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August 30, 2011

Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th 1153

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 The Second District holds that illegal conduct not protected by the anti-SLAPP statute is limited to criminal conduct. Although attorney conduct may be protected activity under the anti-SLAPP statute, where attorney conduct reveals client secrets a client can nonetheless establish a probability of prevailing for claims of breach of fiduciary duty and confidentiality, because such activity is not protected by the litigation privilege.

Alan Faigin served as general counsel for Fremont General and provided legal services to the company’s subsidiaries: Fremont Reorganizing Corporation (FRC) and Fremont Indemnity.  The day after Fremont General notified Faigin it was terminating his employment, Faigin informed the California Insurance Commissioner that FRC was in the process of auctioning certain artworks that Faigin claimed were owned by Fremont Indemnity.  The Insurance Commissioner, serving as the liquidator of Fremont Indemnity in an involuntary liquidation proceeding, commenced an adversary action against Fremont General and FRC.

 FRC alleged claims for breach of confidence; breach of fiduciary duty; violation of rule 3-310(C); and equitable indemnity arising out of his statements to the Commissioner.  The trial court granted Faigin’s anti-Strategic Lawsuit Against Public Participation (anti-SLAPP) motion, concluding that each count arose from a protected activity and that FRC had failed to demonstrate a probability of prevailing on its claims in part because the litigation privilege applied.

 The Court of Appeal agreed that each count arose from protected activity.  Faigin’s statements were made to the Commissioner in its role as the court-appointed liquidator of the then-pending liquidation proceeding.  Thus, the statements were made in connection with an issue under consideration by a court in a judicial proceeding.  The statements were not excluded from the protections of the anti-SLAPP statute as “illegal statements” because they did not constitute criminal conduct.  The statements were not rendered unprotected merely because the context was an action by the client against an attorney alleging breach of professional duties.

 However, the Court of Appeal held the client did establish a probability of prevailing against the attorney for claims of breach confidence and breach of fiduciary duty.  Faigin was not protected by the litigation privilege because it does not apply to an action by a former client against an attorney for breach of professional duties.  To hold otherwise would preclude essentially any action by a former client arising from an attorney’s communicative conduct in litigation.  This would undermine the attorney-client relationship and not further the policies the anti-SLAPP statute seeks to protect. Moreover, there is a presumption imposed by law that Faigin acquired information related to the auction of the artwork at issue in the course of his representation of FRC.

 The Court agreed with the trial court’s decision to strike the Rule 3-310(C) and equitable indemnity counts.  It held that because Faigin did not represent FRC at the time he made the statements at issue, there was no simultaneous representation involving FRC, and thus, no violation of Rule 3-310(C).  Also, FRC did not allege that it and Faigin would be liable to another person for the same injury.  Thus, there was no basis for equitable indemnity.

Comment:  This case clarifies that for illegal conduct not to be protected by the anti-SLAPP statute it must rise to the level of criminal conduct.  Furthermore, the litigation privilege does not shield attorneys from claims by their former clients for conduct that constitutes breach of fiduciary duty or confidentiality.

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