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January 6, 2014

Optional Capital v. DAS Corp. (2014) 222 Cal.App.4th 1388

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The Second District holds events triggered by, but not arising from, litigation are not entitled to anti-SLAPP protection or covered by the litigation privilege. 

Erica Kim, Christopher Kim, and Christopher’s wife Bora Lee (“Kim”) were fiduciaries of Optional Capital, Inc., a Korean Corporation, and principals of Alexandria Investments, Inc.  DAS Corporation (DAS) was a Korean corporation doing business in California. 

Optional Capital filed an action in Los Angeles Superior Court alleging DAS and the Kim parties took control of Optional, used the Kim’s fiduciary position to issue stock to Christopher Kim, converted millions in Optional’s property, and manipulated the market for Optional’s stock. Further, Optional’s funds were used to pay debts to the Kim’s investors, including DAS; were deposited in bank accounts controlled by the Kim parties; and were used to purchase real property and automobiles.  Optional asserted Alexandria had transferred Optional’s converted funds to a Swiss bank account.

DAS had also sued Christopher Kim and Bora Lee in Los Angeles (DAS superior court litigation). DAS had invested in one of Kim’s companies, and alleged it was a sham created for money laundering. 

The United States Government commenced forfeiture proceedings against Kim and Alexandria, seized property, and obtained a freeze on the Swiss bank accounts in Alexandria’s name.  Optional and DAS were both claimants in the forfeiture actions.  Eventually the Kim parties prevailed on a  summary judgment motion in the forfeiture actions, which was affirmed on appeal. 

DAS instituted criminal proceedings in Switzerland against Alexandria and Christopher Kim, and obtained a second freeze on the Credit Suisse funds (DAS Freeze).  Optional did not take any action on its own to freeze the Swiss funds.

Optional filed a lawsuit against the Kim parties and Alexandria in the United States District Court, for fraud and conversion.  (Optional federal court action).  After Optional prevailed, it served notice of judgment on the parties in the forfeiture actions, on the parties in the Optional federal court action, and filed the notice of judgment lien with the California Secretary of State.  The District Court vacated the jury award, but it was reinstated by the Ninth Circuit.

While this was going on, DAS settled its superior court litigation against the Kim parties; Alexandria was not a party to that settlement.  Based on this settlement, the Swiss government lifted the DAS Freeze and the funds in Alexandria’s name were released to DAS.

In Optional’s Los Angeles superior court action, it alleged there was a conspiracy between DAS, Alexandria, and the Kim parties to convert its funds.  The trial court granted DAS’s motion to strike under California’s anti-Strategic Lawsuit Against Public Participation Statute, (anti-SLAPP) C.C.P. 425.16.  The court agreed with DAS that Optional’s complaint arose from constitutionally protected activity — the settlement of the DAS superior court litigation that led to DAS’s receipt of funds from the Swiss bank account.  Optional could not establish it would prevail, because the settlement agreement was protected by the litigation privilege.  The trial court also granted DAS’s demurrer premised on the litigation privilege. 

The Court of Appeal set forth the two-step anti-SLAPP analysis of C.C.P. § 425.16.  First, the court determines whether the defendant has carried its burden to show the challenged cause of action “arises from” a protected activity. If so, the trial court determines whether the plaintiff can establish a probability of prevailing on the claim. 

Protected petitioning activity includes written or oral statements made before a legislative, executive, or judicial proceeding; and written or oral statements made in connection with an issue under consideration or review by a legislative, executive, or judicial body.  If the speech is made or the activity is conducted in an official proceeding authorized by law, it need not be connected to a public issue. 

Courts have not precisely defined the boundaries of a cause of action arising from protected activity. Application of the statute is determined from the principal thrust or gravamen of the plaintiff’s claim.  The mere fact a lawsuit is filed after a defendant engages in protected activity does not establish the complaint arose from protected activity.  A cause of action may be triggered by protected activity, without arising from it.

The Court observed Optional was not suing DAS for settling its dispute with the Kim parties.  Optional sought to recover money the Kims had converted, which was then wrongfully obtained by DAS from the Swiss account. DAS’s settlement of its litigation with Kim was the device DAS used to persuade the Swiss government to release Optional’s funds.  Indeed, Alexandria, the sole possessor of the funds in the Swiss bank account, was not even a party to DAS superior court litigation.  This conduct was not automatically protected merely because it related to litigation; the conduct must arise from the litigation.

The Court held Optional could establish a reasonable probability of prevailing on a conversion claim.  Optional demonstrated the Kim parties—not Alexandria, the ultimate holder of the funds—were fiduciaries of Optional, and took a specific sum of money.  Optional traced the funds to California, and subsequently to the Swiss account.  DAS, in conspiracy with Alexandria and the Kim parties, used the DAS superior court action to convert Optional’s funds.  Alexandria did not receive any consideration for its exchange with DAS, and the transfer was made to DAS to hinder, delay and defraud Optional. 

The Court rejected DAS’s argument it was a separate competing creditor of Optional, which beat Optional to the funds because Optional slept on its rights by failing to proceed in the Swiss courts.  DAS argued there was no fraudulent conveyance, because a creditor can prefer one creditor over another. The Court held DAS was not merely another creditor of the Kim parties.   DAS, the Kim parties, and Alexandria were part of a conspiracy to defraud Optional of its money. DAS did not merely beat Optional to the Swiss account; it participated in a scheme to prevent Optional from obtaining the monies in the forfeiture proceeding.

The court also rejected DAS’s argument the mediation privilege, Evidence Code § 1119, which renders events occurring in a mediation confidential, precluded Optional’s claim. Optional’s claims were not based on statements made in mediation, but on wrongful conduct external to the DAS superior court litigation settlement.

The litigation privilege of Civil Code § 47(b) applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved.  It applies to any communication made in judicial or quasi-judicial proceedings; by litigants or other participants authorized by law; to achieve the objects of the litigation; and that has some connection or logical relation to the action.  Its purpose is to afford access to the courts without fear of derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, and to give finality to judgments.” The privilege is broadly applied to promote effective judicial proceedings by encouraging full communication, and applies to civil actions based upon perjury. The litigation privilege applies to statements made during settlement negotiations.

If the gravamen of an action is communicative, the litigation privilege extends to non-communicative acts that are necessarily related to the communicative conduct.  Unless an independent, non-communicative, wrongful act is the gravamen of the action, the litigation privilege applies.

The Court agreed with Optional the litigation privilege did not bar its conversion and fraudulent conveyance claims, because the torts did not arise from statements, publications, or communicative conduct. The conspiracy to transfer the funds from Alexandria to DAS was a non-communicative act not subject to the litigation privilege.

Comment:  It is easy to assume all litigation related activity will be protected activity subject to the anti-SLAPP analysis, or sheltered by the litigation privilege.  However, while claims may be triggered by litigation events, that does not necessarily mean they arise from either protected petitioning activity, or privileged communicative activity.

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