Defendants continue to raise Rusheen v. Cohen in anti-SLAPP motions in an effort to escape misappropriation claims so long as some of the misappropriated money was spent on lawyers.
I saw almost the exact same scenario as Manlin in another case of mine a few years ago. The Court of Appeal came to the conclusion that taking money does not become protected just because it was spent on lawyers — just like Manlin. And it issued that holding in an unpublished opinion — just like Manlin. And so anti-SLAPPers are free to try again.
Until we get this holding nice and crystal clear in a published opinion, we are going to continue seeing repeat performances.
Tim Kowal is an appellate specialist certified by the California State Bar Board of Legal Specialization. Tim helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at firstname.lastname@example.org or (714) 641-1232.
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